Guest Article

(From the January 28, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

The IRS Waives the Informational Return Requirement for 2007 Stock Transfers Governed by IRC § 6039

Under Section 6039, a corporation that transfers stock to an employee (or former employee) as a result of exercise of an incentive stock option (ISO), as defined in IRC § 422(b), must give the employee an annual statement with respect to that transfer. Treas. Reg. 1.6039-1(a). A similar requirement applies to stock received on exercise of an option granted under an employee stock purchase plan (ESPP), as defined in IRC § 423(b), if the option provided for a discounted exercise price, except that in this case, the employer must provide the annual statement with respect to transfer of the stock by the employee, rather than the acquisition of the stock. Treas. Reg. 1.6039-1(b).

In general, the statement provides information related to the employee and the shares involved (e.g., number of shares, fair market value, information on acquisition and transfer). Treas. Reg. 1.6039-1(a). While extensions are available, the deadline to furnish a statement is January 31 of the year following the year in which the reportable transfer occurred. Failure to timely furnish the required statement could result in a penalty of $50 per statement, not to exceed $100,000 per calendar year.

Informational Return

The Tax and Health Care Relief Act of 2006 (the Act) amended IRC § 6039 by adding a paragraph requiring employers to file an informational return for stock transfers covered by § 6039. The informational return, which is anticipated to contain much of the same information furnished in the statement, is required with respect to stock transfers occurring on or after January 1, 2007. The Act requires issuance of regulations with respect to this informational return, but regulations have not yet been issued.

Notice 2008-8

Recognizing that the regulations have not been issued, the IRS recently issued Notice 2008-8 (Notice). Notice 2008-8, 2008-3 I.R.B. 276. This Notice waives the filing requirement for informational returns reporting stock transfers in 2007. Statements to employees, however, are still required for 2007, as are statements and informational returns for stock transfers in 2008.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.