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IRS issues proposed rules on stock option transfers

The IRS has published proposed amendments to regulations governing Code Sec. 6039, as amended by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). Under amended Code Sec. 6039, corporate employers must provide an information return to the IRS and the employee when a transfer of stock is made in connection with the exercise of an option through an employee stock purchase plan (Code Sec. 423(c)) or through an incentive stock option program (Code Sec. 422(b)).

The main objective of the proposal is to insure that corporate employers provide employees with sufficient information to calculate their tax obligations when shares acquired through options are sold. To accomplish this, the amendments update the existing regulations governing the information statement provided to employees and add provisions detailing the return that must be filed with the IRS. Under the proposals, two new forms will be published in 2008:

Form 3921, Exercise of an Incentive Stock Option Under Section 422(b), will be used for both the information return and the employee statement for stock options described in Code Sec. 422(b).

Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), will be used for all reporting requirements for transfers of stock acquired by exercising a Code Sec. 423(c) option.

Corporations are not required to comply with the information return requirements of amended Code Sec. 6039 for stock transfers that occur during the 2007 and 2008 calendar years (IRS Notice 2008-8, 2008-3 IRB, 276). However, corporations must furnish information statements to employees for such stock transfers and may rely on either Reg. §1.6039-1 of the 2004 final regulations or Proposed Reg. §1.6039-2 when providing the employee statements. (NPRM REG-103146-08; 73 FR 40,999, July 17, 2008.)

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