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The IRS has issued final regulations governing Code Sec. 6039, relating to corporate employers' return and notification requirements relating to employee stock options. The Tax Relief and Health Care Act of 2006 (P.L. 109-432) amended Code Sec. 6039 to require corporate employers to provide information returns to the IRS and an employee where a transfer of stock is made through the exercise of an option through an employee stock purchase plan or an incentive stock option program. Proposed regulations were initially released in July of 2008; the final regulations largely adopt those proposed regulations, with some changes made in response to comments received by the IRS.
One of the changes in the final regulations relates to when a transfer of legal title to stock occurs where the exercise of an option results in the deposit of stock in an employee's account with a third-party broker. Under the final regulations, the transfer of stock to the employee's brokerage account upon the exercise of an option is treated as the first transfer of legal title, necessitating the corporate filing of the information return required by Code Sec. 6039(a)(2). Alternatively, if the employer issues a stock certificate directly to an employee or registers the employee's name in the employer's record books and the employer holds the certificate in book-entry form, the first transfer of legal title does not occur until the employee sells the stock or transfers the stock to a brokerage account, at which point the filing requirement will be triggered under Code Sec. 6039(a)(2).
Other changes contained in the final regulations relate to the reporting requirements with regard to the special rule under Code Sec. 423(c) relating to the amount of compensation income recognized where the exercise price is less than the value of the share on the date of the option grant, the return requirements where the transfer of legal title is a qualifying or disqualifying disposition, and the application of the filing requirements to nonresident aliens performing services outside the United States. (T.D. 9470, 74 FR 59087, November 17, 2009.)
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The IRS has created a pilot program allowing filers of information returns to truncate an individual payee's nine-digit identifying number on paper payee statements for calendar years 2009 and 2010 if the filers meet certain requirements. The pilot program is available only to paper payee statements in the Form 1098 series, Form 1099 series and Form 5498 series, which report payments or distributions made to an individual during a calendar year.
The three types of identifying numbers applicable to individuals are social security numbers, IRS individual taxpayer identification numbers and IRS adoption taxpayer identification numbers. These numbers are sensitive personal information; consequently, a risk exists that the information could be misappropriated from a payee statement and misused in various ways, possibly to facilitate identify theft. The pilot program is an effort to minimize this risk. If requirements regarding the type of information return and the type of identifying number are met, the identifying number is truncated by replacing the first five digits of the nine-digit number with asterisks or Xs.
The IRS invites interested parties to comment on the pilot program by submitting comments by May 1, 2010. (Notice 2009-93, I.R.B. 2009-51, November 19, 2009.)
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The IRS has released the Tier II Railroad Retirement Tax Act (RRTA) tax rates for compensation paid in calendar year 2010. The Tier II tax rate on employees is 3.9% of compensation, the Tier II tax rate for 2010 on employers is 12.1% of compensation and the Tier II tax rate for 2010 on employee representatives is 12.1% of compensation.
Under the RRTA, railroad employment is subject to a system of taxes that is separate and distinct from taxes imposed under the Federal Insurance Contribution Act (FICA), which cover most other employees. Taxes under the RRTA on compensation paid to railroad employees and employee representatives are the primary source of funding for the railroad retirement funding system. (Notice of Publication of the Tier 2 Tax Rates, November 30, 2009.)
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The UI rate schedule in effect for 2010 will continue to be Schedule F+. This is Schedule F plus a 15% emergency surcharge, rounded to the nearest tenth. Schedule F+ provides for UI contribution rates ranging from 1.5% to 6.2%. The taxable wage base for 2010 for UI purposes remains at $7,000. The new employer rate will be 3.4% and the Employment Training Tax rate remains at 0.1% for 2010. Note that the voluntary UI payment program is not in effect next year (EDD Communication).
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