Fixing the 83(b) problem

img1

Today we are announcing that 83(b) elections can be filed on eShares. 83(b) elections can be confusing for employees to file, and difficult for companies and law firms to track. In the post below we explain the problems with the old filing process, and how we are fixing them by automating 83(b) elections on eShares.

img1


What is the 83(b) problem?

An 83(b) election is a tax filing that option holders make when they “early exercise” options. In short, an 83(b) election lets you recognize tax early, when the gain (difference between your strike price and the Fair Market Value) is minimal. If you don’t file an 83(b) election you will be taxed at every vesting event in the future, when there could potentially be substantial gains. In most cases, you should always file an 83(b) election when early exercising options.

There are a few problems with the 83(b) election process today. To start, many employees don’t fully realize the tax consequences of failing to file. In extreme cases, failing to file an 83(b) election could result in tax withholdings that exceed your income.

Another problem with the 83(b) election is the filing process itself. The IRS does not provide a standard form for you to complete. Instead, you must send a letter to the IRS with the following details:

img1IRS instructions for filing an 83(b) election

Lastly, and most importantly, you only have 30 days to file an 83(b) election with the IRS. This 30-day window starts the day you exercise and closes forever if you miss it.


Filing 83(b) elections on eShares

To solve this problem, we are happy to announce that filing 83(b) elections can now be done on eShares. Here’s how it works:

1. When an option holder early exercises, we auto-generate their 83(b) election based on their exercise data.

img1Selecting to have eShares file the 83(b) election.

2. We partner with Lob, the leader in sending physical mail, to file the 83(b) election through Certified Mail. As soon as Lob ships the election, the option holder receives an email notification with a USPS tracking number. The employee receives a second notification as soon as the 83(b) election is successfully filed.

img1USPS tracking number for an 83(b) election

3. A notification is also sent to the company and law firm to let them know an early exercise and 83(b) election have been made. Once the 83(b) election is successfully filed, it is attached to the restricted stock for record keeping.

img1Record of an 83(b) election attached to the certificate

Now employees, companies, and law firms have an easy way to file 83(b) elections. For a detailed look at how this feature works on eShares, here’s an infographic that outlines each step of the filing process:

img1

Please email support@esharesinc.com if you have questions or concerns.