3.

The Section 83(b) Election

The Internal Revenue Code offers a solution to this problem in Section

83(b), which is popularly referred to as the Section 83(b) election. Section 83(b)

provides that the recipient of property in connection with services that is subject

to a substantial risk of forfeiture may elect to pay all tax due in the tax year in

which the property was received, rather than when the substantial risk of forfeiture

lapses. In our example, the employee purchased 30,000 shares by paying

$0.10

per share, for a total of $3,000. If the fair market value of the shares at the

time

of the purchase was in fact $0.10 per share, the employee paid the full value

of

the shares. The employee would report to the IRS on a “§83(b) election”

form

that the employee received property subject to a substantial risk of forfei-

ture

in the current tax year (the property being common stock of the company

subject

to repurchase at the issuance price) with a value of $3,000, and that the

employee

paid $3,000 for that property.