Nov 4, 2009
What is an 83(b) election?
An 83(b) election is a tax election made under Section 83(b) of the Internal Revenue Code that results in the recognition of the entire value of a restricted stock award on date of grant, rather than periodically over time as it becomes vested. Whether or not a Section 83(b) election will be tax-advantageous depends on a number of factors. The most important factor is the fair market value on the date of grant. Where the restricted shares have a low valuation on the grant date, and there is a potential for signification appreciation over the course of the vesting period, it is likely that the recipient should make an 83(b) election.
Making a Section 83(b) election is not without risk. If the company performs poorly or fails and the underlying stock losses value or becomes worthless, the recipient will have paid taxes based on the previous higher value for which the recipient ultimately receives no benefit.
