If you’re a startup founder receiving restricted stock in your new company—especially at a nominal price like $0.00001 per share—you might ask:
“Do I really need to file an 83(b) election if there’s no tax owed?”
The short answer: Yes.
Filing an 83(b) election is one of the most overlooked but financially strategic moves you can make early in your startup journey. Even when your immediate taxable income is zero, the cost of not filing could be substantial.
Here’s why it matters—and why you should treat it like a non-negotiable.
The Basics: What Is an 83(b) Election?
When you receive stock subject to vesting or a company repurchase right, the IRS typically taxes you as the stock vests. This means you could end up paying income tax each year based on the current fair market value (FMV) of your shares at each vesting date.
That’s a problem if your company becomes more valuable quickly. You might owe ordinary income tax on shares you can’t sell—and lose access to long-term capital gains treatment.
By filing an 83(b) election, you flip that timeline.
You tell the IRS: “Tax me now on the entire value of my unvested stock as if it were fully vested today.”
If your stock has nominal value at grant—say, $0.00001 per share—you may owe zero in income tax today, but you gain enormous tax advantages going forward.
Why File If My Taxable Income Is $0?
It may seem redundant to file a form for $0 of income. But this is exactly when the 83(b) election is most powerful.
Let’s break it down:
1. You Freeze the Tax Clock
By making the election, you’ll never owe income tax again as your shares vest. That’s a huge win if your company grows in value over time.
2. You Start Your Capital Gains Holding Period
The day you file the election is the day your capital gains clock begins. That means when you sell your stock later, you’re more likely to qualify for long-term capital gains tax (typically 15%–20%) rather than ordinary income tax (up to 45%+).
3. You Eliminate Tax Uncertainty
Fail to file, and you could be hit with taxable income in future years—based on FMV at each vesting date—even if you can’t sell any stock to cover the taxes.
What About Non-U.S. Founders?
If you’re a non-U.S. founder receiving stock in a Delaware C Corporation, the 83(b) election may still apply if:
- You are or become a U.S. taxpayer or tax resident
- You are expected to relocate to the U.S., or
- You are earning U.S.-source compensation for your role in the U.S. business
In these cases, the IRS may treat your equity as U.S.-taxable compensation. If your stock is subject to vesting or repurchase, the same 30-day deadline and tax rules apply.
Founder Tip for Non-U.S. Residents: Consult with U.S. tax counsel to determine whether you are required—or advised—to file an 83(b) election. In many cases, filing may help you avoid future U.S. tax complications if your role shifts or you become a U.S. tax resident.
Real-Life Example: A Non-U.S. Founder’s Restricted Stock Grant
A non-U.S. founder enters into a restricted stock purchase agreement with a Delaware C Corporation in connection with their role on the founding team. They purchase 2,000,000 shares at a par value of $0.00001 per share.
- Total purchase price = $20.00
- FMV at grant = $0.00001/share
- Total income = $0
Because the shares are subject to a 4-year vesting schedule with a 1-year cliff, this is considered substantially non-vested property under the U.S. tax code.
If the founder files the 83(b) election:
- They pay no tax now
- They start the capital gains clock immediately
- They avoid any income tax as shares vest in future years
If the founder fails to file:
- Each month or quarter as shares vest, the IRS could treat the increasing FMV as taxable income
- The capital gains clock starts with each vesting tranche
- If the company is successful, this could lead to substantial and avoidable tax liability
This scenario is based on common fact patterns Veritas Global has seen in early-stage financings.
What Happens If You Don’t File?
Let’s say you don’t file the 83(b), and your shares vest monthly over four years. As your company grows, each tranche of stock is taxed at its current value—whether you’ve sold or not.
- You’ll owe ordinary income tax based on the value of vested shares
- Your capital gains holding period resets for each tranche
- You’re left with a messy, high-burden tax record
And if the company IPOs or gets acquired? You might miss out on QSBS treatment or long-term gains eligibility just because you didn’t file a $0 tax form on time.
Filing Is Easier Than Ever
As of 2025, the IRS released a standardized form to file your 83(b) election:
🔗 Download Form 15620 – Section 83(b) Election (IRS.gov)
To file:
- Complete and sign IRS Form 15620
- Mail it to the IRS within 30 days of your stock grant
- Provide a copy to your company
- Retain a copy for your own tax records
There is no e-filing option. Send via certified mail and save your receipt.
Final Thoughts: A $0 Tax Form That Protects Your Future
Filing an 83(b) election when FMV equals the purchase price may feel like a formality. But it’s actually a strategic legal and financial move.
It ensures you:
- Start the capital gains clock
- Lock in favorable tax treatment
- Avoid unexpected income tax burdens down the road
At Veritas Global, we help startup founders—U.S. and non-U.S.—structure their equity, issue restricted stock, and make smart decisions that hold up under legal and tax scrutiny.
Need help with your 83(b) election, equity structuring, or cap table strategy? Contact us today to protect your equity and make the right tax moves from day one.
📘 Also read: Founder’s Guide to the 83(b) Election
