83(b) Election: Founders Abroad and Late 30-Day Deadlines

Do founders need an 83(b) election on shares that vest?

The election is optional, but a founder whose shares vest and who does not file it within 30 days of the purchase is taxed at each vesting on that day's value, as pay. An election on Form 15620 or a signed statement, even after paying full price, taxes the shares once at purchase, usually with no income. The IRS cannot accept a late election, apart from postponements for federally declared disasters and combat zone service. A founder who lives and works only abroad generally owes no US tax at vesting; if a move to the US before the shares vest is possible, an election protects against US tax on the full vesting value.

Shares that a founder must give back on leaving early are "substantially nonvested". Under section 83(a), nothing is taxed at purchase; each time a block vests, its value that day minus the price paid is pay, and the holding period for that block starts then (Publication 525). For a founder who works in the US as an employee, that pay is wages: the company must withhold on it and is liable for tax it fails to withhold (sections 3401(a) and 3403), and its own deduction depends on reporting it (Reg. 1.83-6(a)).

The election flips this. Paying full value does not stop a founder from making it (Reg. 1.83-2(a)). A founder who pays the formation price files an election showing value equal to price, and income of zero. Later growth is then not pay but gain on a sale, and the holding period starts at purchase, not at each vesting (Reg. 1.83-4(a)). That holding period also matters for the small business stock exclusion: see whether the startup's stock qualifies.

What makes a case less simple: a founder abroad, a likely move to the US, a holding company or trust receiving the shares, or a deadline already missed. Gather the stock purchase agreement, the share count, the price paid, the value per share on the purchase date, and the vesting terms.

How long do you have to file an 83(b) election?

Thirty days from the date the shares are transferred (section 83(b)(2)). The transfer date is usually the purchase or issue date in the stock purchase agreement (Reg. 1.83-3(a)), not the vesting date.

• Counting. Day 1 is the day after the transfer.
• Weekends and holidays. If day 30 falls on a Saturday, Sunday or legal holiday, the next business day counts (Form 15620 instructions; section 7503).
• Early filing. The election may be filed before the transfer (Reg. 1.83-2(b)), once the share count, date and price are fixed.

How do you file Form 15620, and where do you mail it?

Fill in Form 15620, or write a signed statement that says it is made under section 83(b), gives the same details, and states that copies have been given to the company (and any other holder). Mail it to the IRS office where you file your return, or submit it through your IRS online account (Form 15620; Reg. 1.83-2(c), (e)). The form asks for your name, taxpayer identification number and address; the shares and quantity; the transfer date; the tax year; the vesting restrictions; the value and price per share; and the income (value minus price). Box 9, the company's details, is optional.

Why mailing from Canada, Taiwan or China is the trap

The rule that a postmark date counts as the filing date covers only US Postal Service mail and IRS-designated private delivery services (section 7502). It does not apply to a letter handed to another country's postal service (Reg. 301.7502-1(c)(1)(ii)). A letter sent by Canada Post, or by the postal service in Taiwan or China, must reach the IRS by day 30.

A designated service does get the postmark rule. The IRS list includes DHL Express Worldwide, FedEx International Priority and UPS Worldwide Express, among others (IRS: Private delivery services). In the US, a certified or registered mail receipt is evidence that the IRS received it (section 7502(c)).

Check the address the day you send.

Who gets copies?

• The company: always (Reg. 1.83-2(d)).
• A holding company or trust: if the shares are issued to one instead of to you, it also gets a copy; you, the founder who does the work, still make the election.
• Your tax return: no copy is attached for shares transferred from January 1, 2016 (Reg. 1.83-2(c), (g)). Older advice says otherwise.

Can you file Form 15620 online?

Yes, through an IRS online account. The IRS lists Form 15620 among its mobile-friendly forms that need an online account; once it is filled in, you can submit it online or download it to mail (IRS: Mobile-friendly forms). A successful submission shows a success message and a link to download the form; keep that copy as proof of the date. File one way only.

The online account works with international addresses (IRS FAQ), but verifying identity needs an SSN or ITIN (IRS). A founder abroad with neither mails the form or sends it by designated courier.

What if you have no SSN or ITIN?

Form 15620 and Reg. 1.83-2(e)(1) ask for a taxpayer identification number, and no IRS source says what to enter without one. The 30 days do not wait for an ITIN. This needs to be settled before day 30; see Different for you? below. For ITINs and what a founder abroad files personally, see forming and running a US company from abroad.

Does a non-US resident founder need an 83(b)?

Often not for current tax, but often yes as protection. A nonresident alien pays US tax only on US-source income and income tied to a US business (Publication 519). Pay for work done outside the US is foreign source (IRS). So vesting income for work done only in Hsinchu or Waterloo is not US-taxed.

• US workdays. Trips to meet US investors or visit a US data center make part of the vesting income US source, split by days over the period the pay rewards; any income an election reports is sourced the same way (Publication 519). See stock awards and pay after a move for the workday split.
• Who is not "nonresident". US citizens and green card holders living abroad, and anyone who meets the substantial presence test (a count of days spent in the US this year and the two before), are taxed like a US founder (IRS: residency status), unless a tax treaty's tie-breaker rule treats them as resident of the other country (Publication 519).

Should a founder abroad file anyway?

An election matters most if a move to the US before the shares vest is possible. Income from outside the US is taxable if received while a resident alien, even if earned while a nonresident (Publication 519). Without an election, shares are received when they vest (section 83(a)). A founder who moves to the US before the shares vest can owe US tax on the full value of each later vesting, work done in Taiwan or Canada included. An election at purchase that correctly shows zero income avoids that; its cost is postage or a courier fee.

What about founders in Taiwan or China?

The US side is the same as for any nonresident, including a co-founder in Shenzhen. Taiwan and China tax, and any registration a home country requires for holding foreign shares, are outside this page.

Is there a Canadian equivalent of the 83(b) election?

No. Canada taxes an employee's share benefit as the value when the shares are acquired minus the price paid; for a corporation that is not a Canadian-controlled private corporation (CCPC), the benefit is income in the year the shares are acquired (CRA: Security options benefits). A newly formed Delaware corporation is not a CCPC, because a CCPC must be a Canadian corporation (Income Tax Act, s. 125(7)), so the CCPC deferral cannot apply. A founder who paid full value when the shares were acquired has no benefit to tax. The CRA lists two signs that shares are acquired: title passes to the employee, and the employer has a legal right to payment for them. How that applies to founder shares that can still be bought back depends on the agreement and the facts.

The US election moves US timing to the purchase too, so the two countries line up. Without it, a founder who moves south can face Canadian departure tax on the shares' growth to the move date (Income Tax Act, s. 128.1(4)(b)) and US tax on the same growth as pay at vesting; whether relief applies depends on the facts. For the move itself, see moving from Canada to the US; for a later sale, see a Canadian founder selling US startup shares. Holding Delaware shares can also bring a T1134 or T1135: see foreign property and affiliate reporting.

Does the 83(b) apply to early-exercised stock options?

Not to the option, but yes to the shares. An option itself cannot get the election (Publication 525). For a nonqualified option, exercising early gives shares that still vest, and section 83 and the election apply to those shares (Reg. 1.83-7(a)). The 30 days run from exercise. If the exercise price equals the value, income is zero.

For an incentive stock option, exercise brings no regular tax. The election instead fixes the alternative minimum tax amount at exercise, also by the 30th day (Form 6251 instructions, line 2i). Options for engineers who live and work in Canada are covered in stock options for employees in Canada.

What happens if your 83(b) election is late?

A late 83(b) election is generally not valid. The 30 days are set by statute (section 83(b)(2)), and the IRS's discretionary late-election relief covers only elections whose deadline is set by regulation (Reg. 301.9100-1). Mailing a late election does not make it count. The one exception is a postponement: the 83(b) election is on the IRS list of time-sensitive acts that a federally declared disaster or combat zone service can postpone (Rev. Proc. 2018-58), only for people the IRS relief notice covers.

What options are left after the 30 days?

1. Live with tax at each vesting. Value then minus price is pay, and the holding period starts at vesting (Publication 525). For a founder who stays abroad and works only abroad, that means no US tax.
2. Remove or shorten the vesting now. If the company agrees, the shares become vested, and income is their value that day minus the price (section 83(a)), near zero while the value is still the formation price. The company and its lawyers decide this; changing the agreements is legal work.
3. A new grant under a new agreement. That is a new transfer with its own 30 days, valued on the new date. Re-papering and cap table fixes are legal work, outside this page.

Can an 83(b) be revoked, and what if a founder leaves before vesting?

Only with IRS consent. A request filed within the original 30 days is generally granted whatever the reason. After that, consent is given only for a mistake of fact about the transaction, asked for within 60 days of learning of it. A drop in value is not a mistake of fact (Reg. 1.83-2(f); Rev. Proc. 2006-31), and neither is misunderstanding the tax result.

If a founder forfeits shares after an election, the loss is only what was paid minus anything received back, and there is no deduction for income reported (section 83(b)(1); Reg. 1.83-2(a)). For a founder who paid the formation price and reported zero, the downside is that price.

What should founders and the company keep as proof?

Founders keep the signed election, the stock purchase agreement, and the certified mail receipt or courier record or, if filed online, the copy downloaded from the success message. The company keeps its copy with the share records. A timely election stays valid if a copy is lost; the mailing record is what proves the date. For other filings to put in order before a funding round, see tax clean-up before investor due diligence.

Example

Illustrative figures in US dollars.

GPU cloud with founders in San Jose, Hsinchu and Waterloo: three $300 elections

A Delaware GPU cloud is formed on Monday, March 2. Three founders, in San Jose, Hsinchu and Waterloo, each buy 3,000,000 shares at $0.0001 ($300), vesting over four years with a one-year cliff. Day 30 is Wednesday, April 1. Each election shows value $300, price $300, income $0.

• The San Jose founder sends the form by USPS certified mail.
• The Hsinchu founder, who has an ITIN but no SSN, sends Form 15620 by FedEx International Priority to the Austin street address, since Taiwan's postal service gets no postmark rule.
• Without elections, if the shares are worth $1.00 at the cliff a year later, each founder has about $750,000 of pay on 750,000 shares (750,000 × $0.9999). The San Jose founder pays US tax on it. The Hsinchu founder pays none if she still lives and works only in Taiwan, and US tax on all of it if she has moved to San Jose and is a US resident on the vesting date.

Waterloo co-founder who mailed on day 37: $2,000 of shares

A chip startup's co-founder in Waterloo signs on Monday, May 4 (day 30: Wednesday, June 3) for 2,000,000 shares at $0.001 ($2,000), and mails on June 10. The election is late and, without a disaster postponement, cannot be fixed.

• If she stays in Waterloo and works only there, vesting brings no US tax. Canada sees no benefit if she paid full value when she acquired the shares.
• If she moves to San Jose the next year and the shares are worth $0.50 at the cliff, 500,000 vesting shares are about $249,500 of US pay (500,000 × $0.499).
• Her choices, if the company agrees to the last two: accept that; have the company remove the vesting now, while the value is still $0.001, for about $0 of income; or a new grant with a new 30 days at the new value.

Early exercise for $40,000 in San Jose

A fourth co-founder joins in San Jose with an option on 400,000 shares at $0.10 that can be exercised early. She exercises on day one for $40,000 while the shares are worth $0.10, and files within 30 days of exercise: $0 income. With an incentive stock option, the same election sets the alternative minimum tax amount at $0.

Different for you?

• The 30 days have passed, the election went by foreign post, or you have no SSN or ITIN and day 30 is close: data center and infrastructure services.
• You moved, or will move, between Canada and the US while shares vest: stock awards and pay after a move and first year as a US tax resident.
• You are choosing between a Delaware and a Canadian corporation: Delaware or Canadian corporation for a startup; for an existing Canadian startup, moving under a Delaware parent.
• One founder abroad owns 25% or more of the corporation: foreign-owned C corporation filing.
• The company is an LLC, not a corporation: splitting ownership between LLC partners.
• Investors ask whether the stock qualifies for the small business stock exclusion: small business stock exclusion for startups.