Updated July 29, 2026. Quick answer: Because it declined to build the escrow, and the IRS said in terms that this is enough. Notice 2018-97: a corporation “can preclude its employees from making section 83(i) elections by declining to establish an escrow arrangement.” The escrow appears nowhere in the Code — the IRS created it under §83(i)(3)(A)(ii) — and without it the employee cannot make the agreement the election requires.
The off-switch, quoted
Notice 2018-97, §III.B.2 requires that an employee making the election “must agree in the election that all deferral stock will be held in an escrow arrangement.” Section III.C then states the consequence plainly: “a corporation can preclude its employees from making section 83(i) elections by declining to establish an escrow arrangement … As a result, a corporation need not be concerned that it would inadvertently create the requisite conditions.” Stock can satisfy every statutory test and still be un-electable because the plan documents say so.
And the 80 percent test is two tests, not one
Notice 2018-97 §III.A states it in the IRS’s own words: “to meet the 80% requirement, the corporation must have granted ‘in such calendar year’ stock options to 80% of its employees or RSUs to 80% of its employees.” There is no combined pool — a mixed programme cannot add options and RSUs together to reach 80%. And the Notice forecloses the obvious workaround: reading the requirement cumulatively across prior years is “contrary to the language of the statute and is not a reasonable good faith interpretation.” It is a fresh test every year.
Correcting something widely repeated, including by us until we read the statute. It is often said that no 83(i) election is available for RSUs. That is wrong. IRC §83(i)(2)(A)(i) defines qualified stock as stock received “(I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit”. The rule people are thinking of is §83(i)(7), which bars the ordinary §83(b) election for RSUs — a different election under a different provision.
Five ways the deferral ends, not three
IRC §83(i)(1)(B) fixes inclusion at the earliest of: the stock becoming transferable “(including, solely for purposes of this clause, becoming transferable to the employer)”; the employee becoming an excluded employee; any stock of the corporation becoming readily tradable on an established securities market; five years; or the employee revoking. Two of those are routinely dropped from summaries and both bite in practice — a company buyback window can end the deferral, and so can a promotion that makes you an excluded employee. Under §83(i)(4)(B) no election may be made at all once any stock is readily tradable, so an IPO closes the door coming and going.
| Condition | Who controls it |
|---|---|
| An escrow arrangement exists | The employer, entirely |
| Options to 80%, or RSUs to 80%, that calendar year | The employer’s grant practice, tested annually |
| Not an excluded employee | Your role — and it can change |
| No stock readily tradable | Nobody, once the company lists |
For restricted stock the election that does exist is §83(b) — with a thirty-day window that is also the only window in which you can change your mind. Which is why the liquidity problem these grants create has to be solved with cash rather than with an election.
Sources
IRC §83(i)(1)(A) and (1)(B), §83(i)(2)(A), §83(i)(2)(C), §83(i)(3)(B), §83(i)(4)(B) and §83(i)(7); IRS Notice 2018-97, §III.A, §III.B.2 and §III.C. Read July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. Lock-up terms, award agreements and plan documents vary, and both the securities and the tax analysis turn on facts about your role and holdings that no page can see.