Here’s what’s happening at your local NASPP chapter this week:
Austin: Tony Eppert of Winstead presents “Preparing for the 2015 Proxy Season.” (Tuesday, February 10, 11:30 AM)
Dallas: Takis Makridis and Robert Slaughter of Equity Methods present “What to Expect in 2015 in Stock Compensation.” (Wednesday, February 11, 11:00 AM)
DC/VA/MD: Amy Flynn and Peter Simeonidis of Deloitte Tax present “MOBILITY: Taxability, Traceability, Payroll-ability, Survivability.” (Thursday, February 12, 4:00 PM)
Portland: Danielle Benderly of Perkins Coie and Tracy Bean of Mercer present “Hot Topics for 2015 Proxy Season for Stock Plan Professionals.” (Thursday, February 12, 4:00 PM)
$50 for Your Thoughts!
The NASPP is redesigning our website and we want your feedback. Take a moment to complete our short survey (less than 15 minutes) and you’ll be entered in a raffle for one of ten $50 Amazon.com gift cards.
Equity Expert Podcast on ISS’s New Scorecard
Do you need to understand ISS’s new Equity Plan Scorecard but don’t have time to read a bunch of memos on it? Check out the latest installment in the NASPP’s Equity Expert podcast series, featuring Doreen Lilienfeld of Shearman & Sterling on the EPSC.
The NASPP Is Hiring The NASPP is currently looking for a motivated, enthusiastic self-starter to join our team as our Programs Director. This is a full-time, salaried position. Check out our job listing in the NASPP’s Career Center.
To Do List
Here is your NASPP to do list for this week:
Register for the NASPP’s acclaimed online Stock Plan Fundamentals program—don’t wait, the early bird rate is only available until February 20.
Submit a speaking proposal for the NASPP’s 23rd Annual Conference. All proposals are due by February 27—no exceptions!
Register for the 23rd Annual NASPP Conference by April 24 to take advantage of our early-bird rate. You know you want to be there—don’t pay full price if you don’t have to.
To start off the new year, I have a few reminders for Section 6039 filings for ISO and ESPP transactions.
Deadlines
Participant statements need to be furnished by February 2, 2015 (normally the deadline is January 31, but that’s a Saturday). Paper returns need to be filed with the IRS by March 2 (February 28, the normal deadline, is a Saturday) and electronic returns need to be filed by March 31 (this deadline applies regardless of whether electronic filing is on a mandatory or voluntary basis).
Extensions
It’s easy to get an extension for filing the returns with the IRS; log into the IRS Fire system and complete Form 8809. So long as you do this by the deadline, you get an automatic 30-day extension—no questions asked. It is harder to get an extension for the participant statements. You can’t use Form 8809 for this; you have to write a polite letter to the IRS explaining why you need the extension and hope that they grant it to you. See pg 13 of the “General Instructions for Certain Information Returns” for details of what you need to say in the letter and where to send it. The extension is not automatic, so you’d best get on this right away if you think you’ll need one.
Substitute Participant Statements
You can create a substitute statement for participants that lists all their transactions on one page, rather than a separate form for each transaction. You still have to use the IRS terminology, but you can include your own statement that explains what all the words mean (or even annotate the statement itself). But you can’t include any slogans or taglines on the form and if you are going to include your company logo, you have to comply with specific guidelines explained in IRS Publication 1179 (see pg 6). The IRS is serious about this—they are worried your logo might make the form look like junk mail—so it might be best to skip the logo.
Rounding
Shares and dollar amounts have to be rounded in electronic filings (to the nearest whole share or penny, respectively). The IRS says to use a true round for share amounts (that’s rounding down for .4 and under, up for .5 and above). They don’t specify how dollar values should be rounded but since they recommend a true round for share amounts, it’s probably reasonable to use the same approach for dollar values (that’s also how dollar values are rounded on other tax forms (e.g., tax returns). But other approaches might be reasonable as well; I’m fairly certain the IRS isn’t that concerned about how you round. Just be consistent.
Employee ID Number
This needs to be the employee’s tax ID number. Also, you can’t truncate it or mask it on the participant statements. The IRS eventually checks to make sure the number is correct and you’ll have to pay a fine if it is wrong. But they won’t get around to checking until you are in the maximum penalty period. So be smart and run a TIN matching program on your returns before you file them with the IRS.
Account Number
For our purposes, think of this as a transaction number. You can use any system you want to come up with the number (and it can include letters as well as numbers), but you need to assign a unique number to every transaction reported. If you later have to file a correction, this number is how you will identify the transaction being corrected.
Names
Don’t include any special characters in employee names other than hyphens and ampersands.
Just a Few Filings?
Even though you only have a handful of filings, you cannot download the form from the IRS website and fill it out or gin up a form that looks similar in Word and use that to file your returns. The IRS has all sorts of fussy requirements for returns filed on paper, including that they be printed on special paper with special ink. If you don’t want to pay a third party to help with this, you have to order the paper forms from the IRS and wait for them to send them to you. Then you need to scare up a typewriter or print very very neatly. There are tools that are quite affordable that can be used to file even just a handful of forms—personally, I think this approach would be easier than finding a typewriter. Email me and I can send you a list.
The Philadelphia NASPP chapter holds the first chapter meeting of the year on Tuesday, January 6, at 8:30 AM. The meeting will feature a presentation on “Post-Vest Holding Periods: The Intersection of Corporate Governance, Plan Design, and Financial Accounting.” Attendees will also be treated to a studio tour of the QVC headquarters.
Those of you that have been reading this blog for a couple of years know that one of the things I like about stock compensation is that I get to use a lot of fancy words. Around this time for the past two years, I’ve posted a blog entry listing some of those words. This is my last blog entry of the year and, although I could blog about ISS guidelines, FASB decisions, cost basis, or a host of other technical topics, I thought, why not continue the tradition?
So, for the third year in a row, here are some fun equity compensation terms with suggestions on how to fit them into casual conversation with family and friends over the holiday season:
Omnibus: I’m bringing an omnibus cookie platter with a fungible sugar reserve to the holiday party; I plan to include sugar cookies, peanut butter thumbprints, rum balls, gingerbread men, fudge bars, and peanut brittle. You can fulfill your sugar quota with just one fudge bar, two sugar cookies or three gingerbread men.
Promulgate: Santa has promulgated a new rule that all children have to be in bed by midnight or he won’t deliver the presents.
Cumulative: Given the cumulative number of burnt-out bulbs we’ve amassed, I’m surprised any of our holiday light strands work at all.
Prevalence: In terms of holiday toy trends, Tickle-Me-Elmo has declined significantly in prevalence.
Mechanism: I have no mechanism by which to keep my holiday budget under control.
Constraint: Given my digestive constraints, I really just cannot eat another bite.
The NASPP Blog is taking next week off. I hope you have a great holiday season and new year! Don’t forget to listen to the NASPP’s New Year’s resolutions and tell us your own. See you next year!
In today’s blog I’ll share some photos from this week’s holiday event for the DC/MD/VA chapter. It didn’t disappoint, and you know the saying “a picture is worth a thousand words.”
After an excellent presentation by Mike Palermo (Fidelity) and Dan Kapinos (Aon Hewitt) on minimizing expense without reducing the perceived value of equity awards, attendees were treated to a special event at the Tasting Room in Reston, VA. A special thank you to the meeting and event sponsor, Fidelity, for a great meeting and party.
For today’s blog entry, I cover yet another challenge in the ongoing saga of awards that provide for accelerated or continued vesting upon retirement.
A recent Chief Counsel Advice memorandum casts doubt on the treatment of dividend equivalents paid on vested but unpaid RSUs. This comes up when dividend equivalents are paid on RSUs that allow for deferred payout on either a mandatory basis or at the election of the award holder. This arrangement is relatively rare, however, and probably only impacts a few of my readers. More commonly, however, this is also an issue where dividend equivalents are paid on awards that provide for accelerated or continued vesting upon retirement and the award holder is eligible to retire.
Background
In either of the above situations, the RSU is subject to FICA when no longer subject to a substantial risk of forfeiture. For traditional deferral arrangements, risk of forfeiture lapses when the award vests. In the case of awards that provide for accelerated or continued vesting upon retirement, the risk of forfeiture substantively lapses when the award holder is eligible to retire.
Any dividend equivalents accrued on the award prior to when the award is subject to FICA will be subject to FICA at the time paid (if they are paid out to award holders at the same time they are paid to shareholders) or when the award is subject to FICA (if they will be paid out with the underlying award). But what about the dividend equivalents paid after the award has been subject to FICA? Does the company need to collect FICA on those equivalents when they are accrued/paid?
The Non-Duplication Rule
Under, Treas. Reg. §31.3121(v)(2)-1(a)(2)(iii), referred to as the “non-duplication rule,” once an RSU has been taken into income for FICA purposes, any future earnings on the underlying stock are not subject to FICA. So the answer to FICA treatment of the dividends depends on whether the dividends paid after this point are considered a form of earnings, akin to appreciation in value in the underlying stock (in which case, they would not be subject to FICA), or additional compensation (in which case, they would still be subject to FICA).
I’ve spoken with a number of practitioners about this. Most believe that an argument can be made that the dividend equivalent payments are a form of earnings and, thus, are not subject to FICA.
The CCA
In Chief Counsel Advice 201414018, issued earlier this year, the IRS argued that dividends paid after the award is subject to FICA are still subject to FICA. The situation the memorandum addresses, however, involved a number of facts not typically characteristic of RSUs that receive dividend equivalents:
The RSUs were granted by a private company
The awards were paid out only in cash
The dividend equivalents were paid out to award holders at the same time dividends were paid to shareholders, rather than with the underlying award
While concerning, the memorandum doesn’t necessary dictate a change in practice with respect to the FICA treatment of dividend equivalents, especially if your company is public, your RSUs are paid out in stock, and your dividend equivalents are paid out with the underlying award. It may, however, be worth reviewing the ruling with your tax advisors to ensure they are comfortable with your procedures (especially if any of the conditions in the memorandum also apply to your RSUs and dividend equivalents).
DC/VA/MD: Mike Palermo of Fidelity Investments and Daniel Kapinos of Radford present “Minimizing Expense without Reducing Perceived Value.” The presentation will be followed by a holiday event at the Tasting Room. (Tuesday, December 16, 2:30 PM)
Las Vegas: Sheila Frierson of Computershare presents “An Equity Comp Year-End Wrap-Up.” (Wednesday, December 17, 11:30 AM)
The beauty of a blog is that we can cover a variety of topics. If you’re a regular reader, you know we discuss everything from regulatory updates to survey trends to best practices to communication strategies and on and on. So it shouldn’t surprise you that in today’s blog, I’m tackling technology — but not the typical manage-your-stock-plan-recordkeeping type of technology. Our focus today is on going mobile – exploring where you can find stock compensation content or resources on your mobile device.
Unless you’ve been under a rock (no, not even under a rock, let’s say living in a cave in a remote corner of the world) for the past several years, you know that most of us just can’t live without our mobile devices – smartphones, tablets – you know the choices. Fittingly, I just saw an article yesterday that reported results of a recent survey. About 1,000 Europeans were asked if given the choice of ditching their smartphones or alcohol for a week, which would they choose? The majority (58%) of respondents went with giving up the booze and keeping their smartphones. A similar 2011 survey of Americans reported that 70% would rather go without alcohol than their smartphone, and 40% would give up their shoes to keep their smartphone. Earlier this year, for the first time ever, mobile app usage overtook PC usage. Okay, so today’s blog is not really about smartphone trends, but the point is that these devices are becoming a primary source of accessing information – at a rapid rate. So if you have a mobile device and are in the “can’t live without it” camp, then you may be interested in some of the mobile content that’s specific to equity compensation. Today I’ll tour a few of the offerings.
The Cool Kids are Listening to Podcasts
First, I must address the question: “What’s a podcast?” It’s quite simple, actually – “a program (as of music or talk) made available in digital format for automatic download over the Internet.” (Merriam Webster) Podcasts are published in episodes, so you can download individual episodes or all of them. You can choose to subscribe or not subscribe. Today there are thousands of podcasts, and many are free. On iTunes all podcasts are currently free (not sure about Google play, but I know many are free there, too). From what I’ve seen, most of the podcast episodes are on the short side – definitely shorter than a webcast and anywhere from a few minutes to 30 or 40 minutes. How do you access podcasts? If you’re an Apple user (iPhone, iPad, etc.) then newer devices have Apple’s purple “podcast” app already installed. There are also a variety of other podcast apps available through the App Store. You can also head straight to the iTunes Store to explore the wealth of podcasts. Android users can also download apps that will lead you to podcast content via Google play.
You’ve got a podcast app, now what? What is out there in terms of stock compensation podcast content? Well, for starters, the NASPP has our own podcast series called Equity Expert. It’s entirely free, and you can access episodes direct from our website or via one of the podcast apps (non Apple users should make sure their podcast service taps into iTunes, where the Equity Expert podcast is presently housed). Searching for equity compensation, I found other podcasts as well. For example, PwC in Canada has a whole series called Tax Tracks (they also have another series for Hong Kong/China). While the content is more tailored to the internal Directors at PwC and how to handle certain tax scenarios, there was a gold mine of information that relates to equity compensation – there are 4 episodes alone on business travelers (a widely under-tracked mobile population). This podcast’s content is specific to Canada, but if you have employees in Canada or are a Canadian entity, there could be some interesting topics. Of course, consult with your advisers before using any information gleaned from the podcasts – but the point is that there is a lot of information out there and freely available.
Think of all the places you could listen to this portable podcast content. Ever since the NASPP launched our Equity Expert podcast series, I’ve become somewhat of a podcast junkie. My drives to do daily errands now feature one of the many podcast episodes downloaded to my iPhone. At the gym sometimes I forgo the music to listen to a podcast. On an airplane? The podcasts download automatically to your device if you allow it in your settings, so I had plenty of choices to pass the time on a recent flight. I guess you could say I’ve become a podcast nerd (or cool kid, take your pick). The choices are really limitless. Join me!
Mobile Apps- Get the Latest
We are seeing more and more mobile apps tailored to content in our industry. Some of them include:
Baker & McKenzie’s Global Equity Matrix is available for your mobile device. Select a country (there are 50 to choose from) and immediately tap into specific information on taxation, securities restrictions, exchange controls, plan entitlement and data privacy for that jurisdiction. The app covers stock options, restricted stock awards/units and ESPP. Available in the Apple App Store or Google Play (free).
myStockOptions.com’s Stock Compensation Glossary App: Newly released, this app is great tool for your participants (actually, I think it could be useful to the stock administrator as well). Users can get the definition of many stock compensation terms, and there is even a quiz element where one can further test and expand their education knowledge. Available in the Apple App Store (free).
Service Provider Apps: I think the time is coming where service providers will soon have apps that allow participants to access their stock plan data online and execute transactions. I know Fidelity already does (NetBenefits, available in the Apple App Store or on Google Play).
Internal App Store?
It’s my belief that the company Intranet will eventually morph into an internal app store of sorts. Not just for equity compensation information, but for a variety of business tool uses and purposes. As communication practices and participant resources are evaluated, why not consider an app?
Got an App?
If you’ve got mobile content that you want to share with the industry, send me a note! It’s tough to stay on top of all the emerging avenues to digest information, so I’m happy to continue to report on anything discovered in this area.
Happy app downloading and podcast listening to all!
A recent IASB proposal to amend IFRS 2 offers hope that life under IFRS, if it ever happens for US companies, may not be quite so bad after all.
Background: Share Withholding and the IASB
One area where IFRS 2 differs from ASC 718 is that the US standard incorporates a practical exception that allows share withholding to be used to cover taxes due upon settlement of awards without triggering liability treatment, whereas IFRS 2 has never provided this exception. Thus, awards that allow for share withholding are technically subject to liability treatment under IFRS 2 (although, I’ve heard that compliance with this requirement among US companies is spotty). This seems like such a small thing but it’s actually quite significant and vexing. According to the NASPP’s data(1), share withholding is, by far, the dominant approach to collecting taxes on awards, with around 80% of respondents reporting that this method is used for over 75% of all tax events.
This requirement makes share withholding fairly unattractive under IFRS 2. If US accounting standards are ever brought into convergence with IFRS, this could have been a death knell for share withholding. The amount of variability it would introduce to the P&L could be untenable for many companies.
IASB Backs Off
I’m excited to report, however, that the IASB has issued an exposure draft of an amendment to except share withholding from liability treatment under IFRS 2, similar to the exception that currently exists in ASC 718.
For companies that use share withholding for awards issued to employees in foreign subsidiaries for which they must prepare financial statements in accordance with IFRS, this is one less item to reconcile between the IFRS and US GAAP financials. And, should the SEC ever adopt IFRS here in the US, there will be many things to worry about, but this won’t be one of them. To paraphrase Iggy Azalea (with Ariana Grande in a song that is played way too often my gym): “I got 99 problems but share withholding won’t be one!” (You had no idea they were even singing about IFRS, did you?)
Some People Are Never Happy
But wait, you say—didn’t FASB just announce an amendment to ASC 718 related to share withholding? The IASB’s amendment will align with the current ASC 718, which provides an exception for share withholding for the statutorily required tax withholding. By the time the IASB finalizes their amendment, the FASB may have amended ASC 718 to allow share withholding up to the maximum individual tax rate (even if this exceeds the statutorily required withholding). If so, IFRS 2 and ASC 718 still wouldn’t align on this point. But at least it’s a step in the right direction and maybe someone will point this little nit out to the IASB before they finalize their amendment.
More Information
For more info on the IASB’s proposed amendment and a link to their exposure draft, see the NASPP alert “IASB Proposes Amendments to IFRS 2.” Thanks to Bill Dunn at PwC for alerting me to the IASB proposal.
