83(b) election & Finding a Lawyer for Startups in DE

[burhan]

Hello,
I created a C Corp in Delaware recently and I don't get enough support from the company who helped me to create it. Thankfully I found an accountant for the company and he assisted me for most of the things. However, he also told me that I don't need to file an 83(b) election as a foreigner (Non-US citizen). When I reported back it to the company, they insisted that I should file it quickly and contact their partner law firm. Their partner law firm that is based in the UK(?!) didn't answer me for a while. I am curious if I need to file 83(b) election as a Non-US citizen and the only person who owns the company (no share or partnership at all). If so, how can I find a startup business lawyer in DE? I found some but they didn't respond to me yet.



What is the name of your state? Delaware

 

[quincy]

burhan, your post here is best added to your other recent thread. Thanks.

 

[LdiJ]

Hello,
I created a C Corp in Delaware recently and I don't get enough support from the company who helped me to create it. Thankfully I found an accountant for the company and he assisted me for most of the things. However, he also told me that I don't need to file an 83(b) election as a foreigner (Non-US citizen). When I reported back it to the company, they insisted that I should file it quickly and contact their partner law firm. Their partner law firm that is based in the UK(?!) didn't answer me for a while. I am curious if I need to file 83(b) election as a Non-US citizen and the only person who owns the company (no share or partnership at all). If so, how can I find a startup business lawyer in DE? I found some but they didn't respond to me yet.



What is the name of your state? Delaware

Are you giving away shares in the company to others that won't fully vest until certain milestones are met? Otherwise, I cannot see any reason for an (83)b election.

 

[quincy]

burhan, your post here is best added to your other recent thread. Thanks.

Actually, I see now that your other thread was about umlauts. A new thread for your question here is appropriate.

 

[burhan]

Are you giving away shares in the company to others that won't fully vest until certain milestones are met? Otherwise, I cannot see any reason for an (83)b election.

No, I won't. But they have told me this:

Files an 83(b) election (very important!). Startup attorneys typically strongly recommend that founders with stock subject to vesting file an 83(b) election with the IRS to avoid potentially enormous personal tax obligations as the company’s value increases. Read more here. 83(b) elections must be filed within 30 days of the stock purchase and there is no way to file a late election, so we recommend considering the election immediately. You can download an 83(b) election template and instructions here.

 

[burhan]

Actually, I see now that your other thread was about umlauts. A new thread for your question here is appropriate.

Hehe. I would make an explanation but I didn't want to confuse anyone.

 

[LdiJ]

No, I won't. But they have told me this:

Is your stock subject to vesting? If it is not, there is no point in making the election.

 

[burhan]

Is your stock subject to vesting? If it is not, there is no point in making the election.

No not really. It is rather a new company. I didn't even get an EIN or TAX ID yet It looks like a commission trap to me.

 

[burhan]

Is your stock subject to vesting? If it is not, there is no point in making the election.

I think I misunderstood your question. I signed something like this:

http://imgur.com/uA2w6UZ

http://imgur.com/DdhHvEj

 

[LdiJ]

I think I misunderstood your question. I signed something like this:

http://imgur.com/uA2w6UZ

http://imgur.com/DdhHvEj

Ok, any shares are fully vested as of the date of the granting of the shares. Therefore, again, I see no point in an (83)b election. However, I am beginning to wonder if you are playing with us.

 

[burhan]

Ok, any shares are fully vested as of the date of the granting of the shares. Therefore, again, I see no point in an (83)b election. However, I am beginning to wonder if you are playing with us.

I am sad if I made you feel like this. To be honest, English is my second language. Especially I am very bad at technical terms. I have no idea what is 83b election, payment agreement, and lots of other stuff at all. When you asked me about vesting, I thought it is a kind of "sequester". Haha. I am really sorry. Please accept my apologies and thanks bunch for your help. Unfortunately, the company that helped me to create inc. keeps asking me to go to their partner law firm for every steps. They insisted that I need to file that election forms. I also start to doubt their honesty. Thanks, bunch again.

 

[Taxing Matters]

There are two things to note here.

First, there is no benefit from a § 83(b) election for stock that fully vests at time of issue, as yours apparently did. Indeed, when you are the owner of 100% of the shares the issuance of the stock to you at formation would be tax free under IRC § 351 even if you were a citizen or tax resident of the U.S.

Second, for a nonresident alien who is not performing any work for the corporation in the U.S. there is also typically no benefit to a § 83(b) election for restricted stock that vests some time after issue since the income from both issuance and later sale of the stock would be non US source income and thus not taxed anyway. Where the § 83(b) election does make sense for a nonresident alien is where the alien may later move to the US and become a resident for tax purposes before the stock vests.

One note: it gets a bit more complicated for the nonresident alien if the stock in the US corporation is a US real property holding company (USRPHC) and thus regarded as a U.S. real property interest (USRPI). The reason for that is that the sale of a USRPI is US source income. A domestic corporation holding over 50% of its assets as real estate or as assets not used in its trade or business may be a USRPHC.

A UK law firm may not understand the details of § 83(b) or the US taxation of nonresident aliens in sufficient detail to know when the § 83(b) election is truly appropriate. Indeed, even some US business lawyers don't understand § 83 well and just recommend that everyone make that election without thinking about when it may not be a good idea. A US tax lawyer or other tax professional familiar with § 83 and taxation of nonresident aliens is the person you need for the best advice on this, IMO.

 

[burhan]

There are two things to note here.

First, there is no benefit from a § 83(b) election for stock that fully vests at time of issue, as yours apparently did. Indeed, when you are the owner of 100% of the shares the issuance of the stock to you at formation would be tax free under IRC § 351 even if you were a citizen or tax resident of the U.S.

Second, for a nonresident alien who is not performing any work for the corporation in the U.S. there is also typically no benefit to a § 83(b) election for restricted stock that vests some time after issue since the income from both issuance and later sale of the stock would be non US source income and thus not taxed anyway. Where the § 83(b) election does make sense for a nonresident alien is where the alien may later move to the US and become a resident for tax purposes before the stock vests.

One note: it gets a bit more complicated for the nonresident alien if the stock in the US corporation is a US real property holding company (USRPHC) and thus regarded as a U.S. real property interest (USRPI). The reason for that is that the sale of a USRPI is US source income. A domestic corporation holding over 50% of its assets as real estate or as assets not used in its trade or business may be a USRPHC.

A UK law firm may not understand the details of § 83(b) or the US taxation of nonresident aliens in sufficient detail to know when the § 83(b) election is truly appropriate. Indeed, even some US business lawyers don't understand § 83 well and just recommend that everyone make that election without thinking about when it may not be a good idea. A US tax lawyer or other tax professional familiar with § 83 and taxation of nonresident aliens is the person you need for the best advice on this, IMO.

Now it makes more sense to me. Thanks for the clear explanation.