Apr 102013
 

If there is one thing a startup founder needs to know about the tax code, it’s the 83(b) election. An 83(b) election essentially allows a founder to recognize income on the stock at the time it is awarded (which generally means zero income) versus at the time the stock vests (which, if things go well, could be a substantial amount of income). Discussion about the 83(b) election comes up quite frequently in startup circles, and most everyone knows that the election must be made within 30 days of the stock purchase date. That said, people often forget to mention that you also need to include the 83(b) in your annual tax filing. I recently completely my personal tax return with my wife, and was ready to e-file, when I got stuck with the question: How do I e-file an 83(b) election?

Can TurboTax e-file an 83(b) election?

I now have the answer, but first a little background: I used Turbotax Home & Business to fill out our taxes this year and did not see any call outs for the 83(b) election. Given that I have zero income to report from the stock purchase (again, this is the point of the election!) I wasn’t too concerned about missing a number in the income section. Rather, I was nervous about e-filing knowing that the 83(b) election was supposed to be included with my return. I was hoping that there was some way to electronically replace the need to include a copy of the election. Yes, I am that lazy.

In the hopes of having to succumb to the worst option of all — printing out our return and mailing it manually (yuck!) – I took to Google. It was comforting to see the auto-complete fill in “efile 83b election” and a number of results pop up from Intuit’s site. Unfortunately, after reading the top five results, I discovered that nobody had a clear answer. Some answers indicated that it is not possible to e-file your return if you need to include the 83(b). Other people seem to know how to e-file an 83(b) election, but are actually using some super version of TurboTax for real tax professionals (…and those of you who bought TT Premier thought you were badasses). It quickly became clear that neither Intuit’s forums or TurboTax-for-regular-people were going to help me.

Yes, I called the IRS

I had no choice but to call the IRS —  the week that taxes are due. I actually got someone on the line right away, but I made a critical mistake and ended up waiting about 90 minutes for someone who could help me. When I dialed the number, I should have selected “Complex personal tax questions”. I kept asking about how I could e-file an 83(b) election and they kept redirecting me to someone else. It took talking to three representatives before I figured out that I was simply waiting in the wrong queue.

I should say that the folks answering the phones at the IRS were extremely nice and I ultimately did get a clear answer.

How to e-file an 83(b) election

Drumroll tax nerds, here is the solution:

  1. Go ahead and e-file your return like you normally would
  2. Then, snail mail the following to your appropriate tax filing center
    • A cover letter with a explanatory statement (see below)
    • A copy of your 83(b) election
    • A self-addressed, stamped envelope so that the IRS can mail you back confirming receipt

Here is what you need to include in the cover letter, word for word from the agent helping me:

Pursuant to treasury regulations section 1.83-2C per section 83 of the internal revenue code of 1986 as amended, enclosed please find a copy of an election under section 83(b) of the code.

And that’s it. Although this is technically not a way to e-file an 83(b) election itself, it is a way to e-file your entire return while only mailing in two simple documents. I hope this helps!

* Note: I am not a tax professional. Trust me at your own discretion. Better yet, call the IRS :)

 

  32 Responses to “E-file an 83(b) election”

  1. Thank you. :)

  2. Also, just wanted to add that it’s a good idea to mail the forms via a trackable means so that you can show proof that it was delivered in case you never receive the confirmation receipt.

  3. Jeremy, glad it was helpful! And great point about using certified mail.

  4. Thanks. I’m glad I waited to do my taxes :)

  5. Thanks a lot! Been looking for answer and couldn’t find anything clear.

  6. Some forums mention filing a 1040x with no changes except a note saying that the amendment is being filed only for attaching the 83(b) election. Do you prefer the cover letter approach to the 1040x approach? Thanks!

  7. Thanks Anil for sharing your research on the topic. Good luck with your startup!

  8. All, I appreciate the comments!

    Rohit, I realize I am a tad bit late in responding, but I most definitely prefer the cover letter approach over filing a 1040X. The approach described here basically means that you e-file your taxes like normal and then mail in some supplementary information. The 1040X approach, on the other hand, means that you file your taxes twice: once like normal, and then a second time (albeit streamlined) to amend the first return with changes. I don’t see any reason you would want to file and then file again, when you can just snail mail two sheets of paper with the original return.

  9. Hi Anil, thanks for writing this blog post. I decided to take the chance and follow your method. I filed via turbotax and already got my refund, but never heard back yet about the 83(b) I sent in. Did it take a while for you to hear back? Did you end up having to adjust your tax refund or payment after the fact once they got back to you?

  10. What about state taxes? The paperwork I got for 83(b) said I also need to file a copy of the 83(b) with my state return (in California).
    Thanks.

  11. Thanks -> A point of view that the IRS might be ok with this, but that this is not to be used as a precedent: http://www.bnncpa.com/services/employee_benefit_plans/blog/irs_rules_that_failure_to_attach_83b_election_to_form_1040_did_not_invalida

  12. I’m not entirely confident in the answer you received from the IRS. The reason being that these directions are identical to the directions for filing the election in the first place, and they make no mention whatsoever of your tax filing – unless you chose to make a reference to that yourself, apart from the language they provided to you.

    I worry that even after all your waiting and being handed off, they were still answering a different question than you were asking. Contributing to my concern is the language you say you used. Asking how to “e-file an 83(b) election” is ambiguous, and could easily be taken to refer to the original election notification. Perhaps it was very clear on your call that they understood. But I have only your post here to go on.

    I may call the IRS myself shortly and try to work through the same question with them. If I do, I’ll report my results here.

    I think the best protection against any problem surrounding the tax-time copy of one’s election is this: if failure to file a copy were allowed to invalidate one’s election, it would effectively create an extended revocation window to be exploited by the taxpayer. There’s also the actual reported income that appears on the 1040, assuming the FMV was above $0. The copy of the election therefore seems like a mere nicety.

  13. Called today. It turns out the IRS isn’t answering individual taxpayer questions at this time of year. Every branch of their phone system for this question ended in a disconnect. When I intentionally mis-routed myself to a real person, they kindly re-routed me back to a short message that ended in a disconnect.

  14. Ethan – Just ran into the same issue in that the IRS isn’t handling this question anymore. I’m going to go ahead and just mail in my return plus the 83(b) and be on the safe side this year….

    • Hi Vaibhav, How can IRS not handle this question? Ethan indicated in Sept, 2014 that IRS was not answering individual tax payer questions at that time of the year – that is different from saying that IRS is not answering a question about e-filing 83b election. This is the time of the year when IRS must answer all individual tax payer questions. I am facing this issue as well and was hoping that Anil’s original message was a good way out but you and Ethan have put a damper :-)

  15. Food for thought (I’m going to do this myself)…

    If you e-file your return, then 83b election form ends up being nothing more than a “form you forgot to attach”. Thus, you should simply fill out the one-page 1040X (amend a tax return), in which you explain you are attaching the 83b, attach the 83b letter and send by snail mail. I see no need for 83b-related receipts either – that you’re sending your 1040X via certified mail will take care of the “proof” part.

    Does anyone know the answer to Chris’s question? Do we need to mail it to the state as well?

  16. Just confirmed with the IRS that you can send in the 83(b) after e-filing. Cover letter should include the tax year, that your return was e-filed, and state that there is an 83(b) election attached. Send to the address you would have sent your physical tax return to if you had mailed in the whole thing.

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