In November 2009, the IRS issued final regulations relating to the reporting and filing requirements under Section 6039 of the Internal Revenue Code of 1986, as amended (the Code) with respect to the exercise of incentive stock options (ISOs) and certain transfers of stock under an employee stock purchase plan (ESPP).
As anticipated, the final regulations retained the established set of information required to be reported on employee information statements and employer information returns which must be provided on new IRS Form 3921 (Exercise of a Qualified Incentive Stock Option under Section 422(b)) and Form 3922 (Transfer of Stock Acquired Through an Employee Stock Purchase Plan under Section 423(c)). The final regulations, however, provided transition relief by waiving the reporting requirements for stock transfers during 2007, 2008 and 2009. Thus, the first such information reports and information statements must be filed by companies by January 31, 2011 for calendar year 2010 ISO and ESPP transactions. This tracks the delivery date of Form W-2s which are also needed by individuals to prepare their Form 1040s for a given calendar year. As such, companies need to start gearing up to meet this new information filing requirement.
Code Section 6039 provides that a company must comply with certain information return and information statement requirements for any calendar year in which the company. The requirements are as follows:
- Transfers to any person a share of stock pursuant to such person’s exercise of an ISO
- Records (or has by its agent record) a transfer of the legal title of a share of stock acquired by the transferor pursuant to his/her exercise of an option described in Code Section 423(c) (relating to the special rule where the option price is between 85 percent and 100 percent of the value of the stock) (an ESPP Option)
Note that no Code Section 6039 reporting is required for nonresident aliens if a Form W-2 is not required to be provided to such individual for any part of calendar year between the date of grant and the date of exercise (e.g., for an ISO) or first transfer of legal title (e.g., for an ESPP).
In this e-alert we discuss the following areas:
What You Need To Do Now
Because a company will need to put appropriate procedures in place to ensure that the correct information is captured and reported in early 2011, a company should allocate resources and attention to this issue now to provide themselves with suitable response time. Further, if a company does not track these reportable transactions through an agent or vendor, then extra time will be necessary for that company to actually develop a process for coordination of the information. To view the reporting and filing requirements, click here.
For More Information
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