The NASPP Blog

October 6, 2009

More on the 6039 and 423 regs

More from Ed and Ellie
Last week, I gave an update on the status of the proposed regulations for Sections 6039 and 423.  As promised, this week I have more on the proposed regs, from the presentation Ed Burmeister of Baker & McKenzie and Ellie Kehmeier of Deloitte Tax gave at the Silicon Valley NASPP September chapter meeting.

6039 Triggering Event for ESPPs

Ed thinks there is a reasonable chance that the final regs will define the triggering event for 6039 statements for shares purchased under an ESPP to be the date of purchase. Under the statute, the triggering event is the transfer of legal title of the shares acquired under the plan. If you’re confused by that language, you’re not alone. No one, including staffers at the IRS and Treasury, seems to really know what that means. We suggested in our comment letter (as did Baker & McKenzie in their comment letter) that it would be best for all concerned (employees, company, government) if the triggering event is the purchase.

$25,000 Limit

Probably the other most significant issue, at least for San Francisco Bay area companies, is the interpretation of the $25,000 limit in the proposed regs for Section 423, which is much more conservative than how that limit is typically applied by companies in this area. Ed also has hope that the final regs will be more liberal in this regard. 

If the regs do adopt the more conservative approach, the IRS isn’t expected to question the qualified status of past purchases where companies applied the more liberal approach.   

Other Relief in the Section 423 Regs

It does seem like the final regs may be a little more liberal in what they allow in terms of excluding non-U.S. employees from an ESPP, but probably not as liberal as what we asked for in our comment letter.

It doesn’t seem like there will be any relief on the requirement that the plan specify (by absolute number or by formula) a maximum number of shares that employees can purchase for the beginning of the offering/enrollment date to be considered the grant date. So if your plan doesn’t have this limit (or if the limit is discretionary and you haven’t been applying it), you should look at implementing it.

Stay Tuned

I am monitoring developments on these regs closely and will blog about them as soon as I hear anything. You can also be sure that I’ll be cornering Helen Morrison from Treasury and Stephen Tackney from the IRS during their session, “The IRS and Treasury Speak: Hot Tax Topics and Updates,” at the NASPP Conference, to see if I can get more information for our readers.

NASPP Conference Workshop of the Week
This week’s workshop is The Economic Meltdown–The Impact on Global Stock Plans. The economic meltdown has had a significant impact on global stock plans, from increased regulatory pressure to down-spiraling employee morale. Our panelists will discuss the global aspects of option exchange programs and reductions-in-force, tax challenges resulting from declining stock prices, stepped up enforcement efforts by regulators and repatriation of profits tax-free via stock options. Special attention will be given to ESPPs, including global impacts of share shortfalls and freefalling employee participation rates.

Renew Your NASPP Membership for 2010
If you’re the kind of organized, go-getter, non-procrastinator that likes to take care of these things early (or if you just want to get next year’s membership into this year’s budget), you can now renew your NASPP membership for 2010. 

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara