ALERT - Jan. 31 Reporting Requirement Deadline Regarding ISOs and ESPPs

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January 23, 2009
Brett D. Anderson and Jennifer Randolph Reise

Information Statements for 2008 Due Jan. 31

This is a reminder to public and private companies that grant incentive stock options (ISOs) or maintain a tax-advantaged employee stock purchase plan (ESPP). Section 6039 of the Internal Revenue Code of 1986, as amended requires such companies to provide information statements by January 31, 2009 to each employee who during 2008 either (i) received stock upon the exercise of an incentive stock option or (ii) sold or otherwise transferred legal title to stock acquired under an employee stock purchase plan. Treasury regulations specify the information required to be in each information statement.

Companies should coordinate with their transfer agent and/or benefits administrators now to ensure that this deadline is met. In general, the IRS may impose a penalty of $50 for each statement that is not timely furnished or contains incorrect or incomplete information, up to $100,000 per calendar year, and may impose greater penalties for an intentional failure to report.

Reporting Requirement for 2009

The Tax Relief and Health Care Act of 2006 amended the reporting requirements under Section 6039 to additionally require companies to file an information return with the Internal Revenue Service (IRS) for ISO exercises and transfers of ESPP shares that occur after January 1, 2007. Although the IRS has waived the reporting requirement for transactions that occurred in 2007 or 2008, they have not waived the IRS reporting requirement for 2009. Companies should establish systems now to collect the required information during 2009 in order to accurately report it to the IRS by the January 31, 2010 deadline.

For more information, contact your Briggs and Morgan attorney.