New Requirements No Longer 'Option'-Al! February 1, 2010 Deadline And Final Regulations On Return And Information Statement Requirements For ISOs And ESPPs

The Internal Revenue Service recently issued new final regulations addressing the return and information statement requirements applicable to exercises of incentive stock options, or ISOs, and transfers of shares purchased under an employee stock purchase plan, or ESPP. The IRS has waived the requirements under the new regulations for ISO exercises and transfers of ESPP shares that occur during 2009. However, for 2009 ISO exercises and transfers of ESPP shares, companies generally must provide a written statement that contains the information required under either existing information statement requirements or the new requirements by February 1, 2010. This Update summarizes key highlights from the existing and new final regulations and offers practical guidance.

Existing 2004 Regulations Require An Information Statement For 2009 ISO Exercises And Transfers Of ESPP Shares By February 1, 2010

Under existing regulations, companies must provide each person who exercised an ISO or transferred ESPP shares in 2009 a written statement that contains certain information described below. Companies may (but are not required to) instead provide the information required under the new regulations (or, alternatively, related proposed regulations) rather than provide the information required under the existing regulations. There is no specific IRS form required for the written statement, and the statement is not required to be filed with the IRS.

ISO Exercises During 2009. By February 1, 2010, the existing regulations generally state that companies must provide each person who exercised an ISO in 2009 a written statement that includes the following information:

Name, address and Employer Identification Number of the corporation transferring the stock upon exercise of the ISO; Name and address of the corporation whose stock was transferred upon exercise of the ISO (if different from the corporation named in the first bullet point); Name, address and Social Security Number of the person who received stock upon exercise of the ISO; Option grant date; Date of issuance of the stock to the person who exercised the ISO; Total fair market value (at time of exercise) of the issued stock; Number of shares issued on exercise of the ISO; and Aggregate option exercise price paid. Transfers Of ESPP Shares During 2009. Section 423(c) of the Internal Revenue Code contains special rules for options granted under an ESPP with exercise prices that are less than 100% of the...