83(b) Election on Your Tax Return: Reporting Founder Stock

How do you report an 83(b) election on your tax return?

The election itself has no line on Form 1040. What you report is the income the election creates: the shares' fair market value on the day you got them, minus what you paid (26 CFR 1.83-2(a)). If you bought your shares at full value, the election shows zero income and no income goes on the return. The IRS's own example works this way: an employee pays full value, makes the election and includes nothing in income (Rev. Proc. 2012-29).

A case is not simple when the shares were worth more than you paid (often because the company already took SAFE money), when you paid with code or IP instead of cash, when you are married and live in a community property state, or when a co-founder lives abroad. After the 30-day filing window, the election can be revoked only with IRS consent for a mistake of fact, and a drop in value does not count (26 CFR 1.83-2(f); Rev. Proc. 2006-31), so the figures on it stay with you.

Gather: your signed Form 15620 or election statement, proof of mailing or online filing, the stock purchase agreement, the price and value per share, and proof you gave the company a copy. Whether to file, the 30-day deadline and late elections are covered in founder shares that vest.

Do I need to attach the 83(b) election to my tax return?

No. For property transferred on or after January 1, 2016, you no longer attach a copy of the 83(b) to your Form 1040. Treasury removed that requirement and told taxpayers to keep the election in their records instead (T.D. 9779). The election is made by filing one copy with the IRS office where you file your return, and giving a copy to the company (26 CFR 1.83-2(c) and (d)); Form 15620 can be mailed or submitted through an IRS online account (IRS: Mobile-friendly forms).

A different statement may still go with that year's return. If you got your shares in a section 351 exchange (founders transferred cash or other property for stock and together hold at least 80% right after) and you own at least 1% of the stock, you include a significant transferor statement with your return for that year (26 CFR 1.351-3(a) and (d)).

How much income does an 83(b) put on my return, and in which year?

The 83(b) puts the shares' value at the time of transfer, minus the amount you paid, into your income for the tax year that includes the transfer date (26 U.S.C. 83(b)). The value ignores the vesting restriction (26 CFR 1.83-2(a)). This is the figure in Box 8 of Form 15620.

That amount is pay for services, taxed as ordinary income, not a capital gain. Nothing more is taxed as pay when the shares vest later; growth after the transfer is taxed only when you sell (Publication 525). If the shares were issued after the company took SAFE money, the value may be well above what you paid; see founder shares issued after a SAFE.

Will the company send me a W-2 or 1099 for my founder shares?

Only if the 83(b) puts income on your return. When you paid full value, the income is zero and there is nothing for the company to report.

When the 83(b) shows income:

• You are an employee. Pay in stock is wages, valued at fair market value (26 CFR 31.3401(a)-1(a)(4)). Non-cash pay is generally subject to income tax withholding, social security and Medicare (Publication 15), so it belongs on your Form W-2. A corporate officer is generally an employee, unless the officer performs no or only minor services and gets no pay (Publication 15-A).
• You are not an employee. The company reports pay for services of $2,000 or more ($600 for payments in earlier years) on Form 1099-NEC (1099-NEC instructions). If it is self-employment income, you report it on Schedule C and Schedule SE; if not, on the "Other income" line of Schedule 1 (Form 1099-NEC recipient instructions).

The company's deduction generally equals the amount you include in income, and reporting it to you on time counts as that inclusion (26 CFR 1.83-6(a)). If no form arrives, the income is still yours to report; ask the company for the form. Dividends paid later on shares covered by the election are treated like any other dividends and reported on Form 1099-DIV, not as wages (Publication 525).

What is my basis in founder shares after an 83(b)?

Your basis is what you paid for the shares plus any amount the 83(b) put in your income (26 CFR 1.83-4(b)). If you paid full value, your basis is simply the price paid. You use that basis to figure gain or loss when you sell. If you forfeit unvested shares, your loss is limited to what you paid minus anything you get back; income you reported under the election is not deductible (26 CFR 1.83-2(a)).

When does my holding period start after an 83(b)?

With an 83(b), the holding period starts just after the date the shares were transferred to you, not when they vest (26 CFR 1.83-4(a)). A sale held for more than one year from that start is long-term. QSBS has its own clock and tests; see QSBS for founders.

I paid for founder shares with code or IP: is that income?

Shares received for property, such as code or IP you own, are generally an exchange, not pay, and section 351 can make the exchange tax-free. Shares received for services are always pay.

• Property for shares. No gain or loss is recognized when one or more people transfer property to a corporation solely for its stock and, right after, together hold at least 80% of the voting power and of each other class of stock (26 U.S.C. 351(a); 26 U.S.C. 368(c)). Founders who pay cash count as property transferors too. If the test fails, the exchange can be taxable.
• Services for shares. Stock issued for services is not treated as issued for property (26 U.S.C. 351(d)(1)). Its value, minus anything you paid, is pay.
• Basis. Shares received in a section 351 exchange generally take your basis in the property you gave (26 U.S.C. 358(a)). For code you wrote yourself, that may be little or nothing.

Vesting shares received for IP may still fall under section 83, and the value of property you hand over counts as an "amount paid" for the shares (26 CFR 1.83-3(g)). Whether the IP was yours or already the company's, what it was worth, and how basis and holding period carry over are judgment calls; have the facts reviewed before you file.

My spouse never signed the 83(b): is the election still valid?

Neither the regulation nor Form 15620 asks for a spouse's signature. The election is signed by the person making it (26 CFR 1.83-2(e)), and Form 15620 has a single taxpayer signature line (Form 15620).

The open question is in community property states. The regulation requires a copy to the transferee when the person who performed the services and the person who received the shares are not the same (26 CFR 1.83-2(d)). Property acquired during marriage while domiciled in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin is generally community property (Publication 555). No regulation, form or IRS publication cited here says whether that makes a spouse a "transferee" who must get a copy; if this applies to you, have it reviewed rather than relying on any one reading.

What should I keep with my tax records, and for how long?

Keep a copy of the 83(b) until the period of limitations ends for every return where the income or the shares' basis matters (T.D. 9779). For shares, that generally means until the period of limitations ends for the year you sell or otherwise dispose of them (IRS records guidance).

Keep:

1. The signed election, Form 15620 or a statement, exactly as mailed.
2. Proof you filed within 30 days: a certified mail receipt, or the copy downloaded after an online submission.
3. Proof you gave the company a copy, and the transferee too if different.
4. The stock purchase agreement and vesting terms.
5. Support for the value per share on the transfer date.
6. Proof of payment, or the IP assignment if you paid with property.
7. Any W-2 or 1099-NEC for the amount the election put in income.

Investors may ask for each founder's election; see tax clean-up before investor due diligence.

Example

These examples are illustrative; all figures are in US dollars.

Two founders who paid full value

Two founders each buy 4,000,000 shares at $0.0001, paying $400 each, and each mails an 83(b) showing a value of $400. The income on each election is $0. No income from the shares goes on that year's Form 1040, no W-2 or 1099 is issued for them, and the election is not attached. Because the founders paid cash for all the stock and each owns 50% right after, the purchase is a section 351 exchange, so each includes a significant transferor statement with that year's return. Each founder's basis is $400, and the holding period starts the day after the shares were issued.

A co-founder who joins later

A third founder buys 1,000,000 shares for $100 when those shares are worth $100,000 and files an 83(b). The election puts $99,900 of pay on that year's return. The founder works for the company, so it reports the $99,900 on a W-2 and withholds on it. Basis is $100,000 ($100 paid plus $99,900 included), and the holding period starts the day after transfer. Nothing more is taxed as pay when the shares vest.

A California founder whose spouse did not sign

A married founder in California buys shares at full value, and only the founder signs the 83(b). The election meets the regulation's written requirements. Whether the spouse's community interest makes the spouse a transferee owed a copy is unsettled, so the founder keeps proof the company received its copy and has the question reviewed.

Different for you?

• You have not filed the 83(b), are near or past the 30 days, live outside the US, or are leaving before vesting: see founder shares that vest.
• The company took SAFE money before your shares were issued: see founder shares issued after a SAFE and get individual tax help.
• You want to know whether the shares qualify for QSBS: see QSBS for founders and early employees.
• A co-founder lives in Canada: see Canadian co-founder with vesting US startup shares.
• Your shares came from early-exercised options: see early exercise of startup stock options.
• Investors are asking for proof of each founder's election: see tax clean-up before investor due diligence.
• Your 83(b) showed income, you paid with IP, or your spouse's interest is in question: get individual tax help before you file.