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How is that relevant?
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Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
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Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#22[flagged]
There is no duty to inform carta
My question is not a joke.
It's comes down to this: how you would like to be treated if the situation was reversed?
What sort of world are we creating that if we see a problem, some people would rather complain publicly vs take your concern to your vendor/partner directly to get it resolved?
(I don't know if this attorney went to Carta first, before publishing. )
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#23All example 83-b have this problem. Since there is no form and it's just a letter, you can just add the line and do it yourself. IANAL.
Clerky's 83(b) does not have this problem.
Correct! We've always included spousal signatures on 83(b) elections. I would say the vast majority (if not all) forms I've seen from good law firms have explicit places for the spouse to sign.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#2483b seems like one of the most esoteric and user unfriendly IRS mechanisms ever. There's no official form. There's no way to file it online. The recommended approach is to use certified mail return receipt which for most people requires a trip to the post office, and in my experience the IRS fails to return them regularly, in which case you are relying on your own records and your copy of the receipt for a potential tax audit many years down the line.
You'd be hard pressed to design a more taxpayer unfriendly process. I thought it was great when Carta automated these because it's always been a friction point for myself and founders I've worked with.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#25Has anyone ever got in actual trouble for this? I doubt…
This isn’t the sort of thing I expect people to “get in trouble” for at the time of filing. I expect that years later, if the startup turns out to be worth something and the taxpayer is audited, the auditors will go through old paperwork and discover a very large amount of taxes they can collect.
They would also need a court to agree with the ruling, and the fact that the person had no reasonable way to properly sign the document is likely to hold a lot of sway in court.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#26> Manually file your 83(b). Don't use Carta to do it. Instead, download the form from the IRS website, fill it out, and mail it to the IRS within the strict 30-day deadline. You'll need to get a signature from your spouse, too. I could be wrong but last time I checked the IRS doesn't provide an official form for this. It does provide a sample election letter[1] but this sample does not include a space for a spouse to…
It's important to also get the certified mail receipt physically postmarked by the USPS (it is possible to send certified mail without that). Also, it's a common best practice to include an additional copy of the election along with a self-addressed stamped envelope, and ask the IRS to date-stamp the copy and send it back to you.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#27The IRS generally treats an 83(b) filed by either spouse as jointly filed by the union if they file a joint tax return. Whether they are in a community property state or not is irrelevant from the perspective of federal taxes because the marital joint return already deals with this situation: essentially, the union is treated as a single taxpayer.
(And yes, for those of you who are wondering: a federal tax statement/election signed by one spouse that files a joint return can bind both spouses for federal tax purposes...)
As written, neither 83(b) nor its regulations (specifically 1.83-2, which outlines the requirement for the election) require spousal consent to an 83(b) election, because they are not the person earning the income. The regulations specifically state that the statement is filed by the "person who performed the services." They then pay taxes pursuant to the 83(b) election with the joint tax return, meaning that both spouses have paid their federal tax liability with respect to any future sale.
If this were not the case, the spouses of hundreds of thousands of CA tech workers would owe tens of billions of dollars in back taxes. It would be front page news. But it's not, because it's not actually how federal taxation works...
Note that things get a bit more complicated if the spouses get divorced by the time of the sale of the stock subject to the 83(b) election. Because both spouses (are deemed to have) paid taxes on the 83(b) stock due to the 83(b) election, absent a prenup or postnup generally the 83(b) stock is treated as marital property and the proceeds are similarly marital property to be divided in a divorce. In a community property state, the split is 50/50 (I assume the same is true in non-CP states but as I've never dealt with this outside of CA I can't say). However, note that it's still irrelevant as to whether the other spouse signed the 83(b) election, so long as the election was made while they spouses still filed a joint return.
TLDR: for federal tax purposes, not having a spouse sign your 83(b) election is a non-issue, whether or not you live in a community property state.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#28Has anyone ever got in actual trouble for this? I doubt…
This isn’t the sort of thing I expect people to “get in trouble” for at the time of filing. I expect that years later, if the startup turns out to be worth something and the taxpayer is audited, the auditors will go through old paperwork and discover a very large amount of taxes they can collect.
IRS much much prefers to go after actual criminal activity.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#29The IRS generally treats an 83(b) filed by either spouse as jointly filed by the union if they file a joint tax return. Whether they are in a community property state or not is irrelevant from the perspective of federal taxes because the marital joint return already deals with this situation: essentially, the union is treated as a single taxpayer. (And yes, for those of you who are wondering: a federal tax statement/…
This person is a tax lawyer and this should be the top comment.
It also matches what I have heard from a well-regarded tax lawyer that advises startups, who advises getting a spousal signature, but from a “why not just get it”, conservative, belts and suspenders approach, but does not view it as needed.
I’d also point out that even when employees receive a form with a spousal signature space included, many fail to get it signed. If this were an issue, it would have widespread consequences well beyond Carta.
Re: Carta's 83b Oversight: A Tax Trap for Married Startup Employees (2023)
#30From our tax advisor:
> The article from the Khanna Law website is incorrect. There is no guidance or authority that requires the spouse of the service provider to sign the 83(b) election. The article indicates that if a service provider lives in a community property state like California, the service provider's spouse must file the 83(b) election form, presumably because the spouse acquires an interest in the stock. But there is no guidance to that effect. Rather, Treasury Regulation Sections 1.83-2(a) and 1.83-2(e) are quite clear that only the service provider is required to sign the election form without regard to who will have an interest in the stock subject to the election.
Take that for what you will. IANA/tax advisor etc.
EDIT: There's also a great explanation of why this seems to be a nonissue by gamblor956 at the bottom of the comments, who is a purported tax lawyer (I'm not sure why their comment is not more upvoted): https://news.ycombinator.com/item?id=38972557