January 7, 2009

EMPLOYERS: DEADLINE APPROACHES

TO FURNISH INCENTIVE STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLAN STATEMENTS TO EMPLOYEES

Section 6039 of the Internal Revenue Code requires a corporation to furnish a written statement to any employee or former employee who either (i) exercised an incentive stock option during 2008 or
(ii) transferred during 2008 shares acquired under the corporation’s Section 423 employee stock purchase plan. This requirement applies to both privately held and publicly traded corporations. The corporation must furnish the statement by mailing it to the last known address of the employee or former employee by January 31, 2009.

ISO Exercises

Corporations must include the following information in the Section 6039 statement provided to an employee or former employee who during 2008 exercised an incentive stock option within the meaning of
Section 422(b) of the Internal Revenue Code:

  1. The name, address and employer identification number of the corporation transferring the shares;
  2. The name, address and employer identification number of the corporation the stock of which is subject to the option (if other than the corporation transferring the shares);
  3. The name, address and identifying number of the person to whom the shares were transferred pursuant to the exercise of the option;
  4. The date the option was granted;
  5. The exercise price per share;
  6. The date the option was exercised;
  7. The fair market value of a share on the date the option was exercised; and
  8. The number of shares transferred pursuant to the exercise of the option.

ESPP Share Transfers

Corporations must include the following information in the Section 6039 statement provided to an employee or former employee for whom it records an initial transfer of the legal title to shares of stock acquired by the individual pursuant to an option granted under an employee stock purchase plan to which Section 423(c) of the Internal Revenue Code applies (i.e., options having an exercise price between 85 percent and 100 percent of the fair market value of the shares):

  1. The name, address and employer identification number of the corporation whose stock was transferred;
  2. The name, address and identifying number of the employee;
  3. The date the option was granted to the employee;
  4. The fair market value of the stock on the date the option was granted;
  5. The exercise price per share;
  6. The date the option was exercised;
  7. The fair market value of the stock on the date the option was exercised;
  8. The date the legal title of the shares was transferred by the employee; and
  9. The number of shares to which title was transferred.

Sample Information Statements

To view a sample ISO exercise information statement, please click here.

To view a sample ESPP share transfer information statement, please click here.

IRS Return Requirement Waived for 2008

The Tax Relief and Health Care Act of 2006 amended the reporting requirements of Section 6039 to require filing an information return with the IRS for stock transfers occurring on and after January 1, 2007, in addition to providing the employee information statements described above. On July 16, 2008, the IRS proposed rules establishing the information return requirements. However, final rules have yet to be issued, and the IRS has waived the return filing requirement for transactions occurring during 2008. Nonetheless, corporations must still provide the required information statements to employees and former employees.

Timely Furnishing of Section 6039 Statements is Important

Section 6722 of the Internal Revenue Code imposes a penalty of $50 on each failure to furnish a correct Section 6039 statement (up to a maximum of $100,000 per calendar year). “Failure” is defined as either (1) failure to furnish a timely statement, or (2) failure to include all of the information required or inclusion of incorrect information. For intentional disregard of the reporting requirement, the penalty is $100 per failure, and the $100,000 maximum does not apply.