83(b) Filing Deadline Extension: 2020 COVID-19 Exception for 30-day Window
If you received shares or early exercised stock options in 2020 and filed or still need to file your 83(b), there are some unique circumstances this year to take in to account.
The United States Postal Service and the Internal Revenue Service are hard at work during difficult times, but major delays due to the COVID-19 outbreak have affected their tracking processes and availability. This certainly affects your personal tax responsibilities, particularly for something as time-sensitive as an 83(b) filing.
The regular 30-day deadline and return copy process
Vesting of shares is a taxable event. Stockholders owe the IRS based on the value of their equity at the time of vesting.
To preempt this process and avoid a higher tax bill as shares vest, RSU holders and those who early exercise their options can opt for an 83(b) tax election. This provision of the Internal Revenue Code makes it possible for stockholders to be taxed on the fair market value of their shares at the time when those shares are granted (typically, a much lower value) rather than when they vest (typically, a much higher value).
Failure to file an 83(b) election within 30 days of the issue date typically results in the taxpayer paying ordinary income tax rates based on the FMV of the shares as of the date the property vests or becomes transferable, less the amount (if any) the taxpayer paid for the property.
|83(b) election||Without an 83(b) election|
|Number of RSUs issued||100,000||100,000|
|Taxable event||At time of RSU grant||At time of RSU vesting|
|FMV per share at time of grant||$1.00||$1.00|
|FMV per share at time of vesting||$5.00||$5.00|
|FMV of all shares at time of taxable event||$100,000||$500,000|
|Taxes paid at taxable event (35% ordinary income tax rate)||$35,000||$175,000|
Usually what happens within a few weeks (at most) of mailing your documents:
- You’ll receive confirmation from USPS that your documents have been delivered, and
- You’ll receive your return copy back from the IRS in your self-addressed envelope that you sent originally.
As of June 2020, neither of these has been happening in a timely fashion (or one has, but not the other), and many filers are unsure if their documents have arrived on time, and concerned that they’ve missed the 30-day deadline, which can have a significant impact on their future tax bills.
The extension: A grace period through July 15, 2020
As a result of the COVID-19 pandemic, the IRS has extended the deadline until July 15, 2020, for 83(b) elections that would otherwise be due on or after April 1, 2020, and before July 15, 2020.
This “grace period” of sorts should help you still qualify for the deadline even if you haven’t received any USPS confirmation or a return copy back. We still recommend calling the IRS (more information on how to do this below) while you wait to make sure you don’t need to re-send anything.
Coronavirus-related delays from USPS and IRS: Delivery, tracking, and processing backlogs
USPS: There have been systemwide delays in mail delivery. We found that Certified Mail tracking was spotty at best and couldn’t get a definitive answer on the nature of these delays or the gaps in tracking information. Do not be alarmed if your tracking number says “Waiting for USPS Pickup” for weeks or even months, as the statuses related to the tracking numbers are intermittently inaccurate.
IRS: For example, the Kansas City, MO IRS office, a large office that handles forms from New York residents, was closed, briefly reopened, and then closed again throughout April, May, and June. If your documents were delivered during that time period, there was no staff to process the intake of documents, and at time of writing (late July 2020), they are still currently working through the backlog of mail from that time.
Calling the IRS to confirm delivery
Here are some very detailed instructions on calling the IRS from Clerky:
- Call the IRS at 800.829.1040
- Select option 1 (“To continue in English”)
- Select option 2 (“For answers about your personal income taxes”)
- Select option 1 (“For questions about a form you have already submitted, your tax history or payment”)
- Select option 3 (“For all other questions about your tax history or payment”)
- Select option 2 (“For all other questions about your tax history or payment”)
- Enter your social security number
- Select option 1 to confirm you entered a social security number
- After the correct read back of your social security number, select option 1 to confirm
- Do not choose any of the topics offered. Instead, continue to hold to indicate that you have not heard your topic.
- Ignore any other prompts and continue to hold. This should ultimately result in an attempt to transfer your call to the queue to speak with an IRS representative. Simply listen to any notifications (e.g., “Your call may be monitored or recorded for quality purposes”, “Please hold while we transfer your call”, “Please wait”, etc.).
- If IRS call volume allows your call to be queued to speak with an IRS representative, you may hear a wait time estimate (e.g., “We estimate your wait time to be between 15 and 30 minutes”). If your call cannot be queued to speak with an IRS representative, you may be asked to call back later (e.g., “We’re sorry, but due to extremely high call volume and the topic you requested, we are unable to handle your call at this time. Please try again later or on our next business day.”).
The number listed there is for the Kansas City office, so you may want to call a different branch based on your state, but the automated instructions should be fairly similar regardless of the office.
The IRS call center is currently quite busy, due to inquiries about PPP loans and economic stimulus payments. You may find that due to high call volume, you will have to call back a few times during business hours to make it through the queue.
If you’re able to reach a representative, they may be able to provide you some information to put your mind at ease regarding the status of your documents. Given the delays, you may be told any of the following, based on when exactly you mailed in and possibly a bit of luck in which packages made it to the top of the processing pile at your assigned IRS facility:
- They have no record of your 83(b) or any new documents, but that you should call back in a few days or weeks as they work through their backlog
- They have some record of a new document being processed and associated with your taxpayer account on a certain date, but no information on what that document is
- They have fully processed your 83(b) and you should be receiving your return copy in the mail soon
For more ongoing tax planning or financial advising related to your equity and the actions you should be taking, create a free profile with Harness Wealth to be referred to advisory firms that can help.
- Tax Planning for When Your Startup is Acquired
- Advice on Startup Liquidity Mistakes
- Tax Planning vs. Tax Preparation: What’s the Difference?