News

"[1] Compensation income ... [2] Stock sales: capital gain or loss ... [3] Cost basis of company stock sales ... [4] Alternative Minimum Tax (AMT) ... [5] Equity comp income left off W-2 ... [6] Estimated taxes ... [7] IRS Form 1099-NEC for nonemployees."

"Should a compensation committee ... want to explore alternatives to simplify their designs, here are some examples. [1] Eliminate LTI awards and provide only salary and annual incentives, but require a significant portion of the annual incentive to be deferred into restricted stock ... [2] Eliminate LTI and provide only salary and restricted stock, with shares vesting over a multi-year period. [3] Grant only one form of performance-based long-term incentive to reduce complexity. [4] Grant only stock options that provide a clear pay for performance relationship with shareholder returns, [5] Simplify the number of performance measures used in both annual and LTI awards."

"Although generally excluded from Form W-2 reporting, the U.S. Internal Revenue Code requires that separate information returns be furnished to most U.S. taxpayers who exercised ISOs during 2023 (an 'optionee') or who transferred shares during 2023 that were acquired under an ESPP (a 'transferor').... The deadline for furnishing Forms 3921 and 3922 to optionees and transferors is January 31, 2024. The deadline for filing Forms 3921 and 3922 with the IRS is February 28, 2024,"

"Approaches ... for down or volatile stock prices include harvesting capital gains and tax losses.... [O]ther strategies involve converting pre-tax IRAs to Roth IRAs.... [W]hen stock prices are down 'there may be opportunities such as exercising more incentive stock options (ISOs) without triggering the AMT.' ... Multi-year planning is key ... to consider whether to exercise stock options this year or next, and to know what RSUs are vesting or performance share grants may pay out."

"Section 6039 ... requires businesses to report to the IRS when employees have exercised Incentive Stock Options (ISOs) or have purchased company stock under an Employee Stock Purchase Plan (ESPP).... Deadlines for filing these forms with the IRS for transactions that occurred in 2023 are February 28, 2024 for paper filers and April 1, 2024 for electronic filers."

"New Item 402(x) ... adds disclosure requirements to annual proxy statements ... For calendar year-end companies, this disclosure will be required in the Form 10-K and proxy statements to be filed in early 2025. However, because the tabular disclosure may be required with respect to option grants made in calendar year 2024, public companies should review and consider changes to their equity grant policies and procedures now."

"On October 17, 2023, the [IRS] updated its Internal Revenue Manual to fully incorporate ... certain e-signature policies and procedures permitting the use of electronic signatures on certain forms, including elections under section 83(b) of the Internal Revenue Code ... This indefinitely extends the prior temporary relief granted by the IRS that was set to expire on October 31, 2023."

"As with many later-stage startup companies, Instacart's initial public offering (IPO) is as much about its human capital as its financial capital. Grants of restricted stock units (RSUs) and stock options are important forms of compensation for Instacart employees -- but to cash in, they needed a liquidity event for the company's stock."

"[1] Don't risk money you can't afford to lose.... [2] Remember you may owe taxes.... [3] Methods to help you avoid a liquidity crunch.... [4] Consider exercising right before the company's ipo.... [5] Planning depends on your own personal circumstances."

"A recent SEC complaint and federal criminal indictment present a classic lesson in what not to do when you know [material non-public information (MNPI)] about a company.... Anyone who learns MNPI about a company is in a position to be accused of insider trading if they buy or sell that company's stock before the information is made public. That applies even to MNPI acquired via the most personal relationships ... Working remotely at home greatly increases the risk of insider tipping that can lead to insider trading."

"Stock options, restricted stock units, and employee stock purchase plans come with a confusing jumble of acronyms, initialisms, and jargon. Learning these abbreviations is a good way to become familiar with some of the key features and details of stock compensation -- and given how long and cumbersome some of the underlying terms are, you'll soon learn to appreciate their brevity."

"[1] Set goals.... [2] Know what type of equity award(s) you have.... [3] Understand the core tax treatment.... [4] Identify the vesting schedule of stock options, restricted stock, and RSUs.... [5] Learn how your ESPP works.... [6] Study what will happen if you lose your job.... [7] Keep a stock comp checklist."

"Companies that sponsor equity compensation plans often include provisions related to future equity awards for service providers in non-plan related documents such as offer letters, employment agreements, and agreements with other service providers ... Usually, the references to these future grants are intended to memorialize the service provider's compensation and are not intended to affect the actual grant. However, whether or not the grant is intended to be made in the non-plan related document may not matter if the recipient relies on the promises made in the document."

"If you have vested incentive stock options or non-qualified stock options, you are able to choose when to exercise the right to purchase them.... If the exercise prices are close to what you see in the open market, you don't have much leverage. In addition to evaluating the leverage, what is the trajectory of the company? ... What happens if the company sells or if you are laid off? Are there certain windows of time the options need to be exercised and/or sold? Make sure to review what will happen to your stock and when."

"[1] Keep all documents related to equity comp and employment ... [2] Understand your post-termination rules ... [3] Understand the tax impact."

"[T]he expiration date of older Double-Vest RSU awards is approaching at the same time that many companies may be confronted with less access to capital markets, coupled with pent-up desire for liquidity by employees. This alert ... describes the mechanics and applicable tax considerations underlying Double-Vest RSUs."

"For ISO exercises and ESPP transfers occurring in 2022, the Section 6039 employee information statement requirement is satisfied by providing Form 3921 (for ISOs) and Form 3922 (for ESPPs) to employees no later than January 31, 2023. The Section 6039 IRS return requirement is satisfied by providing the IRS with copies of the corresponding Forms 3921 and Forms 3922 by February 28, 2023 (for paper filings) and March 31, 2023 (for electronic filings)."

"Deadlines for these annual reporting requirements are quickly approaching: 31 January 2023 or corporations to furnish annual information statements to employees. 28 February 2023 (if filing by paper) or 31 March 2023 (if filing electronically) for corporations to file information returns with the IRS."

"The corporation could be liable for a penalty, of up to $290 per notice, for failure to file the required notice with the IRS by the due date, failure to include all required information on the notice, or failure to include correct information on the notice for ISOs or ESPPs."

"[1] Last chance to correct certain Section 409A document failures discovered in 2022 ... [2] Nonqualified deferred compensation deferral elections should be made on or before December 31, 2022 ... [3] Take certain action to address impact of Tax Cuts and Jobs Act on Section 162(m) of the Code ... [4] Review whether your equity-based compensation plan has sufficient shares remaining for 2023 awards ... [5] Code Section 6039 information statements due by January 31, 2023 ... [6] Consider clawback issues ... [7] Pay for performance disclosures."

"After a tumultuous year of stock-price volatility and declines, year-end financial and tax planning in 2022 may be trickier than usual for some people with equity comp and holdings of company shares.... Multi-year planning is especially valuable with stock comp, as you can control the timing of stock sales and option exercises, and you know when RSUs will vest. Getting this planning right is crucial, for example, if you are considering option exercises or stock sales at the end of 2022."

"Form 3921 is used to report ISO exercises, and Form 3922 is used for ESPP share purchases. A separate form must be provided and filed for each exercise or purchase during the calendar year.... The deadline for furnishing Copy B of Forms 3921 and 3922 to the employee or former employee for ISO exercises or ESPP shares purchased during 2022 is January 31, 2023."

"Executives and other key employees with equity compensation ... often cannot sell company shares because they possess ... material nonpublic information (MNPI), i.e. knowledge of confidential company info that will affect the stock price when made public.... A 10b5-1 plan is a prearranged stock-trading plan ... that provides an affirmative defense against charges of insider trading when you later sell or buy stock while you know MNPI about your company. Created when you do not know MNPI, the plan is set up in advance to make automatic, periodic sales and/or purchases of your company's stock."

"In determining whether to proceed with a stock option repricing, and determine which method is most suitable, publicly-traded companies should evaluate [certain] key considerations ... There are multiple methods that companies may employ when implementing a stock option repricing program. The key features and considerations of each stock option repricing method are summarized [in this article]."

"Given recent market trends, many private companies have seen valuations decline significantly, resulting in an increasing number of service providers holding 'underwater' or 'out of the money' stock options. As a result, companies may be considering repricing their stock options to help retain and appropriately incentivize employees and other service providers by reducing the exercise price of stock options that are above the current fair market value of the underlying stock. This article answers frequently asked questions from private companies that are contemplating a stock option repricing."