An 83(b) election is a tax filing that allows individuals to be taxed on the value of their stock at the time of grant rather than when it vests. This can be particularly beneficial if the stock is expected to appreciate significantly over the vesting period, typically four years for founders.
The US Internal Revenue Service (IRS) hasn't provided explicit guidance on whether non-US taxpayers can make an 83(b) election.
The “homerun” is if a founder has performed services exclusively abroad in exchange for their restricted stock and is planning to move to the U.S. but has not done so yet. If they make an 83(b) election before they are caught in the U.S. tax net, when their shares later vest, they will pay no U.S. tax and will only pay tax when they sell. However, please note there are many complications, and it puts someone on the IRS radar when they weren't before. If in doubt, I'm happy to put you in touch with my tax counsel.
If you decide to proceed with filing an 83(b) election, here are some challenges and potential solutions:
1. Taxpayer Identification Number (TIN): An 83(b) election requires a TIN, such as a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Most non-US taxpayers don't have these.
2. Unclear Guidance: Without clear IRS direction, there's uncertainty about how to proceed without a TIN.
3. ITIN Application: Applying for an ITIN is an option, but eligibility isn't guaranteed, and the process may not be completed before the 83(b) filing deadline.
- Writing "N/A" in place of the TIN
- Applying for an ITIN and writing "applied for" on the form
If you decide to file an 83(b) election, you must file within 30 days of your stock purchase date. There is no remedy for a late filing, but there are some less-than-perfect solutions to fix it. Read more in my blog post here.
Remember, tax laws and regulations can be complex and subject to change. Always seek professional advice tailored to your individual circumstances when making important financial decisions.
