How the 83(b) Election Actually Works

Lawrence Alves did everything an ordinary person would assume protects them from a tax bill: he paid the stock’s full, stipulated fair market value, in cash, with no discount and no “bargain element” of any kind. He still ended up owing ordinary income tax on the stock’s appreciation years later — and the Ninth Circuit agreed with the IRS that he should. The reason had nothing to do with price. It was a form he never filed, within a 30-day window he never knew mattered.

The case that shows paying full price isn’t enough

In 1970, Alves joined General Digital Corporation as a vice-president and received a nonqualified stock option as part of his employment deal, under which he bought 40,000 shares at 10 cents each. The shares came in restricted classes: General Digital could repurchase them if Alves left the company within four or five years, depending on the class. The parties later stipulated, without dispute, that 10 cents a share was genuinely fair market value at the time — Alves wasn’t getting a discount for being an employee. When the restrictions on his remaining stock lapsed in 1974 and 1975, he didn’t report the increase in the stock’s value on either year’s tax return, reasoning that he’d already paid full price for an investment, not compensation.

The IRS disagreed, the Tax Court sided with the IRS at 79 T.C. 864 (1982), and the Ninth Circuit affirmed at 734 F.2d 478 (1984) — the facts above are consistent across independent case-brief summaries from Quimbee and other legal-research services. The court’s reasoning: under Section 83(a) of the tax code, appreciation in restricted property transferred “in connection with the performance of services” is taxed as ordinary income when restrictions lapse — regardless of whether the recipient paid full value and realized no bargain at the time of purchase. The shares were tied to Alves’s employment, so the appreciation counted as compensation no matter what he’d paid for them upfront. The one thing that would have changed the outcome was a Section 83(b) election, made within 30 days of the original transfer, electing to be taxed on the stock’s value at that earlier point instead of waiting for the restrictions to lapse. Alves never filed one.

What the election actually changes

The statute’s text, via Cornell Law School’s Legal Information Institute, sets a default rule for property — usually stock — that someone receives for performing services while it’s still subject to a real risk of forfeiture (an unvested grant, stock that reverts if you quit early, and so on). Under 26 U.S.C. § 83(a), you pay ordinary income tax as that property vests, on the gap between its fair market value at each vesting date and whatever you paid for it. If the company’s value has grown since grant — which is the entire point of joining an early-stage company — that gap can be large, and you owe tax on it in cash even though you haven’t sold a single share.

Section 83(b) lets you opt out of that default. The statute’s own language: a person who receives property for services may elect “to include in his gross income for the taxable year in which such property is transferred, the excess of — the fair market value of such property at the time of transfer… over the amount (if any) paid for such property.” File the election, and the normal vesting-by-vesting tax rule in subsection (a) no longer applies to that grant. You pay tax once, upfront, on the (often tiny) spread at grant — and everything the stock gains in value after that is taxed later, when you sell, at capital-gains rates instead of ordinary-income rates, provided you’ve held it long enough to qualify.

The trade only makes sense because of timing. Equity granted early — at a fresh company’s lowest valuation, or as a profits interest with no liquidation value at grant — often has a fair market value close to zero. Filing an 83(b) election locks in tax on that near-zero number today, instead of on whatever the stock is worth months or years later when it actually vests. Remarkable Magazine has covered how standard startup vesting works — the four-year, one-year-cliff schedule that determines when restrictions lapse. The 83(b) election is the decision about how each of those future lapses gets taxed, made once, at the very start.

Why the deadline has no exceptions

The election “shall be made not later than 30 days after the date of such transfer,” per 26 U.S.C. § 83(b)(2) itself — and multiple law-firm and tax-practitioner guides describe that window as effectively absolute. The Treasury regulation that lets the IRS grant discretionary extensions for many other elections, 26 CFR § 301.9100, generally doesn’t reach a Section 83(b) election, because the 30-day window comes from the statute itself rather than from a regulation the IRS has authority to relax. Practitioner guidance is consistent on the practical result: once day 30 passes, there is no late-filing procedure, no private letter ruling that fixes it after the fact, and no appeal to reasonable cause. The clock starts on the date the property actually transfers — typically the date a company’s board approves the grant — not the date paperwork gets signed or a check clears, which is a common way people miscalculate how many days they actually have left.

The paperwork changed twice in under a year

For decades, there was no official IRS form for a Section 83(b) election. Every filing was a self-drafted letter, and the only way to know it was done correctly was to check it against the requirements buried in Treasury Regulation § 1.83-2 — with no standard template and no guarantee a given law firm’s or startup’s boilerplate letter actually covered everything. Cozen O’Connor puts a date on the fix: the IRS released Form 15620, a standardized election form, on November 7, 2024. PwC and Mondaq-syndicated coverage report the same date. Using the form is optional — a correctly drafted letter still satisfies the regulation — but it removes the guesswork about whether a self-written letter hit every required element.

The second change came faster than most tax procedure does. Law-firm alerts from Troutman Pepper, Morrison Foerster and Baker Donelson all report that in July 2025, the IRS began accepting Form 15620 electronically, through an IRS online account verified via ID.me. Before that, certified mail with a return receipt was the only real proof a filer had that the IRS received an election on time; several of the practitioner guides researched for this piece still describe certified mail as the standard advice, because it predates the online option. Electronic filing now gives an immediate confirmation of receipt instead. Paper filing by mail remains allowed — the firms note it hasn’t been eliminated — but the online option is quickly becoming the preferred route precisely because it closes the evidentiary gap that made Alves-style disputes possible in the first place: with a mailed letter, the only proof of timely filing was ever a postmark or a certified-mail receipt the filer kept.

The math, in round numbers

None of this is abstract once there’s a real number attached. Take a hypothetical founder (not a reported case — these are deliberately round figures to show the mechanism) granted 1,000,000 shares of unvested founder stock at incorporation, priced at $0.0001 par value: $100 total. Filing an 83(b) election within 30 days means paying ordinary income tax on $100 of income this year — a rounding error. Skip the election, and if the company’s valuation grows the way a successful startup’s is supposed to, each future vesting tranche is taxed as ordinary income on the spread between the original near-zero price and whatever the stock is worth on that vesting date — a bill that can run into real money with no actual sale to generate the cash to pay it, often called “phantom income” in tax-practitioner guides. The $100 upfront and the potentially six- or seven-figure bill years later are the same shares. The only variable is whether one form got filed in a 30-day window.

What to actually check before the clock runs out

• Confirm the transfer date, not the signing date. The 30 days start when the property is transferred — generally the board-approval date for a grant — which can precede the date you actually sign paperwork.
• File through the IRS online account if you can. It’s been accepting Form 15620 electronically since July 2025 and gives immediate confirmation of receipt, closing the old proof-of-mailing gap.
• If filing by mail, use certified mail with a return receipt, and keep it. It is still the only proof of a timely filing for a paper submission.
• Give your employer or the issuing company a copy, regardless of filing method — it’s a standard requirement, separate from sending the election to the IRS.
• Don’t assume the form is mandatory. Form 15620 is optional; a correctly drafted self-written election, built around the elements in Treasury Regulation § 1.83-2, still satisfies the requirement.

The rule itself hasn’t changed since before Alves bought his shares in 1970. What changed is how much harder it’s gotten to accidentally miss the deadline without realizing it — a standardized form since late 2024, an online filing option with instant confirmation since mid-2025. The 30 days are still 30 days.

Sourcing note: the statutory text of 26 U.S.C. § 83(b) and its 30-day deadline is quoted directly from the U.S. Code via Cornell Law School’s Legal Information Institute. The facts of Alves v. Commissioner are drawn from the case’s citation record — 734 F.2d 478 (9th Cir. 1984), affirming 79 T.C. 864 (1982) — corroborated across independent case-brief summaries (Quimbee, Studicata, Lexplug) that agree on the employer, share count, price per share, and lapse years. The Form 15620 release date (November 7, 2024) is corroborated across Cozen O’Connor, PwC and Mondaq-syndicated reporting; the IRS’s existence and current revision of Form 15620 (Rev. 4-2025) were confirmed directly from the form’s own metadata at irs.gov/pub/irs-pdf/f15620.pdf. The July 2025 online-filing launch is corroborated across Troutman Pepper, Morrison Foerster and Baker Donelson client alerts. The illustrative dollar figures in “The math, in round numbers” are explicitly a hypothetical, not a reported case.