The IRS released Form 15620, Section 83(b) Election, a new form for taxpayers to use when making an election under §83(b). When a taxpayer makes a §83(b) election, they are notifying the IRS they wish to be taxed on property at substantial risk of forfeiture, such as restricted stock, when it is received in exchange for services and not when it vests.

Property is at substantial risk of forfeiture when a condition must be met in the future for the recipient to own the property outright. A common situation where a taxpayer receives property at substantial risk of forfeiture is when a founder or advisor to a startup company receives shares of common stock under the condition they remain with the company for a specified period of time or achieve specific performance milestones. If the recipient doesn’t meet the specified conditions, the stock recipient either surrenders the shares or must sell them back to the company at a discount.

Under §83(a), a taxpayer who receives property with a substantial risk of forfeiture as compensation in connection with services they performed is not taxed on the compensation at the time it is granted. However, a taxpayer may make an election under §83(b) to recognize the property as ordinary income on the date it is granted. A taxpayer who makes a §83(b) election may be eligible to treat the future appreciation of the property as long-term capital gains if it is held for longer than one year.

An election under §83(b) must be submitted to the IRS within 30 days of receiving the restricted property. Taxpayers who do not file within this 30-day window may not make a late election. Section 83(b) elections can’t be revoked.

Before the release of Form 15620, a taxpayer making a §83(b) election was required to draft a document explaining their election using sample language included in IRS guidance. Because the situation was explained by the taxpayer, there was a chance the IRS could reject the election for failure to include the proper language or information. Using Form 5620 ensures that taxpayers have included all of the necessary information when making their election. Taxpayers still have the option of submitting a document explaining their election to the IRS instead of using Form 15620, but it is recommended they use the form, which must be mailed to the IRS.