Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

Question about the 83b election for a startupHi, I am one

Customer Question
Question about the 83b election...
Question about the 83b election for a startup

Hi, I am one of the founders of a startup that is registered as a Delaware C Corp. When we first incorporated our company there were 2 founders who were issued common shares of stock that is not restricted and not with a vesting schedule. This was 9 months ago. Since the stock was not on a vesting schedule and thus not at risk of forfeiture we did not elect an 83b. Now the problem is we need to introduce a vesting schedule for these 2 founders.

My questions are:
- If we introduce a vesting schedule on these shares that were granted 9 months ago now will they be treated by the IRS as taxable income as their value changes. i.e. income tax not capital gain tax since the shares are linked with our employment with the company. I heard that since the grant and the vesting are 2 separate events and the vesting schedule is introduced to align interests it will not be considered income. Is this true?

- Can we file an 83b now even though the grant date was 9 months ago because we are only introducing the risk of forfeiture now? What are the odds of that succeeding with the IRS?
Submitted: 4 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 41 minutes by:
6/4/2013
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 years ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,774
Experience: 35 years tax experience, including four years at a Big 4 firm.
Verified

Customer:

Welcome to the site. I will be helping you today.

Customer:

to Q & A...

Ask Your Own Tax Question
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 years ago
Can I ask a few questions?

How were the shares originally transferred to the 2 founders? At what value, what was FMV, and how did they pay?

The late vesting thing has me for a loss. Please explain that, since it might be the only option to save your 83 (b). As you know, it is late.
Ask Your Own Tax Question
Customer reply replied 4 years ago

I do not understand the question but the shares were originally subscribed to by the founders at a $0.00001 per share. They actually did not pay for them. There was no FMV since this was a new company.

Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 years ago

I asked because the 83(b) election is traditionally required in a restricted stock purchase agreement. If the agreement in place when the shares were purchased was not restrictive, that is, all the elements of the purchase were complete, then the 83(b) deferral technique may not be valid. The Section 83(b) election can be made when the property received was nontransferable and subject to a substantial risk of forfeiture. You did not mention any restrictions on the original purchase, so I believe you are out of luck.

 

IRS would consider the purchase complete when funds transferred, since nothing else was required to vest. The purchase would be a taxable transaction at that time. There is not a remedy for the late election you seek. I asked about the FMV of the shares, and the purchase price assigned, to see if there was a discount at purchase.

 

Adding a vesting schedule after there was a payment made and there was no substantial risk of forfeiture is not a viable excuse for the 83(b) relief, since the purchases were completed without vesting.

 

I can suggest a repair technique, which could be an exchange of those shares for new shares subject to the vesting schedule. The founders may be subject to tax on the original purchase of their shares for $.00001 per share, compared to the fair market value of those shares at purchase.

 

The 83 (b) election could then be made by the founders within 30 days of the exchange of their shares for the new restricted ones. Copies of that election are then included in the personal returns of the purchasers.

 

Thanks for asking at Just Answer/PDtax.

 

 

Ask Your Own Tax Question
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 years ago
Can I ask you to reconsider your rating? I will be glad to assist further.
Ask Your Own Tax Question
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 4 years ago
As I saw your problem, the shares had been issued without restrictions, and the 30 day time period had passed, making the election both not applicable and late. I suggested a remedy, and I don't understand your rating.

Please advise.
Ask Your Own Tax Question
Ask PDtax Your Own Question
PDtax
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,774
4,774 Satisfied Customers
Experience: 35 years tax experience, including four years at a Big 4 firm.

PDtax is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I am disabled, i have no taxable income but i was told that
hi, i am disabled, i have no taxable income but i was told that i could get the proff of all the medication i had to buy this and get money back … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Can you help with a capital gains tax question. We are
We are selling 100 acre hobby farm. We are not gst registered and do not make money from it: … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,798 satisfied customers
If you are a single member S-Corp and taxable income is over
If you are a single member S-Corp and taxable income is over $315K and business is a service industry so would not get the 20% deduction under new tax reform, would changing to a C-Corp help pay less … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
On form 1041, capital gains have to be taxed at the estate
On form 1041, capital gains have to be taxed at the estate level, correct? No distribution deduction may be taken?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Have a tax question about what is considered taxable income.
Have a tax question about what is considered taxable income. What is your fee? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
I'm working to understand capital gains tax for California
I'm working to understand capital gains tax for California property purchased 4 years ago. It's a primary residence, purchased 4 years ago for $385k with $285k principle outstanding. Expected sale price of $630k … read more
abci168
abci168
Principal
27 satisfied customers
I'm canadian who want to understand capital gains tax rate.
Hi, i'm canadian who want to understand capital gains tax rate.I have a rental house that i bought at 500K. I sold it after 9 yrs at 1100K. With the money, i bought a new house (will be my primary res… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,798 satisfied customers
I have bitcoin and I want to avoid the capital gains tax and
Hi I have bitcoin and I want to avoid the capital gains tax and dont want it to be ordinary income what should I Do … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
Suppose my taxable income in 220,000 this year and the tax
Suppose my taxable income in 220,000 this year and the tax rate is X up to 200K, but Y for 200and over, do I pay Y on the full 220K or just that above 200K? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Under current law a 100,000 taxable income pays $10,365 plus
Under current law a 100,000 taxable income pays $10,365 plus 25% of the amount exceeding $79,400 i.e. about $16,000. Under tax reform will the tax be $25,000? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I sold a rental property at a loss (no capital gains);
I sold a rental property at a loss (no capital gains); however should I pay the $133,000 on the principal of my house I owe 166,000 at 2.8% or buy another rental? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Tax question is there anyway to offset a capital gain of 60
Tax question is there anyway to offset a capital gain of 60 to 70k by buying another commercial property… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If your taxable income is $0 (actually negative) is there a
If your taxable income is $0 (actually negative) is there a penalty for late filing? Do you need to file at all? What is the 2016 filing deadline with an extension?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,798 satisfied customers
Capital Gains Question: My parents have a rental property
Capital Gains Question: My parents have a rental property they bought for $150,000 several years ago. The property is now worth around $500,000 dollars with a $350,000 mortgage. They want to gift me t… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Does an IRS agent qualified to prepare capital gain taxes, I
Does an IRS agent qualified to prepare capital gain taxes … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
Undistributed taxable income previously taxed. Have 3
Undistributed taxable income previously taxed. Have 3 shareholders with balances due to them from previous years. Can it be paid all in one year to bring their amounts owing to zero until the next pro… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x