This is a reminder to public and private companies that grant incentive stock options (“ISOs”) or maintain an employee stock purchase plan (“ESPP”). Under IRS regulations, these companies must provide information statements no later than January 31, 2008, to any employee or former employee who either exercised an ISO during 2007 or transferred stock during 2007 that was previously acquired pursuant to the ESPP. Companies that fail to provide such statements on a timely basis may be liable for penalties of $50 per statement, up to a maximum of $100,000 per year.
Content of Information Statements. The IRS has prescribed the required content (although not the format) of the information statements that must be provided to employees and former employees with respect to ISO exercises and transfers of ESPP stock. The required content of each statement differs depending on whether it relates to an ISO or an ESPP.
ISO Statements. If a statement relates to the exercise of an ISO, the following information must be provided:
ESPP Statements. If a statement pertains to the transfer of ESPP stock after the employee or former employee has acquired it, the statement must include the following:
New Information Return Requirement. Companies that must provide statements to employees or former employees will also be required to provide generally the same information to the IRS with respect to exercises and transfers that occur beginning in 2008.
The Tax Relief and Health Care Act of 2006 included a requirement that the ISO and ESPP transaction information be provided to the IRS for transactions beginning in 2007. However, because the IRS has not yet issued definitive guidance on the new information return, it has waived the filing requirement for such returns for 2007 transactions.