New Guidance on ESPP and ISO Reporting

Employers do not need to report the exercise of incentive stock options and sale of employee stock purchase plan shares to the IRS for 2007 transactions. On December 19, 2007, the IRS issued Notice 2008-8, pushing back the deadline for reporting to the IRS because it has yet to produce regulations expanding the requirements under Internal Revenue Code Section 6039. The Tax Relief and Health Care Act of 2006 amended the information reporting requirements of Section 6039 concerning exercises of incentive stock options (ISOs) and sales of shares acquired under tax-qualified employee stock purchase plans (ESPPs) to require reporting to the IRS.

The extension does not waive the existing Section 6039 requirement that corporations furnish a written statement to each employee reflecting such transactions. These statements are due on or before January 31 of the year following the year of the transaction.

The amended Section 6039 requires corporations, starting in 2008 for transactions that occurred during 2007, to file information returns with the IRS in addition to providing the information to the employee. The timing and manner in which the information must be reported to the IRS will be set forth in regulations that have not yet been issued. Guidance is expected in the near future.