This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
Picture the week after a private equity closing. A founder sold the company, rolled thirty percent into the buyer’s holding company, and came away with three kinds of paper: rollover units exchanged for the old stock, a tranche of those units re-subjected to time vesting as the sponsor’s “skin in the game,” and a fresh grant of profits interests tied to the go-forward role. The wire cleared, the dinner happened, everyone slept for the first time in months. Eleven days later a tax adviser asks a one-line question: “Did we file 83(b)s on anything?” The answer determines whether some of that equity gets taxed once, at capital gain rates, on today’s value — or again, at vesting, on whatever the sponsor grows it into. And the clock that governs the answer started at closing, runs thirty days, and does not pause for champagne.
Section 83 taxes property when it vests — unless you elect earlier
The rule is compact. When someone receives property in connection with services and the property is subject to a substantial risk of forfeiture — unvested, in ordinary language — section 83 defers the tax event to vesting and measures income by the property’s value on each vesting date, minus what was paid for it. For equity expected to appreciate, that default is exactly backwards: it converts future growth into ordinary compensation income, taxed in installments at whatever the units are worth as they vest. The 83(b) election flips the measurement to grant date. File it, and the holder takes into income the spread at transfer — often zero or near it in a priced deal, since the rollover units are received at the deal’s own valuation — starts the capital-gains holding period immediately, and lets all later appreciation accrue as investment gain rather than wages. The catch is procedural, and it is absolute: the election must be filed within thirty days of the transfer. Not the vesting start date the sponsor’s ledger shows, not the date the unit certificates get around to being issued in the equity portal — the transfer. There is no extension, no reasonable-cause relief, no fixing it next quarter. Thirty days.
Which pieces of a rollover actually need it
Run the founder’s three stacks of paper through the rule and they come out differently. First, fully vested rollover units — the ones exchanged for old stock in a tax-deferred rollover, with no forfeiture conditions — need no election. Nothing is unvested, so section 83’s deferral never engages; the tax analysis lives instead in the rollover structure itself, which is its own art — the F-reorg timing post covers why that piece of the closing gets negotiated so hard.
Second, rollover units with new vesting bolted on. This is where the trap sits, because the founder experiences these units as “my equity that I already owned,” while the paper says the sponsor can repurchase or forfeit them if employment ends early. Value the founder genuinely paid for is now conditioned on future service — a substantial risk of forfeiture created at closing. Whether, and to what extent, an 83(b) election is strictly necessary on re-vested rollover paper is a genuinely technical question that turns on how the exchange was structured and what was paid for the units; the answer that has become standard practice is the protective election. It costs an evening of paperwork. Filed on units whose grant-date spread is zero, it usually adds nothing to current income — and it forecloses the scenario where the IRS treats vesting, years later at the sponsor’s exit multiple, as the taxable event. The asymmetry does all the arguing: filing an unnecessary protective election costs almost nothing, while skipping a necessary one costs ordinary income on someone else’s growth. The same logic reaches the management team’s refreshed grants from the top-up pool.
Third, profits interests. Holdco LLCs compensate go-forward management with interests that share only in appreciation above today’s value, and the IRS blessed the standard version in Rev. Proc. 93-27, extended to unvested grants by Rev. Proc. 2001-43: within the safe harbor, a profits interest triggers no income at grant, and an unvested profits interest is treated as held from grant without an 83(b) election, provided the conditions hold — no disposition within two years, no certain-and-predictable income stream, consistent partner treatment from grant. Read literally, that makes an election unnecessary. Practice files one anyway. The protective 83(b) on a profits interest is the belt to the safe harbor’s suspenders: if any safe-harbor condition later fails, the election is the fallback that fixes the measurement date at grant, when the interest’s liquidation value was zero. Almost every well-advised sponsor’s equity package instructs holders to file protectively, and almost every experienced tax adviser agrees.
Filing got easier in 2025 — the deadline did not
For decades the 83(b) election was a self-drafted statement mailed to an IRS service center, with a cover letter, a duplicate, and a prayer for a date-stamped copy. That era is ending. The IRS released Form 15620, a standardized election form, in late 2024, and in July 2025 opened online filing: a taxpayer with an ID.me account can complete and submit the form electronically and receive immediate confirmation of receipt — the development the law-firm alerts greeted with visible relief, as in Morrison Foerster’s “Say Goodbye to Paper Cuts”. Two cautions travel with the convenience. The filer should use one method — electronic or mail, not both, which the IRS warns can cause processing trouble — and a copy of the filed election still must go to the company that issued the equity. What has not changed is the substance: thirty days from transfer, measured strictly, with late filings simply invalid. An easier filing mechanism with an unmoved deadline mostly changes where the malpractice story begins.
Make the 83(b) table a closing document
The structural problem is that the election is personal. Deal counsel papers the merger; the sponsor’s counsel papers the equity plan; but the election belongs to each individual holder, filed against that holder’s own deadline. The clean solution is to treat it like any other closing deliverable: a table, built before signing, listing every person receiving equity at closing, every instrument they receive, and the disposition for each — election required, protective election recommended, or none needed — with the thirtieth day calendared and an owner for confirming each filing and delivering the company copies. Equity documents can help by obligating the company to remind holders, but a reminder covenant is not a filing. The founder’s own stack deserves the first row of that table, filled in before the closing dinner, because the options that got cashed out at closing were already handled by the payroll withholding machinery — the rollover paper is the part only the founder can protect.
If you are rolling equity in a sale of your company, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
