Technology companies commonly use equity-based compensation tools to attract and retain top talent. Two often used tools include incentive stock options (ISOs) and employee stock purchase plans (ESPPs). If your company offers ISOs or has an ESPP, be aware that the Treasury has created a new reporting requirement for 2010.
Internal Revenue Code (IRC) §6039 has long required an employer corporation to provide an employee specified information about the transfer of stock as a result of the exercise of an ISO or the bargain purchase of stock under an ESPP. In 2006, Congress passed the Tax Relief and Health Care Act which required an employer corporation to also provide such information to the IRS. The Treasury has waived the requirement to report such information to the IRS – until now that is. The IRS recently issued final regulations requiring the information reporting for stock transfers occurring in 2010 and thereafter.
Two new forms will be released in the near future: Form 3921 – Exercise of an Incentive Stock Option Under Section 422(b) and Form 3922 – Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c). In general, the new forms will report the identifying information of the employer corporation issuing the stock, the identifying information of the employee receiving the stock, and the date, quantity and amount information regarding the grant, exercise and/or transfer of the stock.
Employer corporations with ISOs or ESPPs should consider whether their accounting or other information systems capture and track the required information to be reported. If the systems do not, steps should be taken to modify or supplement the systems to ensure that the reporting requirements can be met.
Should you have any questions regarding the new reporting requirement or equity-based compensation methods in general, please consult your tax advisor.
Please feel free to contact Eric Schwefler at eric@calibercpas.com.
Required Disclaimer: Pursuant to IRS Circular 230, the Internal Revenue Service requires us to inform you that any tax advice included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by the IRS on the taxpayer.