IRS Exempts Brokers from Certain Stock Options Reporting Requirements

In Revenue Procedure 2002-50, the IRS provided an exemption from 1099-B reporting requirements for stock brokers handling the sale of shares acquired through options by employees, former employees, or other people providing a service to a company who engage in same-day sale transactions. 1099-B covers proceeds from broker and barter exchange transactions. To meet the exemptions rules, the transaction must:

• be executed the same day the stock is acquired through the option;
• the options must be covered by Section 83(b) of the Internal Revenue Code and be granted in conjunction with services performed for a company;
• the optionee must certify in writing to the broker that the optionee will report to the employing company any compensation resulting from the exercise and/or disposition of the option;
• there must either be no commission or fee for the transaction, or, if there is, the broker must provide a written statement to the optionee detailing the charges; and
• the optionee must use the sale price for the shares to calculate the compensation element for reporting to the company; brokers can rely on a written statement from the optionee to verify this.

If a fee is involved, the broker must provide the gross sales price for shares sold through the broker, commissions and fees, and a description of how the optionee should report gains or losses with respect the to exercised options on federal income tax filings.