The short version
An election to tax restricted shares when they are transferred can change when compensation is reported and when the investment holding period begins. It can also create tax on shares you later forfeit. The election generally must be filed within 30 days after the property transfer, so Sheepdog Tax reviews the actual transaction, valuation, and downside before the deadline rather than treating the form as an automatic benefit. Internal Revenue Service (IRS) Form 15620 and instructions
The clock begins with a property transfer
Internal Revenue Code section 83(a) generally taxes property received for services when the recipient’s rights first become transferable or cease to be subject to a substantial risk of forfeiture, whichever occurs earlier. The compensation amount is the property’s fair market value at that time, determined under the statutory valuation rule, less the amount paid.
Section 83(b) permits an election to include the transfer-date value above the amount paid in compensation income instead. The tax valuation disregards restrictions that will lapse. A vesting restriction therefore does not automatically justify reducing the value used for the election.
The first question is whether stock has actually been transferred. Under Treasury regulation 1.83-3(a), beneficial ownership is central. An offer letter promising equity and an option grant are not themselves transfers of the underlying shares. An exercise can transfer stock, including stock still subject to forfeiture, but the exercise agreement and payment terms must establish what occurred.
A restricted stock unit, or RSU, is different from a restricted share. An ordinary unfunded, unsecured promise to deliver stock in the future is excluded from property under regulation 1.83-3(e). An RSU grant therefore does not provide the transferred shares on which to make an 83(b) election. The election cannot simply be attached to every award with “restricted” in its name.
The election changes the risk as well as the timing
Treasury regulation 1.83-2(a) explains the principal effect: with a valid election, later appreciation generally is not compensation when the stock becomes substantially vested. A later sale still requires a gain-or-loss calculation. Under regulation 1.83-4, basis includes the amount paid plus the compensation included, and the holding period begins just after transfer when the election applies.
Those benefits depend on the facts. The company may decline in value. Employment may end before vesting. A purchase agreement may require the shares to be returned for the original purchase price. The Firm compares the current inclusion with the no-election outcome and tests what happens if the expected appreciation never arrives.
Forfeiture is particularly important. Regulation 1.83-2(a) limits a forfeiture loss to the amount paid for the property above any amount recovered on forfeiture. The compensation previously included under the election does not become an additional forfeiture loss. A capital loss may arise from unrecovered purchase cost if the shares are capital assets, subject to the applicable loss rules.
A hypothetical transfer and later forfeiture
Assume an employee buys 20,000 restricted shares for $0.10 each, paying $2,000. Their supported transfer-date value, ignoring restrictions that lapse, is $0.25 each, or $5,000. Assume an actual stock transfer for services and that the shares remain nontransferable and subject to a substantial risk of forfeiture until a single later vesting date. These are invented facts, not a client case or a company valuation.
A valid 83(b) election produces $3,000 of compensation income at transfer: $5,000 less $2,000. If all the shares later vest at $2 each, the election generally prevents that subsequent appreciation from being taxed as compensation at vesting. Without the election, the assumed vesting event would produce $38,000 of compensation: $40,000 less $2,000. Neither amount is the tax bill, which depends on the full return. Section 83
Now change the outcome. Before vesting, the employee forfeits all the shares and receives the $2,000 purchase price back. The forfeiture-loss calculation is $2,000 paid less $2,000 recovered, or zero. The earlier $3,000 compensation inclusion is not refunded merely because the shares were forfeited. This downside belongs in the decision before the election is filed. Regulation 1.83-2(a)
The numbers and dates in the election file
Scroll the table sideways to read all columns, including sources.
| Item | Controlling measure | Why it matters | Primary source |
|---|---|---|---|
| Election deadline | No later than 30 days after property transfer | The property-transfer date starts the ordinary filing period | Section 83(b)(2) |
| Transfer-date compensation | Fair market value less amount paid | An election can be made even when that difference is zero | Regulation 1.83-2(a) |
| Elected-stock holding period | Begins just after the transfer date | No-election property generally starts its period just after substantial vesting | Regulation 1.83-4(a) |
| Forfeiture loss after election | Amount paid less amount recovered, if positive | Previously included compensation is not added to that loss | Regulation 1.83-2(a) |
The Form 15620 instructions address the ordinary weekend and legal-holiday rule when the thirtieth day falls on such a day. This does not create a general extension or a late-election repair process.
What the Firm verifies before filing
The current Form 15620, revised April 2025, provides an IRS form for the election. A written statement meeting the regulation is also available. The form does not replace the need to determine eligibility, transfer date, restrictions, value, amount paid, and the person performing the services.
Sheepdog Tax can review those facts, calculate the election and no-election scenarios, and coordinate the filing record and required copies. The file should retain the signed election, supporting agreement and valuation, proof of the purchase payment, and evidence of timely filing. The instructions require a copy for the service recipient and, if different, the property transferee.
A filed election also should not be treated as freely reversible. Regulation 1.83-2(f) requires IRS consent to revoke and provides a narrow mistake-of-fact standard. A decline in value or a mistaken valuation is not the specified mistake of fact. If the filing deadline may already have passed, the Firm first establishes the actual dates and facts; this review does not promise a late cure.
Incentive stock option (ISO) exercises involving forfeitable shares need a separate alternative-minimum-tax review. This article’s ordinary restricted-stock example should not be used as an ISO filing instruction. IRS Form 6251 instructions, line 2i
Related reading
If the award spans work in different jurisdictions, One Stock Option, Two Sourcing Periods illustrates why tax timing and work-location sourcing are separate inquiries. That article addresses fully vested shares from nonqualified options; its sourcing example is not a rule for every restricted-stock award.
For cross-border employees, The Nomad Audit File explains the value of contemporaneous work and residence records. Those records complement the transfer documents; they do not establish an election’s filing date.
How Sheepdog Tax can help
Request a restricted-stock election review as soon as a transfer is contemplated or identified. Sheepdog Tax can evaluate the award, confirm the relevant deadline, model current inclusion and forfeiture scenarios, and help assemble the election and reporting file within the engagement. Counsel and the employer remain important sources for ownership and contractual questions.
Contact noah@sheepdogtax.com. Sheepdog Tax is a veteran-owned practice led by Noah Green, Certified Public Accountant (CPA) and Certified Fraud Examiner (CFE). The review does not guarantee tax savings, IRS consent to revoke, or relief from a missed deadline.
Sources
- Internal Revenue Code section 83, property transferred for services.
- Treasury regulation 1.83-2, election mechanics, forfeiture, and revocation.
- Treasury regulation 1.83-3, transfer, substantial vesting, and property definitions.
- Treasury regulation 1.83-4, basis and holding period.
- IRS Form 15620 (April 2025) and instructions, Section 83(b) Election.
- IRS Instructions for Form 6251 (2025), line 2i, forfeitable ISO shares.
Prepared by Noah Green, CPA, CFE, for Sheepdog Tax.