Changes to Section 6039 were brought about so that they can improve compliance and make the reporting process less complicated for participants. These changes were produced efficient for transactions occurring in twelve months 2010 and later, so in case you haven't already, now could possibly be an excellent time to think about how most effective to add these changes into your routine. Here's what you should know to ensure your procedures have been in compliance.
What's Section 6039
Historically, IRC Section 6039 required businesses granting ISOs or offering qualified ESPPs to transmit annual statements to participants who a) exercised an ISO or b) first transferred ESPP shares via a disposition or re-registration in the course of the calendar year. The purpose of the reporting was to offer the needed information for participants to accurately calculate and report revenue and tax obligations related to dispositions for qualified equity plans. These statements were issued by January 31 the year after and usually followed a fundamental, flexible format. Regardless of the penalties for non-compliance, quite a few firms took a reasonably relaxed method for this requirement, utilizing exercise or obtain confirmations or year-end tax statements to satisfy the participant reporting obligation.
What Changes Had been Created in 2010?
The brand new 6039 guidelines are intended to make the reporting procedure less complicated for participants and to decrease non-compliance. For tax year 2010, corporations are required to report the same transaction information to the IRS, along with the data elements essential to be reported have changed, especially about the ESPP side. The IRS has issued Types 3921 (ISOs) and 3922 (ESPPs) as guidelines for participant reporting; corporations might elect to make use of these formats, or a "substitute format" that aggregates multiple transactions right into a single report to make the participant notification a lot more easy to use.
IRS filing must be accomplished electronically if the total quantity of special forms exceeds 250, although the IRS recommends e-filing regardless of one's total number. There is no change to the participant reporting deadline of January 31; e-filing have to take place by March 31, related to Kind W-2 reporting for the IRS. Penalties for non-compliance can begin at as much as $250,000/year for late or non-reported transactions and there's no maximum amount for intentional disregard.
What You must Do
In case you haven't already, start off mastering and planning now.
• Familiarize oneself using the new rules and recognize the specifications. Also, it's vital to fully grasp what events trigger this reporting. Read Publication 1220 for filing needs and have a look at the draft versions of Form 3921 and Form 3922. Speak to your outside counsel concerning 6039 reporting obligations in unique cases, like mergers/ acquisitions, and therapy for non-U.S. employees.
• Have an understanding of your options and price range for administration. Talk about your selections with internal and external partners.
• Ascertain in case your corporation plans to situation the formats of Forms 3921 and 3922 prepared by the IRS, or a substitute statement. In the event you determine to utilize a substitute format, make certain it complies with the specifications specified through the IRS for debt consolidation loans for people with bad credit. Choose regardless of whether these statements will likely be mailed or emailed to participants -- electronic distribution may sound simple, but you'll find a good deal of restrictions involved.
• Develop participant communications prior to issuing these statements, to clarify the forms, their objective, and how to rely on them.
• Discover your Transfer Control Code for e-filing. This may be obtained via your payroll department or even the third-party provider that files your Types W-2.
• Prepare to conduct a test filing by way of the IRS Filing Information Returns Electronically (FIRE) method, which will most likely be offered in Q4 2010.