When a founder, employee, or service provider receives stock or LLC/partnership interests subject to a vesting schedule (meaning the equity can be forfeited if they leave), they face a fundamental tax question: pay tax now on the current (usually low) value, or pay tax later on the vested value (potentially much higher). IRC 83(b) provides the election to pay tax now. Without the election, IRC 83(a) applies by default: the recipient recognizes ordinary income equal to the fair market value of the property (minus any amount paid) at each vesting date, when the substantial risk of forfeiture lapses. For startup equity that is nearly worthless at the time of grant but worth millions by the time it vests, the difference between filing and not filing the 83(b) election can be hundreds of thousands or even millions of dollars in unnecessary taxes.
Capital gain (long-term if held 1+ year after grant)
Ordinary income at vesting, then capital gain on subsequent appreciation
If shares are forfeited
No deduction allowed (lost the tax paid)
No income recognized (nothing vested)
Filing deadline
30 days from grant (NO exceptions)
No filing needed (default rule)
Filing requirements:
Step
Details
1. File with the IRS
Written statement to the IRS Service Center where you file your return, within 30 calendar days of receiving the property
2. Copy to employer/company
Provide a copy to the company that transferred the property
3. Attach to tax return
Attach a copy to your federal income tax return for the year of the transfer
4. State filings
Some states require a separate copy (California, for example)
What the statement must include:
Required Element
Your name, address, and taxpayer identification number (SSN)
Description of the property (number of shares, class of stock, or LLC interest percentage)
Date of transfer
Taxable year of transfer
Nature of the restriction (vesting schedule)
Fair market value at time of transfer (without regard to restrictions)
Amount paid for the property
Statement that you’re making the election under IRC 83(b)
When does the 83(b) election save money?
What entity structure works best for a business with multiple owners?
A multi-member LLC taxed as a partnership is the most flexible default. It files Form 1065 and issues K-1s to each member, with the operating agreement controlling profit allocation, voting rights, and buyout terms. An S-Corp works if all owners are US individuals (no entity or foreign owners), the business has no more than 100 shareholders, and everyone agrees on equal-class stock. A C-Corp is necessary if you want venture capital (preferred stock classes), have foreign owners, or plan to retain significant earnings at the 21% corporate rate. LLCs offer the most flexibility for unequal profit splits, special allocations, and varying capital contributions.
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Cite this page
Yarik Yarosh, CPA. "IRC 83(b) Elections: How to Save Thousands on Restricted Stock and LLC Interests." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-irc-83b-election-restricted-stock-llc-interests