Amendments to section 6039 were brought about in an attempt to increase compliance, and reporting process easier for participants. These changes were made to business success coming in calendar year 2010 and later, so if you have not already, now might be a good time to start planning how you will deal with these changes. Here’s what you need to know to proceed and how to ensure procedures are consistent.
What is Section 6039
Historically, IRC Section 6039 requires companies that provide ISOs or offer qualified ESPPs send annual statements to participants who a) practiced ISO or b) first transferred ESPP shares in the disposal or re-registration of the calendar year. The purpose of this report was to provide the necessary information for participants to accurately calculate and report income and tax obligations related to measures for greater equity-based plans. These statements were issued on January 31 next year and usually followed basic, flexible format. Despite the penalties for non-compliance, many companies took a relatively relaxed approach to this requirement, movement or purchase confirmations or year-end tax statements to satisfy participant reporting obligation.
What changes were made in 2010?
new 6039 rules are intended to make the reporting process easier for participants and to reduce non-compliance. For tax year 2010, companies are required to report the same data transaction to the IRS and data elements that need to be reported have changed, especially in the ESPP side. The IRS has issued Forms 3921 (ISOs) and 3922 (ESPPs) guidance for participants reporting; companies can choose to use this format, or “substitute format” that gathered together many transactions in a single report to make participant reporting more user friendly.
IRS filing must be done electronically if the total number of individual forms of 250, although the IRS recommends e-filing regardless of the total number. There is no change in participant reporting deadline January 31; E-application must arrive until March 31, similar to the Form W-2 reporting for IRS. Penalties for non-compliance can start up to $ 250,000 / year for late or non-reported transactions and there is no maximum amount for willful disregard.
What You Should Do
If you have not already, start learning and planning now.
• Familiarize yourself with the new rules and understand the requirements. Also, it is important to understand what events trigger this reporting. Read Publication 1220 for filing claims and check draft versions of Form 3921 and Form 3922 (look out for the last versions coming soon). Talk to track the lawyer for 6039 reporting in specific cases, such as mergers / acquisitions and treatment outside -. US workers
• Understand choice and budget for administration. Discuss your options with internal and external parties.
• Determine if the company plans to release profiles of Forms 3921 and 3922 prepared by the IRS or a substitute statement. If you decide to use instead format, make sure it complies with the requirements specified by the IRS. Decide whether these statements will be mailed or emailed to participants -. Electronic distribution may sound easy, but there are a lot of limitations involved
• Develop participant communications for issuing these statements, to explain the forms, their purpose and how to use them.
• Find out Move Control code for e-filing. This can be accessed through the payroll department or a third party to file Forms W-2.
• Prepare to conduct a test application for IRS filing information Returns Electronically (Fire) system, which will probably be available in Q4 2010.