It’s no April Fool’s joke—on March 31, the IRS and Treasury issued final regulations under Section 162(m). The final regs are largely the same as the proposed regs that were issued back in 2011 (don’t believe me—check out the redline I created); so much so that I considered just copying my blog entry on the proposed regs and changing the word “proposed” to “final” throughout. But I’m not the sort of person that takes short-cuts like that, so I’ve written a whole new blog for you.
For more information on the final regs, check on the NASPP alert, which includes several law-firm memos.
The IRS Says “We Told You So”
The final regulations implement the clarification in the proposed regs that, for options and SARs to be exempt from the deduction limit under Section 162(m), the plan must specify a limit on the maximum number of shares that can be granted to an individual employee over a specified time period. It is not sufficient for the plan to merely limit the aggregate number of shares that can be granted, even though this creates a de facto per-person limit; the plan must separately state a per person limit (although the separately stated per-person limit could be equal to the aggregate number of shares that can be issued under the plan). One small change in the final regs was to clarify that the limit doesn’t have to be specific to options/SARs; a limit on all types of awards to individual employees is sufficient.
When the proposed regs came out, I was surprised that the IRS felt the need to issue regs clarifying this. This had always been my understanding of Section 162(m) and, as far as I know, the understanding of most, if not all, tax practitioners. In his sessions over the years at the NASPP Conference, IRS representative Stephen Tackney has said that everyone always agrees on the rules until some company gets dinged on audit for not complying with them—then all of a sudden the rules aren’t so clear. I expect that a situation like this drove the need for the clarification.
In the preamble to the final regs, the IRS is very clear that this is merely a “clarification” and that companies should have been doing this all along, even going so far as to quote from the preamble to the 1993 regs. Given that the IRS feels like this was clear all the way back in 1993, the effective date for this portion of the final regs is retroactive to June 24, 2011, when the proposed regs were issued (and I guess maybe we are lucky they didn’t make it effective as of 1993). Hopefully, you took the proposed regs to heart and made sure all your option/SAR plans include a per-person limit. If you didn’t, it looks like any options/SARs you’ve granted since then may not be fully deductible under Section 162(m).
Why Doesn’t the IRS Like RSUs?
Newly public companies enjoy the benefit of a transitional period before they have to fully comply with Section 162(m). The definition of this period is one of the most ridiculously complex things I’ve ever read and it’s not the point of the new regs, so I’m not going to try to explain it here. Suffice it to say that it works out to be more or less three years for most companies.
During the transitional period, awards granted under plans that were implemented prior to the IPO are not subject to the deduction limit. Even better, the deduction limit doesn’t apply to options, SARs, and restricted stock granted under those plans during this period, even if the awards are settled after the period has elapsed. It’s essentially a free pass for options, SARs, and restricted stock granted during the transition period. The proposed regs and the final regs clarify that this free pass doesn’t apply to RSUs. For RSUs to be exempt from the deduction limit, they must be settled during the transition period. This provides a fairly strong incentive for newly public companies to grant restricted stock, rather than RSUs, to executives that are likely to be covered by Section 162(m).
I am surprised by this. I thought that some very reasonable arguments had been made for treating RSUs the same as options, SARs, and restricted stock and that the IRS might be willing to reverse the position taken in the proposed regs. (In fact, private letter rulings had sometimes taken the reverse position). I think the IRS felt that because RSUs are essentially a form of non-qualified deferred comp, providing a broad exemption for them might lead to abuse and practices that are beyond the intent of the exemption.
This portion of the regs is effective for RSUs granted after April 1, 2015.
It’s been a while since I posted a stock compensation grab bag. Here are a few recent developments that don’t warrant their own entry but are still worth knowing about.
HSR Filing Thresholds
Good news: now executives can acquire even more stock! Under the Hart-Scott-Rodino Act, executives that acquire company stock in excess of specified thresholds are required to file reports with the Federal Trade Commission and the Department of Justice. The thresholds at which these reports are required have increased for 2015. See the memo we posted from Morrison & Foerster for the new thresholds, which are effective as of February 20, 2015.
If you have no idea what I’m talking about, check out our handy HSR Act Portal.
Final FATCA Regs
The Foreign Account Tax Compliance Act (FATCA) requires employees to report any overseas accounts that hold specified foreign financial assets, which could be interpreted to include stock awards issued by non-US corporations. The assets (stock awards, for our purposes) are reported on IRS Form 8938 (“Statement of Specified Foreign Financial Assets”), which is filed with the annual tax return. Final FATCA regulations, released in December 2014, clarify that unvested awards, do not need to be reported on Form 8938 until they have “substantially vested” (except in the case of a Section 83(b) election).
Dodd-Frank Rulemaking Update
The SEC has pushed back its agenda of rulemaking projects under the Dodd-Frank Act. The proposed rules for clawback requirements, disclosure of hedging policies, and pay-for-performance disclosures and the final rules for the CEO pay ratio disclosure have been pushed back to October 2015 (just in the time for the 23rd Annual NASPP Conference). This is despite comments from SEC Chair Mary Joe White last fall that the SEC was pushing to issue the final CEO pay ratio rules by the end of year. That’s a big delay—from the end of 2014 to October 2015—especially given the pressure on the SEC to issue these rules.
Section 83(b) Election Update
When making a Section 83(b) election, employees are required to include a copy of the election with their tax return for the year in which the election is made. In PLR 201438006, the IRS ruled that a Section 83(b) election was valid even though the taxpayer failed to attach a copy of the election to his Form 1040. If the failure had invalidated the election, employees could effectively revoke the election by “forgetting” to include it with their tax return—and, as we all know, Section 83(b) elections are irrevocable once the deadline to file them has elapsed.
The IRS has announced an audit initiative focused on Section 409A compliance. Frankly, I’m a little surprised that they haven’t undertaken this sort of audit initiative sooner–I’ve heard from practitioners that, up until now, Section 409A has rarely been a focus of IRS audits. Given the complexity of this area of the tax code and the fact that every time I have a question about it, my sources never seem to be entirely sure of the answer (and I sometimes get conflicting answers), it seems like 409A could be an untapped wealth of compliance errors for the IRS.
Who Are the Lucky Winners?
Some companies are just lucky. The IRS has picked 50 companies to be the subject of the audits, all of which have already been selected for employment tax audits–I guess the IRS is a believer of “when it rains, it pours.” The good news is that if you haven’t already been selected for an employment tax audit, you won’t be part of the initial 409A audit initiative.
What Is the IRS Looking For?
The audits will focus on deferral elections (both initial deferrals and re-deferrals) and payments (including payments to key employees upon separation of service). It’s pretty rare that we see deferral elections for stock compensation; only 29% of respondents to the NASPP’s 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting) allow deferrals for time-based RSUs and only 24% allow deferrals for performance awards. Based on this, it seems that the audits will concentrate primarily on more traditional NQDC plans, rather than stock compensation.
This seems like a missed opportunity for the IRS–I’ve always found the application of Section 409A to stock compensation to be particularly confounding and full of traps for the unwary. Moreover, I think this is an area of the tax code that often is overlooked when we are thinking about potential concerns related to stock awards. But perhaps the IRS will expand to stock compensation in the next phase of the audit initiative.
The Next Phase?
I say “next phase” because this could be a precursor to a larger, more intensive audit of Section 409A compliance. In a memo on the initiative, Groom Law Group says “The IRS will assess what further steps, if any, to take after the results of these audits are in.” Now is a good time to get out ahead of this and perform your own self-audit of 409A compliance. In his blog on CompensationStandards.com, Mike Melbinger of Winston & Strawn points out that there is a corrections program available for some operational errors under 409A, but that the corrections program is no longer an alternative once you are the subject of an audit.
At the same time that the IRS released regulations designed to clarify which restrictions constitute a substantial risk of forfeiture under Section 83 (see my blog entry “IRS Issues Final Regs Under Section 83,” March 4), a recent tax court decision casts doubt on the definition in the context of employees that are eligible to retire.
Background
As my readers know, where an employee is eligible to retire and holds restricted stock that provides for accelerated or continued vesting upon retirement, the awards are considered to no longer be subject to a substantial risk of forfeiture, and, consequently, are subject to tax under Section 83. This also applies to RSUs, because for FICA purposes, RSUs are subject to tax when no longer subject to a substantial risk of forfeiture and the regs in this area look to Section 83 to determine what constitutes a substantial risk of forfeiture.
Although there’s usually some limited risk of forfeiture in the event that the retirement-eligible employee is terminated for cause, that risk isn’t considered to be substantial. As a practical matter, at many companies just about any termination after achieving retirement age is treated as a retirement.
Austin v. Commissioner
In Austin v. Commissioner however, the court held that an employee’s awards were still subject to a substantial risk of forfeiture even though the only circumstance in which the awards could be forfeited was termination due to cause. In this case, in addition to the typical definition of commission of a crime, “cause” included failure on the part of the employee to perform his job or to comply with company policies, standards, etc.
Implications
Up until now, most practitioners have assumed that providing for forfeiture solely in the event of termination due to cause is not sufficient to establish a substantial risk of forfeiture, regardless of how broad the definition of “cause” is. Austin seems to suggest, however, that, in some circumstances, defining “cause” more broadly (e.g., as more than just the commission of a crime) could implicate a substantial risk of forfeiture, thereby delaying taxation (for both income and FICA purposes in the case of restricted stock, for FICA purposes in the case of RSUs) until the award vests.
On the other hand, there are several aspects to this case that I think make the application of the court’s decision to other situations somewhat unclear. First, and most important, the termination provisions of the award in question were remarkably convoluted. So much so that resignation on the part of the employee would have constituted “cause” under the award agreement. There were not any special provisions relating to retirement; all voluntary terminations by the employee were treated the same under the agreement. In addition, the employee was subject to an employment agreement and the forfeiture provisions of the award were intended to ensure that the employee fulfilled the terms of this agreement.
Finally, the decision notes that, for a substantial risk of forfeiture to exist, it must be likely that the forfeiture provision would be enforced. I think that, for retirees, this often isn’t the case–the only time a forfeiture provision would be enforced would be in the event of some sort of crime or other egregious behavior. Termination for cause is likely to be met with resistance from the otherwise retirement-eligible employee; many companies feel that, with the exception of circumstances involving clearly egregious acts, it is preferable to simply pay out retirement benefits than to incur the cost of a lawsuit.
Never-the-less, it is worth noting that 26% of respondents to the NASPP’s recent quick survey on retirement provisions believe that awards held by retirees are subject to a substantial risk of forfeiture.
The Chairman of the House Ways and Means Committee has released a discussion draft of proposed legislation that could dramatically change the tax treatment of stock compensation as we know it. Here is a summary of the proposals.
No More Deferrals of Compensation
The good news is that Section 409A would be eliminated; I still don’t fully understand that section of the tax code and maybe if I just wait things out a bit, I won’t have to. But the bad news is that it would no longer be permissible to defer taxation of stock compensation beyond vesting. Instead, all awards would be taxed when transferable or no longer subject to a substantial risk of forfeiture.
This would eliminate all elective deferral programs for RSUs and PSUs. The NASPP has data showing that those programs aren’t very common, so you probably don’t care so much about that. On the other hand, according to our data, about 50% of you are going to be very concerned about what this will do to your awards that provide for accelerated or continued vesting upon retirement. In addition to FICA, these awards would be subject to federal income tax when the award holder is eligible to retire. Say goodbye to your good friends the rule of administrative convenience and the lag method (and the FICA short-term deferral rule)–those rules are only available when the award hasn’t yet been subject to income tax. This could make acceleration/continuation of vesting for retirees something we all just fondly remember.
As drafted, this proposal would also apply to stock options, so that they too would be subject to tax upon vest (the draft doesn’t say anything about repealing Section 422, so I assume that ISOs would escape unscathed). But one practitioner who knows about these things expressed confidence that there would be some sort of exception carved out for stock options. I have to agree–I don’t have data to support this, but I strongly suspect that the US government gets a lot more tax revenue by taxing options when they are exercised, rather than at vest (and that someone is going to figure this out before the whole thing becomes law).
Section 162(m) Also Targeted
The proposal also calls for the elimination of the exception for performance-based compensation under Section 162(m). This means that both stock options and performance awards would no longer be exempt from the deduction limitation. At first you might think this is a relief because now you won’t have to understand Section 162(m) either. I hate to rain on your parade, but this is going to make the tax accounting and diluted EPS calculations significantly more complex for options and performance awards granted to the execs subject to this limitation.
And that’s a bummer, because the proposal says that once someone becomes subject to the 162(m) limitation, they will remain subject to it for the duration of their employment. Eventually, you could have significantly more than five execs that are subject to 162(m). That’s right–five execs. The proposal would make the CFO once again subject to 162(m), a change that’s probably long overdue.
And There’s More
The proposal would also change ordinary income tax rates, change how capital gains and dividends are taxed, and eliminate the dreaded AMT (making the CEP exam just a little bit easier). And those are just the changes that would impact stock compensation directly. There is a long list of other changes that will impact how you, your employees, and your employer are taxed. This memo by PwC has a great summary of the entire discussion draft. In addition, we are in the process of recording a podcast with Bill Dunn of PwC on the draft–look for it soon in the NASPP podcasts available on iTunes.
When Does This All Happen?
That’s a very good question. This proposal has a long ways to go on a road that is likely to be riddled with compromise. As far as I can tell, it hasn’t even been introduced yet as a bill in the House. It has to be passed by both the House and the Senate and then signed into law by the President. So I wouldn’t throw out those articles you’ve saved on Sections 409A and 162(m) and the AMT just yet. It’s hard to say what, if anything, will come of this.
Last week, the IRS issued the final version of the new Section 1.83-3 regs that were proposed back in 2012.
Background: The Proposed Regs
Section 83 provides that property transferred in exchange for services is taxable when it is transferable or no longer subject to a substantial risk of forfeiture (whichever occurs first). As explained in the preamble to the proposed regs, the purpose of this revision was to clarify that, for a substantial risk of forfeiture to exist, there has to be 1) some reasonable possibility of forfeiture (e.g., a performance goal which is certain to be met would not give rise to a substantial risk of forfeiture) and 2) there has to be some likelihood that the forfeiture provision would be enforced.
Most of us always thought this was the case, so we were surprised to see the proposed regs. Some speculated that companies would now have to estimate the likelihood of forfeiture due to failure to meet the vesting requirements to determine if taxation is delayed under Section 83. During his session at the 2012 NASPP Conference, Stephen Tackney, of the Office of Chief Counsel, at the IRS explained that this wasn’t the IRS’s intention and that they were really only concerned about situations where the likelihood of forfeiture was so infinitesimally small as to be almost nonexistent. Apparently the IRS lost a couple of enforcement actions in court due to a misunderstanding about this concept, so they decided to make the rules a little clearer.
The proposed regs also clarified that lock-up restrictions and trading black-out periods don’t delay taxation under Section 83 and codified a prior Rev. Rul. clarifying when taxation is deferred as a result of the operation of Section 16(b) (for practical purposes, virtually never).
What’s New in the Final Regs
Well, not much, really. In response to the concerns that the regulations were perhaps raising the threshold for a substantial risk of forfeiture, the IRS explains in the preamble that the new regulations are not intended to depart from the historic position that the IRS has taken with respect to Section 83. The IRS also edited the language of the regs, I think with the intention of making this clearer.
The IRS added a sentence to the regs to further clarify that it must be likely that the forfeiture restrictions would be enforced for there to be a substantial risk of forfeiture. Here again, I don’t think this represents a change in position for the IRS.
Finally, the IRS added an example to clarify that, where a Section 16 insider engages in a non-exempt purchase in the six months before an otherwise taxable acquisition under a stock option or award, the non-exempt purchase doesn’t delay taxation of the option or award (even though it does delay when the insider can sell the shares acquired under the option/award). We had noticed there were some differences in opinion among practitioners as to whether this was the case and had asked for clarification. Although the situation probably doesn’t come up that often, when it does come up, we thought it important to know what the correct tax treatment is. And now we know (and I think it’s the answer most of us had been assuming all along).
Read more about the final regs, including our redline comparing the proposed and final regs, in the NASPP Alert “IRS Issues Final Regs Under Section 83.”
Many companies have settled into a routine when it comes to furnishing information statements and filing the IRS returns required under Section 6039 of the Internal Revenue Code. Whether you have a solid routine, or this is the first time you’re facing Section 6039 compliance, there are a few areas where companies should verify that they are fully satisfying 6039 requirements as they near the deadlines for 2013 tax year reporting.
Review Non-U.S. Employees
Non-resident aliens who do not receive a W-2 are not subject to Section 6039 reporting. If a non-resident alien does receive a W-2, then 6039 statements would also need to be furnished.
U.S. citizens who are working abroad are subject to Section 6039 reporting, so companies should not rely on address filters alone to determine whether or not an employee should receive an information statement.
Implement a New ESPP?
Did your company implement a new ESPP recently? It’s important to note that the trigger for filing Form 3922 (for ESPP shares) is the first transfer of legal title for the shares, not the purchase or exercise of the shares. The moment of first legal transfer includes the deposit of shares to a brokerage account in the employee’s name upon purchase, like many companies do via a captive broker. If you had ESPP purchases in 2013 and deposited purchased shares immediately into a brokerage account for the employee, then you’ll need to report the transaction(s) this season. Note that issuances into book entry at a transfer agent or in certificate form do not constitute a legal transfer of title. Those shares would be reported once deposited to a brokerage account, gifted, or sold. Of course, this doesn’t only apply to new ESPPs, but most companies with existing ESPPs are already aware of this requirement. It’s possible that those implementing a new ESPP may overlook this “first legal transfer of title” requirement if not looking at the nuances carefully.
More Transactions this Year?
The IRS doesn’t require companies to file 6039 returns electronically unless there are 250 or more of them. The 250 number is per form type, so if you have 251 Form 3921 returns and 249 Form 3922 returns, only the Form 3921 returns need to be filed electronically. For quantities less than 250 per form type, companies may elect to file electronically or via paper. Even if you didn’t have to file electronically in the past, you’ll want to look at each year’s quantities anew to make sure you’ve assessed the threshold correctly. The deadline for paper filings is February 28, 2014. The deadline for electronic filings is March 31, 2014.
No Chump Change for Failures and Mistakes
Failing to furnish information information statements is no laughing matter. The IRS penalty for not furnishing an information statement, or, for providing an incomplete or incorrect statement to a participant is up to $100 per statement. In addition, a separate penalty is assessed for issues with 6039 returns that should be filed with the IRS – up to $100 per return for those not filed or incomplete/incorrect returns. As a result, you’ll want to make sure you are really auditing the entire process – even if it’s outsourced, to ensure there are no failures. There is a cap of $1.5 million on each penalty type, but that’s high enough to want make doubly sure that the proper reporting is done accurately and timely.
For more information, the NASPP has an excellent Section 6039 portal, available on our web site.
It’s a holiday week so I thought I’d do something a little lighter for today’s blog entry. Over the nearly 20 years that I’ve worked in this industry, I have asked a lot of questions about stock compensation. I’ve also found the answers to a lot of them, but there are still a few questions that remain a mystery to me. For today’s entry, I present some of my unanswered questions.
IFRS 2?
The international financial reporting standard for stock compensation is IFRS 2. Two? Is this really the second standard that the IASB drafted? Seriously? Of all the possible areas of discrepancy in worldwide accounting, stock-based compensation was the second most important area they could think of? And, if so, what the heck was so important that it beat us out for the number 1 spot?
Why Two and a Half Months?
What is magical about two and a half months after the end of the calendar year for the IRS? Would anyone care if the deadline were just two months (i.e., the end of the second month)? Because in terms of explaining both the provisions of 409A and the FICA short-term deferral rule, this would be a heck of a lot easier to say.
Forms 1 & 2?
Whatever happened to Forms 1 and 2? I must remember to ask Alan Dye about this. Wouldn’t it have made more sense to call Forms 3, 4, and 5 something like “Forms 16A, 16B, and 16C”? Or maybe 16H (“H” for holdings), 16NE (“NE” for non-exempt transactions), and 16E (“E” for exempt transactions)? The form for Rule 144 is called “Form 144,” why not use the same naming system for Section 16 forms?
When Is 30 Days After June 30?
Why does Form G-4 (filed by companies that have issued loans for the purchase of their own stock in excess of the Federal Reserve Board thresholds) have to be filed within 30 days following June 30? Wouldn’t that always be by July 30? Why couldn’t the Federal Reserve Board just say, “file this form by July 30”? Does the Federal Reserve Board have a different calendar than I do?
How Does the IRS Determine What Constitutes “News”?
Why does the IRS send out an email announcing inflation adjustments for the carbon dioxide (CO2) sequestration credit under §45Q but doesn’t send an email announcing proposed rule changes under Section 83?
How Many EDGAR Passwords Does It Take to Change a Lightbulb?
Why the heck does it take four–count ’em, that’s 4–codes to change my EDGAR password? That’s two more codes than I have to enter to change the password on any of my financial accounts. And it’s useless as a form of security because I can’t remember any of them, so I have them all written down in the same document–if someone manages to get one of them, he/she probably has them all. Heck, I bet most companies have a single document where they store all of these codes for all of their insiders–all in one handy place for anyone who wants to sabotage their insiders’ Section 16 filings. This is a perfect example of why lawyers shouldn’t be allowed to develop computer systems.
What Is a Borker, Anyway?
Does anyone else consistently mistype the word “broker” as “borker”? It seems so inappropriate but also kind of appropriate at the same time. “Consluting” for “consulting” is another typo I make with some regularity. Thankfully, both errors are caught easily with spellcheck.
Just a few thoughts to ponder and perhaps discuss with your family as you enjoy Thanksgiving dinner. Enjoy your holiday!
The IRS and the Social Security Administration have announced the COLAs for next year. That’s COLAs as in “cost of living adjustments” (in case you were wondering what the IRS and SSA have to do with soda pop).
A Quiet Year
Some years are quieter than others when it comes to tax-related changes. At this time last year we were looking at changes to FIT withholding rates, FICA withholding rates, a new Social Security wage cap, new Medicare taxes, a threshold increase relating to highly compensated employees, plus last minute tax legislation at the start of the year to restore some FIT withholding rates to 2012 levels. I count at least seven NASPP Blog entries on the tax rate changes that went into effect (and didn’t go into effect after all) at the start of 2013.
What a difference a year makes! Things are a lot quieter this year. At the federal level, it looks like the only change that impacts stock compensation is the Social Security wage cap. Bad news for Jenn and I since now we’ll have to come up with other ideas for six more blog entries but good news for you since you won’t have to sort through and implement a bunch of tax rate changes over the holidays.
FICA
As noted, the wage cap for Social Security tax purposes will increase to $117,000, up from $113,700 last year. The tax rate remains the same at 6.2%, so this increases the maximum Social Security withholding to $7,254 per employee. Incidentally, the SSA estimates that about 10 million workers will pay higher taxes as a result of the increase.
As far as I know, the Medicare rates and the threshold at which the additional Medicare tax applies will remain the same in 2014.
Highly-Compensated Employees
The threshold at which an employee is considered highly compensated for purposes of Section 423 will remain at $115,000 in 2014. (Section 423 allows, but does not require, highly compensated employees to be excluded from participation.)
As we head into the year-end season, I know many of you are going to be looking at your year-end communications to see which parts need to be updated. I thought it might be a good time to remind you that the regulations governing cost-basis reporting for shares acquired under stock options and ESPPs are changing as of January 1.
What’s Changing?
Beginning January 1, 2014, brokers will no longer be allowed to include the compensatory income recognized in connection with shares acquired under an option or ESPP in the cost basis reported on Form 1099-B. Instead, brokers are required to report only the purchase price as the basis and employees will have to report an adjustment on Form 8949 to correct the gain or loss they report on their tax return (see my blog entry, “Final Final Cost-Basis Reporting Regs,” May 7, 2013)
Until next January, brokers can voluntarily choose to include this income in the basis, but are not required to do so. Thus, we are going from a situation in which the cost basis reported on Form 1099-B is actually sometimes correct to a situation in which it will virtually always be wrong. Ten points if you can name a scenario in which the purchase price is actually the correct basis for shares that were acquired under a stock option or ESPP.
[Note that, technically, the regs will only apply to options acquired after January 1, 2014, but we think most brokers will apply them to all shares acquired after the date, even if the shares were acquired under an option granted prior to that date.]
How Does This Impact Forms 1099-B for Sales in 2013?
That is a good question! Right now, we are in a transition period. Brokers can continue to report under the old rules for 2013 or they can voluntarily change over to the new rules. A good first step to reviewing your year-end employee communications will be to check in with your brokers on this, so you know what they are planning to do and can adjust your communications appropriately, if necessary.
Does this Impact Restricted Stock and Units?
In most cases, it will not have any impact on restricted stock or RSUs. Arrangements in which employees don’t pay cash for the shares aren’t covered by the regulations so brokers don’t have to report any basis for them at all on Form 1099-B. That still applies under the regulations going into effect as of January 1, 2014. So I expect that most brokers aren’t reporting a basis for RS/RSUs now and still won’t report a basis once the new regs go into effect.
The only exception will be those brokers that are currently reporting a cost basis on a voluntary basis for RS/RSUs (which I understand to be few and far between). Brokers can still voluntarily report a basis for shares acquired under RS/RSUs, but for shares acquired after January 1, 2014, that basis cannot include any of the compensatory income recognized in connection for the award. In other words, the broker can still report a basis but the reported basis has to be $0. I hope that brokers don’t do that–I think it would be better to not report a basis at all than to report an incorrect basis of $0.
Can the NASPP Help?
Why, yes, we can! Our Cost-Basis Reporting Portal includes some great sample materials to help you explain all of this to your employees. We have sample tax forms, flow charts, and extensive FAQs. Check it out today and keep an eye on the portal; we will update it as new tax forms become available from the IRS.