Final Regs. Affect Statutory Stock Options and Employee Stock Purchase Plans

By Alistair M. Nevius, J.D.

The IRS has issued final regulations (T.D. 9470) that provide information reporting requirements for statutory stock options and employee stock purchase plans under Sec. 6039. The final regulations reflect the expanded return and information reporting requirements under Sec. 6039 instituted by the Tax Relief and Health Care Act of 2006, P.L. 109-432.

Sec. 6039(a) requires every corporation that transfers stock pursuant to an exercise of an incentive stock option or an option under an employee stock purchase plan to file a return with the IRS and provide an information statement. The final regulations describe the information that is required in the return filed with the IRS and the information statement furnished to employees. The IRS plans to issue two forms that corporations must use to satisfy the return and information statement requirements.

The regulations are effective January 1, 2007, but the IRS has waived the return requirement for stock transfers occurring in 2007, 2008, and 2009. (However, employers must still furnish information statements for stock transfers that occurred during those years.)

On the same day, the IRS issued final regulations (T.D. 9471) relating to options granted under an employee stock purchase plan. These final regulations provide a comprehensive set of rules governing stock options issued under an employee stock purchase plan and incorporate substantially all the rules contained in the existing regulations under Sec. 423. The regulations apply to statutory options granted on or after January 1, 2010.

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