Making an 83(b) election when receiving founder’s stock generally makes a lot of sense. When you have the opportunity to purchase restricted stock for a start-up company at a nominal price, if you do NOT make the 83(b) election, you are taxed on the value of the shares as of the date the restrictions lapse based on what the shares are worth that day. And that income is reported as ordinary income the year the restrictions lapse instead of as tax-advantaged capital gain income.
When you make the 83b election, you are taxed on the difference between what the shares are worth when you receive them and their true value. In many cases, the person receiving the founder’s shares ends up paying $1 to purchase shares currently worth $1, so there would be no income to report. And going forward, there would be no income to report as the restrictions lapse. Instead, when you sell the shares later, they would qualify for long-term capital gain treatment (provided you held them for at least a year from the date you paid the $1 for the shares.)
You have 30 days from the receipt of these shares to prepare and sign the 83b election, and return one copy to the company and mail in one copy to the IRS. Sometimes the finance people at the company issuing the shares will help with this. Other times they tell the new shareholders to have their accountant help.
Regardless, here is the mailing address to send the 83b election form if you live in New England:
Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999-0002