The NASPP Blog

Since cost-basis data won’t show up on Forms 1099-B until January 2012, this probably seems like something you don’t need to worry about right now. But the data you are transmitting to your brokers beginning this January could impact what is reported on Forms 1099-B next year. In light of this, I have four questions you should ask your brokers now about their plans for compliance with the cost-basis reporting requirements.

1. What is the broker planning to report as the cost-basis for shares acquired pursuant to NQSOs? Brokers are only required to report the purchase price as the cost basis but can voluntarily report the full cost basis. More importantly, are your brokers looking to you to provide the cost basis? If so, perhaps you can avoid some of the mess (and potential for employees to double tax themselves) that Rachel Murillo describes in her Nov. 18 blog entry “Paving the Way for Cost-Basis Reporting Now,” by providing the full cost-basis (price + income recognized), so that the correct basis is reported on Forms 1099-B in 2012. This could be a life-saver for your employees in terms of getting their tax returns correct and for you (and your broker) in terms of the amount of employee education necessary and inquiries that have to be fielded.

2. Ditto for shares issued under restricted stock units and awards. These are considered non-covered securities, so brokers don’t have to report any cost-basis data for them at all, but as with NQSOs, brokers can voluntarily report. Having that data on Form 1099-B could be a big help for employees–if it is correct, of course. If you provide your brokers with the correct cost basis for shares issued under awards, will they report it on Form 1099-B for your employees?

3. Ditto for shares acquired under ISOs and ESPPs. Here, however, things are more complicated because employees often recognize ordinary income at the time of sale, resulting in a stepped up basis that isn’t known until the sale occurs. In some cases, it is literally impossible for you to pass the correct basis to your brokers at the time the shares are acquired.  But, in other cases, you might be able to make an educated guess. What makes the most sense to pass as the cost basis? For ESPPs, the FMV at purchase would be the right basis if employees engage in disqualifying dispositions but will be wrong for qualifying dispositions.  But, the purchase price is almost always wrong, for both qualifying and disqualifying dispositions (the only time it is the correct basis is for qualifying dispositions where the shares are sold at a loss). For ISOs, FMV at exercise will be the right basis for disqualifying dispositions only if the shares are sold at a price higher than this amount. For qualifying dispositions of ISOs, the exercise price is the correct basis. Where does this leave you in terms of the data you pass to your brokers–now would be a good time to ask, before you start transmitting all this data.

4. How should you transmit this data to your brokers? I understand from the recent Stock & Option Solutions webcast, “Cost Basis Confusion: What Do the New Regulations Mean for Stock Plan Professionals?,” presented by Elizabeth Dodge of SOS and Andrew Schwartz of BNY Mellon Shareowner Services, that issuers may be able to use the DTCC’s Cost Basis Reporting Service (CBRS) to transmit cost-basis data for shares acquired through stock plans. Do your brokers want you to use this service and, if yes, how will you get training on it?  If no, what method will you use to transmit this data to them?

Looking for more information on cost-basis reporting? Get the full scoop by purchasing the audio from the 18th Annual NASPP Conference session, “IRS Cost-Basis Reporting: Are Your Stock Plans Ready?“–led by Andrew Schwartz of BNY Mellow Shareowner Services.

Only One Month Left to Get your Free Conference Session Audio
All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free!  Don’t wait any longer–the new year will be here before you know it!

Join Now and Get One Month Free and Free Conference Session Audio!
If you aren’t currently an NASPP member, now is the time to become one! Join the NASPP for 2011 and you’ll get the rest of 2010 for free.  If that’s not enough, you’ll also get the audio for one NASPP Conference session for free. Tell all your friends!

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. 

• Purchase the audio for the 18th Annual NASPP Conference.
• Complete the Compliance-O-Meter quiz on Risk Management.
• Tune in on Thursday, December 2, for the Ask the Experts: Tax Reporting for Stock Compensation webcast.
• Take the “Question of the Week” challenge.
• Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today).  Renew or join by Dec 31 to qualify for the audio of one NASPP Conference session for free.
• It’s a big week for NASPP chapter meetings!  Don’t miss your local NASPP chapter meetings in Dallas, Houston, NY/NJ, Philadelphia, Silicon Valley, and the Twin Cities.  I’ll be at the Silicon Valley chapter meeting; I hope to see you there!

– Barbara