For example, let’s say that you are sold and issued 1,000,000 shares at $0.01 per share at the time of incorporation with the standard 4 year vesting and 25% vesting after year one. The default rule with vesting shares is that at year one (when 250,000, or 25%, of your shares vest), that will be a taxable event. Let’s also assume that after one year, the shares are worth $1 per share. The taxable amount is the increase in the fair market value at that vesting milestone. Therefore, after celebrating the vesting of 250,000, you will then come to a quick realization that the IRS just attributed $0.99 of income per share[i.e. $1 minus $0.01] or $249,750.
The 83(b) election must be filed with the IRS no later than 30 days after the date of issuance.