The 83 bis agreement, also known as the 83(b) election, is an important aspect of equity compensation in the United States. It allows startup employees and other equity holders to pay taxes on their equity grants at a lower rate, potentially saving them thousands of dollars in taxes.

So, what exactly is the 83 bis agreement? Simply put, it`s a provision in the Internal Revenue Code that lets employees who receive restricted stock or other equity grants pay taxes on the value of the equity at the time it is granted, rather than at the time it vests or becomes unrestricted. By doing so, recipients can potentially reduce or eliminate future tax liabilities, especially if the value of the equity increases significantly over time.

To make an 83(b) election, the recipient must file a written statement with the IRS within 30 days of receiving the equity grant. This statement must include various details about the grant, including the fair market value of the equity, the amount paid for it, and the recipient`s tax identification number.

It`s worth noting that making an 83(b) election is not always the best choice for everyone. Depending on the specifics of the grant and the recipient`s financial situation, it may be more advantageous to defer taxes until the equity vests or becomes unrestricted. In addition, the rules surrounding equity compensation and taxation can be complex, so it`s important to consult with a tax professional or financial advisor before making any decisions.

Despite its complexities, the 83 bis agreement is a valuable tool for those who receive equity grants as part of their compensation. By taking advantage of this provision, recipients can potentially reduce their tax liabilities and maximize the value of their equity over time. Whether or not to make an 83(b) election is ultimately a decision that should be made on a case-by-case basis, with careful consideration of all the relevant factors.