83 b Law and Legal Definition

An 83(b) election is a tax election made by founders issued stock subject to a vesting schedule. The election must be made within 30 days after the founder receive the stock. The 83(b) election neutralizes a potential disastrous tax consequence, and the founder recognizes “income” upon the initial restricted stock purchase.

If a founder fails to make a 83(b) election, each vesting milestone will be a taxable event for the founder. “Income” will be calculated as the difference between the fair market value of the portion of stock that vested and the original purchase price of the newly-vested portion.