I Forgot to File My 83(b) Election Within 30 Days: What Happens Now?

Someone on Reddit was issued equity units at a private startup (May 2023) with fair market value of $0 at grant; the units vest 25% at the end of the first year and then quarterly thereafter. They forgot to mail the 83(b) election to the IRS within 30 days and it had been about 1.5 years. They wanted to know what exactly will result from missing the deadline. The 83(b) election must be filed within 30 days of the transfer; the IRS does not generally allow late 83(b) elections, so the election is lost for that transfer. Without it, you have ordinary income when each portion vests based on FMV at each vesting date, not at grant, which can mean much more ordinary income as the company's value grows.

Bottom line: The 83(b) election must be filed with the IRS within 30 days of the date of transfer. The IRS does not have a formal late-filing or relief procedure for 83(b), so after 30 days the election is no longer available for that transfer; you cannot fix it by filing late. Without a valid 83(b): You are taxed under the default rule (IRC § 83(a)): ordinary income when each portion vests, equal to the FMV of the units that vest on that date. As the company's value increases, that FMV (and your ordinary income at each vest) can be much higher than the $0 you would have had at grant with a timely 83(b). When you sell, you still have capital gain on the appreciation after each vesting date. Track FMV at each vesting date, prepare for income and withholding each year, and consult a tax professional; for future grants, file 83(b) within 30 days if you want the election.

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Question from Reddit

Forgot to file 83(b) election with IRS within 30 days

Unsolved

I am a complete idiot and forgot to mail in my 83(b) election to the IRS last year when I was issued equity units at a private startup I'm working at. They vest at 25% at the end of the first year, and then quarterly thereafter. The fair market value of the units was $0.00.

I realize now that I was supposed to mail this to the IRS within 30 days. It has now been about 1.5 years (issued in May of 2023). I presume I'm screwed from the beneficial tax status, but just wanted clarity on what exactly will result from this?

Source: Reddit

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Analysis

The user missed the 30-day deadline for filing an 83(b) election after receiving restricted equity units (FMV $0 at grant) that vest 25% at the end of year one and then quarterly. They want to know what exactly happens, i.e., how they will be taxed without the election and whether there is any remedy for the late filing. Under IRC § 83(b), the election must be filed within 30 days of the transfer; the IRS does not generally allow late 83(b) elections, so the election is lost. Without it, ordinary income is recognized when the units vest, based on FMV at each vesting date, not at grant.

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Answer

What you lose by missing the deadline

• The 83(b) election must be filed with the IRS within 30 days of the date of transfer (usually the grant date). The IRS does not have a formal late-filing or relief procedure for 83(b) like it does for some other elections (e.g., late S-Corp election). So after 30 days, the election is no longer available for that transfer. You cannot "fix it" by filing late and having it count as a valid 83(b).
• Had you filed on time: You would have included the FMV at grant ($0.00) in income in the year of grant. That would have been $0 ordinary income at grant. All future appreciation (from $0 to the sale price) would then be capital gain when you sell (often long-term if you hold long enough). So you would have locked in $0 ordinary income and converted the growth into capital gain.
• Because you missed the deadline: You did not make a valid 83(b) election. So you are taxed under the default rule (IRC § 83(a)): you have ordinary income when the restriction lapses, i.e., when each portion vests. The amount of income at each vesting date = fair market value of the units that vest on that date (FMV at vesting). So as the company's value (and the FMV of the units) increases, you will have more ordinary income at each vesting date than you would have had at grant ($0).

What exactly will result

• At each vesting date (25% at end of year one, then quarterly): You will have ordinary income equal to the FMV of the units that vest on that date. Your employer (or the company) will typically report that amount on your W-2 (or a 1099 or other statement) and may withhold tax. You report it on your personal return for that year.
• Example: If at the first vesting date (end of year one) the FMV of the 25% that vests is $10,000, you have $10,000 ordinary income in that year. If at the next vesting date the FMV of that quarter's slice is $15,000, you have $15,000 ordinary income in that period, and so on. So your total ordinary income from the units will be the sum of the FMV at each vesting date for the portion that vests, which can be much higher than the $0 you would have had if you had filed 83(b) (when FMV at grant was $0).
• When you sell: You will have capital gain (or loss) on the appreciation after each vesting date, i.e., sale price minus FMV at vesting for the shares sold (or a blended basis). So you still get capital gain treatment on the growth after vesting, but you did not get to lock in $0 ordinary income at grant or convert pre-vest appreciation into capital gain.

No late 83(b) relief

• There is no standard IRS late 83(b) relief. Do not rely on "I'll just file it now and see if they accept it"; they almost certainly will not treat it as a valid election for the May 2023 transfer. If a tax professional is aware of any rare private letter ruling or other relief, they can advise; in general, the answer is that the election is lost.

What to do going forward

• Track the FMV of the units at each vesting date (and keep any 409A or other valuations from the company) so you can report the correct ordinary income and basis when you file and when you sell.
• Prepare for ordinary income (and possibly withholding) at each vesting date; set aside funds or adjust estimated tax so you're not surprised at tax time.
• Consult a tax professional to (1) confirm the vesting schedule and FMV at each date, (2) plan for income and withholding each year, and (3) discuss basis when you eventually sell. Margen can help you model income at each vesting date and total tax over time so you can plan.
• Going forward: If you ever receive new restricted stock or units (e.g., a new grant) and want to file 83(b), file within 30 days of that grant; set a calendar reminder so you don't miss the deadline again.

Related: I Filed an 83(b) and Don't Understand: What It Means, Tax Return, When Do I Pay? · Form 83(b) Restricted Stock Election · Should I File an 83(b)? CEO Startup Stake · ISO Exercise, Reducing Tax via Trust

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Applicable Sections

Federal / IRS

• IRC § 83(b): Election to include FMV at transfer in income in the year of transfer. The election must be filed within 30 days of the transfer; there is no statutory or regulatory late-filing relief. (IRS Form 83(b))
• IRC § 83(a): Default: If no valid 83(b) election is made, income is recognized when the substantial risk of forfeiture lapses (i.e., when the property vests), in an amount equal to the FMV at that time.
• Treas. Reg. § 1.83-2: The 83(b) election must be filed with the IRS and a copy furnished to the employer no later than 30 days after the transfer.

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Practical Notes

• Missing the 30-day deadline = no valid 83(b); the IRS does not generally allow late 83(b) elections.
• Without 83(b): You are taxed when units vest, ordinary income = FMV at each vesting date for the portion that vests. As value increases, tax at each vest is higher than the $0 you would have had at grant with 83(b).
• Track FMV at each vesting date (and keep company valuations) for reporting and basis when you sell.
• Prepare for income and withholding at each vest; use estimated tax or withholding adjustments if needed.
• Margen can help you model vesting income and tax over time.
• Consult a tax professional for your vesting schedule, FMV, and planning. For future grants, file 83(b) within 30 days if you want the election; set a reminder.

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Limitations

This answer does not cover state tax, forfeiture (e.g., leaving before full vest), or any rare private letter ruling on late 83(b). It is not tax or legal advice. For your specific units, vesting schedule, and FMV, consult a tax professional. Margen can help you model income and tax at each vesting date.