Reporting Requirements For Companies with Stock Option Plans and Employee Stock Purchase Plans
The purpose of this memo is to notify our clients with stock option plans or employee stock purchase plans of the reporting requirements required by the Internal Revenue Code of 1996, as amended (“Code”), for all stock issued under those plans during the 2002 calendar year.
Under Section 6039(a) of the Code, every corporation that issued stock upon the exercise of an incentive stock option (meaning a stock option that qualifies for the treatment available under Section 421 of the Code) must furnish, on or before January 31, 2003, a written statement containing specified information to the person that exercised the option. A sample of this form is attached hereto as Exhibit “A.”
Additionally, any corporation that in 2002 records (or its transfer agent records) a transfer of stock originally acquired under an employee purchase plan (meaning a plan that is established under Section 423 of the Code), must furnish a written statement containing certain specified information to the employee that transferred the stock. A sample of this form is attached hereto as Exhibit “B.”
Neither of these information statements is filed with the Internal Revenue Service.
A penalty of $50 may be imposed for each statement not timely furnished or that contains incorrect information.
These reporting requirements are in addition to any reporting obligations that arise upon the disqualifying disposition of stock acquired under either an incentive stock option or an employee stock purchase plan.
Please note, amounts includible in income as a result of the exercise of a non-statutory stock option (meaning a stock option plan that is not an incentive stock option for purposes of Section 421 of the Code) should be reported on a Form W-2 in the case of employees or on a Form 1099 in the case of non-employees along with any appropriate withholding.
Exhibit A
TO: [Person who exercised an incentive stock option during 2002]
FROM: [Company Name]
RE: Exercise of Incentive Stock Option (as described in Section 422 of the Internal Revenue Code)
Dear :
Pursuant to Internal Revenue Code Section 6039(a)(1), the following information is being furnished to you with regard to your exercise of an incentive stock option under the [Company Name] [plan title, e.g., 1999 Equity Incentive Plan] during 2002:
1. Corporation transferring the stock to you upon exercise of the option:
Name:
Address:
Employer Identification Number:
2. Corporation whose stock was transferred upon exercise of the option (if different from corporation named in item 1):
Name:
Address:
3. Person to whom stock was transferred upon exercise of the option:
Name:
Address:
Social Security Number:
4. Date option granted:
5. Date of transfer of stock to you upon exercise of the option:
6. Number of shares transferred to you upon exercise of the option:
7. Total fair market value (at time of exercise) of stock transferred to you upon exercise of the option*:
8. Aggregate option exercise price:
Dated:
[Company Name]
By
* This amount is used to determine the adjustment to income made in calculating alternative minimum tax for optionees whose stock is not subject to a “substantial risk of forfeiture” pursuant to Section 83 of the Internal Revenue Code. Optionees whose stock was subject to a “substantial risk of forfeiture” at the time of exercise should consult their own tax advisors regarding the amount and timing of the adjustment.
Exhibit B
TO: [Transferor of Section 423 stock (generally an employee)]
FROM: [Company Name]
RE: Transfer of Stock Acquired Under an Employee
Stock Purchase Plan (as described in Section 423 of the Internal Revenue Code)
Dear :
Pursuant to Section 6039(a)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), the following information is being furnished to you with regard to your transfer during 2002 of stock acquired under the [Company Name] [plan title, e.g. 1999 Employee Stock Purchase Plan]:
1. Corporation whose stock was transferred:
Name:
Address:
Employer Identification Number:
2. Person who transferred stock originally acquired under an employee stock purchase plan (“transferor”):
Name:
Address:
Social Security Number:
3. Date stock originally acquired by you:
4. Number of shares to which title was transferred by you during 2002:
The shares transferred were acquired by you under a purchase right that is an option described in Section 423(c) of the Code. As a result of your transfer described above, you are subject to taxation as described in Section 423(c) of the Code and therefore, may have to recognize income that is taxable as ordinary income.
Please keep this statement for income tax purposes.
Dated:
[Company Name]
