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I sold a startup to a public company. I filed an 83b at startup inception (nominal value).

The terms of the sale were such that I must vest the sale proceeds over 4 years and will be realized as stock of the public company (this is independent of salary and equity package as part of employment). In one sense, I've traded startup stock for stock in the public company with a new 4 year vest.

I was highly encouraged to fill out an 83B at the time of sale where the "FMV" and the "amount paid" in they 83B were the same (semi-large) number.

I was told by the lawyers there was no tax consequence because the two numbers were the same. However, a tax professional tells me that since the start-up stock was "realized" there invokes a taxable event now.

Keep in mind, I've received none of that stock so far and won't for several more months. However, I'm now led to believe I owe cap-gains tax on the entire 4 year vest this year. Who's right?

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I was told by the lawyers there was no tax consequence because the two numbers were the same.

That is correct.

However, a tax professional tells me that since the start-up stock was "realized" there invokes a taxable event now.

That is correct.

I'm now led to believe I owe cap-gains tax on the entire 4 year vest this year

That is incorrect.

You owe capital gains tax on the sale of your startup stock. Which is accidentally the exact same amount you "paid" for the new unvested stocks.

There's no taxable event with regards to the new stocks because the amount you paid for them was the amount you got for the old stocks.

But you did sell the old stocks, and that is a taxable event.

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  • Isn't the "taxable event" a tax consequence, in that the OP owes tax earlier than it would otherwise have been owed? In the end the total tax paid will be the same as long if the new shares end up being worth more than they are now, but it might create a liquidity problem now as the OP doesn't have any cash from the share swap. May 23, 2015 at 18:17
  • @GaneshSittampalam no, the taxable event is the sale of the startup stocks. The new 83(b) is irrelevant, the sale of the startup stocks triggers capital gains regardless of what was done with the proceeds. You cannot defer taxes on stock sales. Liquidity may indeed be an issue. The OP should have had a tax consultation before making decisions.
    – littleadv
    May 23, 2015 at 18:30
  • Right, the end result makes sense, it just seems to me that the lawyers were wrong not to describe it as a "tax consequence". May 23, 2015 at 18:31
  • @GaneshSittampalam the lawyers were right. It's just that they were talking about the 83(b) filing for the new stock. They didn't, and wouldn't, provide advice re the old stocks. None of their business.
    – littleadv
    May 23, 2015 at 18:32
  • If they were only talking about the new filing, why would the "because the two numbers were the same" be relevant? May 23, 2015 at 18:33

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