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Litigation

: Northwest Business Litigation Blog

IRS requires reporting for stock options

By John Walch

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The Internal Revenue Code for some time has required corporations to provide written statements to employees regarding transfers of stock pursuant to an exercised option or under an Employee Stock Purchase Plan (ESPP). Effective for 2007, Congress amended the Code to require the employer to also submit information returns to the IRS regarding the transfers. However, because the IRS did not have regulations, forms or processes in place to deal with the filings, in late 2007 the IRS waived the requirement for the 2007 calendar year.

Last Thursday the IRS published Proposed Regulations on the IRS filing process. The Proposed Regulations describe the content and form used to satisfy the statutory filing requirement. New IRS form 3921, Exercise of an Incentive Stock Option, and IRS form 3922, Transfer of Stock Acquired Through an ESPP, are used to provide this information to employees and are filed with the IRS. They are not yet available on the IRS web site.

Although the Regulations are effective as of January 1, 2007, they indicate that companies are not required to comply with the return filing requirements for transfers occurring during 2007 and 2008. So the first filing deadline under the new process will be January 31, 2010, for transactions during 2009. The Proposed Regulations allow companies to continue relying on the current version of the regulations for transfers occurring through the end of 2008, meaning the reports issued in January 2009 will be unchanged.

While these are proposed regulations, we expect them to be finalized later this year with little, if any, modification. Since transactions occurring during 2009 will be subject to the new rules, companies must ensure that they have data gathering processes or systems in place to compile the required information in order to complete the IRS forms.

Full post as published by Northwest Business Litigation Blog on July 21, 2008 (boomark / email).