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Tag Archives: Section 423

November 15, 2016

Tax-Related Changes for 2017

Lately, there’s been a lot of speculation about what a Trump presidency and a Republican Congress means for tax rates in 2017.  I got nothin’ on that. But what I do have for you today are some tax changes for 2017 that are already finalized.

New Filing Deadlines

Where nonemployee compensation is reported in box 7 of Form 1099-MISC, the deadline to file the form with the IRS has been accelerated to January 31 (previously the deadline was February 28, for paper filers, and March 31, for electronic filers). This will apply to Forms 1099-MISC issued to report compensation paid to outside directors, consultants, independent contractors, and other nonemployees.

Form 1099-MISC is also used to report income recognized on (i) stock plan transactions after an employee’s death, and (ii) transactions by an employee’s ex-spouse for stock awards transferred pursuant to divorce.  In each of these cases, however, the income is reported in box 3, rather than box 7. Consequently, a Form 1099-MISC for these transactions doesn’t need to be filed until the regular February 28/March 31 deadline. (Assuming, of course, no other income is reported in box 7 of the form. For instance, if an employee’s ex-spouse provided services to the company as a consultant in 2016 in addition to exercising a stock option transferred to him in their divorce settlement, and the income for the consulting fees is reported in box 7 along with the option gain in box 3, the Form 1099-MISC would have to be filed with the IRS by January 31. And if the employee died in 2016 and hadn’t updated her beneficiary designation so her RSUs were paid out to the ex-spouse in addition to the consulting fees and the option gain…well, you get the idea.)

The deadline to file Form W-2 with the Social Security Administration has also been accelerated to January 31.  These changes were part of the Protecting Americans from Tax Hikes Act and are intended to help prevent tax fraud. In the past, individual taxpayers received their copy of these forms before the IRS and could have even filed their tax return before the IRS received their Form W-2 or 1099-MISC. This could result in errors (inadvertent or intentional) that the IRS wasn’t able to catch until possibly as late as April, when the company filed these forms with the SSA/IRS. By then, a refund might have been issued to the taxpayer and the IRS was in the difficult position of trying to recover it. With the accelerated filing deadlines, the IRS will theoretically be able to catch these errors before refunds are issued.

The deadline for filing Forms 3921 and 3922 with the IRS is still February 28/March 31. Also, the deadline to distribute the employee copy of all of these forms is still January 31.

COLAs

The cost-of-living adjustments for 2017 have also been announced. Here are the highlights that related to stock compensation:

  • The wage base for Social Security is increasing to $127,200 (up from $118,500 in 2016). The Social Security tax rate isn’t changing (that requires Congressional action), so if I’ve done the math right (something you should never take for granted—math just isn’t my gig), the maximum withholding for Social Security will be $7,886.40 in 2017.
  • No changes to the Medicare rates or the threshold at which the higher rate kicks in, at least for now. Changing either of these things also requires Congressional action; while it’s certainly possible that a repeal or amendment of Obamacare might result in changes to Medicare tax rates or thresholds in 2017, it’s unlikely that either will change before the new administration begins.
  • The level of annual compensation at which employees can be considered highly compensated for purposes of excluding them from participating in a Section 423 ESPP will remain $120,000.

More Information

For more information, see the NASPP Alert “Tax Changes in 2017.”

– Barbara

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July 14, 2016

ESPPs Through the Ages

I’m fascinated by how the field of stock compensation has changed over the years, so I love that the NASPP has been conducting surveys on stock compensation since 1996. For today’s blog entry, I have created an infographic comparing the data in our most recent survey on ESPPs to surveys the NASPP has conducted since before FAS 123(R) was adopted.

The 2016 ESPP survey is a joint project of the NASPP, the NCEO, and the CEP Institute.  It was conducted in January and received over 200 responses.  I compare the results to editions of the Domestic Stock Plan Administration Survey that were conducted in 2014, 2011, 2007, and 2004.  All editions of this survey were co-sponsored by the NASPP and Deloitte Consulting, except the 2004 edition, which was co-sponsored by KPMG.

My infographic is interactive!  Select a year to see how the data changes from one survey to another. Hover over the charts with your mouse to view the data points. (If you have trouble seeing the infographic, click here to view it on a separate page.)

– Barbara

ESPP Survey
Create your own infographics
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March 1, 2016

Tax Holding Periods and Leap Year

Leap year can make things complicated. For example, if you use a daily accrual rate for some purpose related to stock compensation, such as calculating a pro-rata payout, a tax allocation for a mobile employee, or expense accruals, you have to remember to add a day to your calculation once every four years.  Personally, I think it would be easier if we handled leap year the same way we handle the transition from Daylight Saving Time to Standard Time: everyone just set their calendar back 24 hours. Rather than doing this on the last day of February, I think it would be best to do it on the last Sunday in February, so that the “fall back” always occurs on a weekend.

In a slightly belated celebration of Leap Day, I have a few tidbits related to leap years and tax holding periods.

If a holding period for tax purposes spans February 29, this adds an extra day to the holding period.  For example, if a taxpayer buys stock on January 15, 2015, the stock must be held for 365 days, through January 15, 2016 for the sale to qualify for long-term capital gains treatment.  But if stock is purchased a year later, on January 15, 2016, the stock has to be held for 366 days, until January 15, 2017, to qualify for long-term capital gains treatment.  The same concept applies in the case of the statutory ISO and ESPP holding periods–see my blog entry “Leap Year and ISOs,” (June 23, 2009).

Even trickier, if stock is purchased on February 28 of the year prior to a leap year, it still has to be held until March 1 of the following year for the sale to qualify for capital gains treatment.  This is because the IRS treats the holding period as starting on the day after the purchase.  Stock purchased on February 28 in a non-leap year has a holding period that starts on March 1, which means that even with the extra day in February in the year after the purchase, the stock still has to be held until March 1.  See the Fairmark Press article, “Capital Gains and Leap Year,” February 26, 2008.

Ditto if stock is purchased on either February 28 or February 29 of a leap year.  In the case of stock purchased on February 28, the holding period will start on February 29. But there won’t be a February 29 in the following year, so the taxpayer will have to hold the stock until March 1.  And if stock is purchased on February 29, the holding period starts on March 1. Interesting how none of these rules seem to work in the taxpayer’s favor.

The moral of the story: if long-term capital gains treatment is important to you, it’s not a bad idea to give yourself an extra day just to be safe–especially if there’s a leap year involved.

– Barbara

 

 

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January 6, 2015

6039 Reminders

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.

Read the NASPP article “Figuring Out Section 6039 Filings” for more tips.  Another great article to check out is “6039 Gotchas” by My Equity Comp. Many happy returns!

– Barbara

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April 25, 2013

Tax Code Test

In today’s blog I’m going to deviate a bit from our normal format and invite you to take a little quiz. Don’t worry, nobody’s keeping score except for you, so this is just for fun. Why a quiz, you ask? Have you ever wondered where to find something in the massive IRS Tax Code? Many of us have memorized the names and basics about various tax code sections that apply to stock compensation (e.g. Sections 421, 422, 423, 424, 83, 162 and so on). Or, you’ve heard of some pending regulations, but aren’t really sure whether there’s a pending regulation that covers your area of interest? I personally found it fairly straightforward to memorize the basics about all the major tax code sections, but what I find more challenging is keeping on top of all the subsequent revenue rulings and other guidance that emerges from the IRS. If you’re having the same challenge, you’ll want to be sure to visit our new Tax Code portal. It’s simple and concise – there’s a list and description of the various tax code sections, as well as related rulings and other interpretive guidance that apply to stock compensation. Call it a tax code crib sheet, if you may. Wait! Before you check it out, pause for a moment, in that spirit, to take the Tax Code Challenge!

Tax Code Challenge:

1. Where would you find information about the procedures to revoke an 83(b) election?

    a. In Code Section 83(b)(2)
    b. The IRS had not provided guidance on any specific procedures
    c. Section 83 of the Code is clear that an 83(b) election may never be revoked for any reason
    d. In Revenue Proc. 2006-31, which became effective June 13, 2006

2. Which revenue ruling provides guidance on the treatment of dividends and dividend equivalents on restricted stock and restricted stock units for 162(m) purposes?

    a. There is no revenue ruling that covers dividends/dividend equivalents
    b. Revenue Rul. 2012-19
    c. Revenue Rul. 98-34
    d. There is no revenue ruling, but there are proposed regulations pending on this topic

3. Which of the following reflect pending regulations?

    a. Rules relating to the additional medicare tax
    b. Rules related to valuing employee stock options that have been gifted for estate planning purposes
    c. Rules regarding new information disclosures for Section 6039 related information returns
    d. There are no pending revenue rulings that would affect stock compensation

The answers are listed below. If you knew all of the answers – great! You’re a tax guru. For the rest of us that may have been stumped by one or more questions, a visit to the Tax Code portal may help gain clarity in this area.

-Jennifer

Quiz Answers: (1) d (2) b (3) a

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April 16, 2013

Good News for ESPPs

The topic du jour for my Google alerts for the past several days has been that companies are going to be enhancing their ESPPs in the next few years.  A recent survey by Fidelity found that 51% of companies that offer an ESPP are planning on modifying their plan in the next two to three years, and 31% of those companies are planning on increasing the discount.

ESPPs: Better than Sliced Bread 

For those of us that are strong proponents of ESPPs, this is welcome news. I think ESPPs are the best thing since sliced bread (and I say this as true carb lover) for a number of reasons: 

  • Financial:  ESPP expense is usually insignificant compared to stock option and full value award plans; on a per-share basis, even the most generous ESPP is usually cheaper than both an option or full value award; and ESPPs are never underwater, ensuring that a benefit is delivered to employees in exchange for the expense recognized by the company.
  • Shareholder Optics: The plans are minimally dilutive and rarely encounter shareholder opposition.  And employees tend to hold shares acquired under the ESPP.
  • Employees: Right now, with interest rates at laughably low levels, ESPP make a great investment vehicle for employees. There is no other vehicle with the same low risk where you can earn a 17.6% return in, say, six months.

This is a win-win-win for everyone: employees, shareholders, and the company.  The preferential tax treatment is nice too.

Decline in Benefits

But, despite these benefits, we have seen an erosion in ESPPs since ASC 718 went into effect. In the NASPP’s 2011 Stock Plan Administration Survey (co-sponsored by Deloitte):

  • The percentage of respondents offering ESPPs was 52%, down from 64% in 2004 (the last survey before ASC 718 went into effect).
  • Of those respondents with an ESPP, the percentage offering a 15% discount was 71%, down from 87% in 2004.
  • Lookbacks fared even worse:  only 62% of respondents in 2011 offer a lookback, down from 82% in 2004.
  • And offering periods got shorter: in 2004, 43% of respondents offered a 12 or 24 month offering period. In 2011, that percentage dropped to 20%. 

Where Do You Stand?

So I’m very excited to see Fidelity’s press release stating that companies are reinvigorating their ESPPs.  I look forward to a day when all NASPP members proudly offer the most generous ESPP.  For now, I’m curious–where does your company stand:

 


– Barbara
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September 27, 2011

Worker Misclassification

In a flurry of acronyms, the DOL (Department of Labor) and the IRS (I’m sure you all know what this acronym stands for) signed an MOU (Memorandum of Understanding) to improve agency coordination to address worker misclassification. A number of states are also participating in the agreement.

DOL and IRS Sign MOU
The agreement provides that the DOL will share information with the IRS and the participating states to address workers classified as contractors that should really be treated as employees. Worker misclassification is a target of the IRS’s current employment tax research study, which I’ve blogged about before (“IRS Auditing Stock Compensation,” June 7, 2011). This MOU will give the IRS additional information to use in its audits.

At the same time, the IRS also announced a voluntary worker classification settlement program, further demonstrating their focus on this issue.

Misclassifying a worker that should be an employee as a consultant can result in a host of legal issues, from benefits that the individual should have been accorded (such as the right to medical benefits and vacation time), tax withholding considerations, overtime pay, and unemployment benefits, to name just a few.

This probably seems like a topic that doesn’t impact stock plan administration that much. Worker classification is determined by HR and/or payroll; the stock plan administration group most likely just assumes their determination is correct and treats each individual’s options and awards accordingly. And, I can’t think of any reason why stock plan administration should question the classification made by HR/payroll; it’s unlikely you have sufficient information to determine an individual’s employment status.

But, while stock plan administration may not be involved in classifying workers as employees or consultants, you should be aware of the impact misclassification can have on stock compensation awarded to the individuals in question.

Tax Withholding on Options and Awards

Of course, the first issue that comes to mind is tax withholding. Individuals classified as consultants aren’t subject to tax withholding.  If these individuals should have been treated as employees, however, then taxes should have been withheld on all of their compensation, including their NQSOs and stock awards.  Failure to withhold the appropriate taxes can result in penalties to the company up to the amount of the taxes that should have been withheld, as well as interest and administrative penalties. 

In addition, the company should have made matching FICA payments on all of the individual’s compensation, also including NQSOs and stock awards.  This is even more of a mess because consultants don’t pay FICA, they pay self-employment tax, which is equal to both the individual and company portion of FICA.  The misclassified workers will have overpaid their taxes because, as employees, they would only have been responsible for the employee portion of FICA.

ESPP

The company’s Section 423 ESPP is a significant concern.  By law, substantially all employees of the company have to be allowed to participate in the ESPP, but, of course, also by law, consultants aren’t permitted to participate.  Where consultants should have been treated as a employees, however, it is likely that they should have been permitted to participate in the ESPP.  Where an individual that should have been allowed to participate is excluded from the ESPP, the entire offering(s) that the individual should have been allowed to participate in can be disqualified.  A mistake here could impact not just the misclassified individual but all other employees participating in the ESPP.  When assessing your company’s risk with regards to worker misclassification, this is an important consideration. 

Thanks to McGuireWoods for the alert that gave me the idea for this blog entry.

Conference Hotel Almost Sold Out
The 19th Annual NASPP Conference is quickly approaching and the Conference hotel is nearly sold out. The Conference will be held from November 1-4 in San Francisco. The last Conference in San Francisco sold out a month in advance–and that was without the reality of Dodd-Frank and mandatory Say-on-Pay hanging over our heads. With Conference registrations going strong–on track to reach nearly 2,000 attendees–this year’s event promises to be just as exciting; register today to ensure you don’t miss out.

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

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March 15, 2011

Corporation on Form 3922

As the deadline for filing Forms 3921 and 3922 draws near, I have finally heard from the IRS on a nagging question (see Topic #6810 in the NASPP Discussion Forum): if a company offers an ESPP in which employees purchase another corporation’s stock–for example, a subsidiary that sponsors an ESPP in which employees purchase the parent company’s stock–which company should be listed on Form 3922?

Which Corporation Should Be Listed on Form 3922?
For ISO exercises (reported on Form 3921), this matter is easily resolved because the form includes space to list both corporate entities. The corporation that transferred the stock to the employee (presumably the plan sponsor–in my example, the subsidiary) is indicated in the “Transferor” box and the corporation whose stock was transferred (in my example, the parent company) is indicated in box 6.

Form 3922, however, only has space for one corporation. §1.6039-1(b)(1)(ii) of the final regulations states that the return for the transfer of ESPP shares is required to include “The name, address and employer identification number of the corporation whose stock is being transferred.” Based on that, the company whose stock is purchased (in my example, the parent company) should be the corporation indicated on Form 3922.

Why the Confusion?

Some companies would prefer to include the plan sponsor on Form 3922, rather than the company whose stock was purchased under the plan. For example, in the case of subsidiary sponsoring an ESPP in which employees purchase stock of a foreign parent company, there is concern that including the foreign parent as the corporation on Form 3922 could cause the IRS to think that the foreign parent has employees or a permanent establishment in the United States, which could trigger other tax-related issues.

Even where the company whose stock is purchased is not a foreign company, there is concern that listing this company, instead of the actual plan sponsor, on Form 3922 could cause the IRS to think that the individuals for which Form 3922 is filed are employees of the company indicated, causing confusion with regards to other tax matters (e.g., would the IRS then be looking for a Form W-2 from this company for the individuals).

What Do the Form Instructions Say?

The instructions to Form 3922 are not as specific as the final regulations with regard to what corporation must be listed. Per the instructions, the term “corporation” could include (but is not even limited to) the corporation issuing the stock, a related corporation of the corporation, and any party in control of the payment of remuneration for employment to the employee. The box itself on the form is labeled “Corporation,” not “Transferor,” as on Form 3921. These instructions seem to allow some leeway for companies to make their own determination as to which corporate entity should be indicated on the form.

What Does the IRS Say?

Given the confusion on this matter, I contacted the IRS for guidance. Just yesterday, I received an informal response from the IRS Chief Counsel’s office that the corporation listed on Form 3922 must be the corporation whose stock was purchased/transferred. The Chief Counsel recognizes that this could cause some problems with foreign corporations, but is nevertheless sticking to what the final regs say.

What Do You Say?

I’m curious to know what our members think about this and how much of a concern it is for you. It has been suggested to me that if we approached the IRS reasonably about this, we might get some additional relief. If you send me your carefully considered and professionally presented concerns, including the reasons why you would like to have the employer corporation listed on Form 3922 instead of the corporation whose stock was purchased/transferred, I will present those comments to the IRS. You can send your comments to me at bbaksa@naspp.com.

I wouldn’t count on getting any relief by the end of March, however.  So, for this year filings, I would include the corporation whose stock was transferred on Form 3922.

Register Now for Early-Bird Savings on the NASPP Conference
I’m excited to announce that the 19th Annual NASPP Conference will be held in San Francisco from November 1-4, 2011.   Register by May 13 to receive the special early-bird rate!

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

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February 9, 2011

Decisions Have Been Made

When the NASPP conducted our quick survey on Section 6039 back in October, there were a lot of “undecided” responses. So we conducted another survey last month. The results are in and decisions have been made.

Filing Section 6039 Returns with the IRS

Electronic filing is the clear winner here, with 78% of respondents filing the returns for ISOs electronically and a landslide 90% filing electronically for their ESPP transactions.  Surprisingly, 5% of respondents are planning to file ESPP returns on paper; they must be from very small companies or have very low participation rates in their ESPP to manage this.  I can’t imagine trying to file the returns on paper–my handwriting would never pass muster with the IRS and I have no idea where to scare up a typewriter these days.

In terms of getting the job done, the trend is towards outsourcing.  Only 23% of respondents are preparing and filing in-house for ESPP returns; more–41%–are handling the job in-house for ISOs.  When we asked this question back in October, 29% were undecided, but now that the deadline looms near, almost everyone has made a decision: only 2% remain undecided about outsourcing for ISO returns and only 5% are undecided for ESPP returns.

Participant Statements

More companies than I expected were planning on distributing copies of the actual Forms 3921 and 3922 to their employees:  32% of respondents for ISOs and 26% of respondents for ESPPs.  Of course, as I’m sure all of these folks know, the IRS did not make the forms available in time for this, so these folks most likely ended up distributing substitute statements (unless they requested an extension from the IRS).  

Most of the rest of the respondents distributed substitute statements that aggregated multiple transactions on one page:  58% of respondents for ISOs and 64% of respondents for ESPPs. 

Back in October, 50% of respondents were on the fence about including an explanatory letter with the statements. I’m pleased to see that the majority decided to go with the more-information-rather-than-less approach:  86% of respondents ended up including an explanatory letter with ISO statements and 88% did so for ESPP statements.

Decisions went the opposite way on distributing the statements electronically.  24% of respondents were considering this back in October, but the majority (90% for ISO statements, and 87% for ESPPs) ended up distributing the statements on paper.  Not surprising, given the onerous requirements for electronic distribution.  It will be interesting to see how many companies move towards electronic distribution in the next few years.

More Information

For everything you need to know about Section 6039, check out the NASPP’s Section 6039 Portal

A More Social NASPP
The NASPP is networking socially: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on Naspp.com–it’s a great way to keep up with all the content we have on the website.

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

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August 3, 2010

The Horror! The Horror!

Today we continue our series of blog entries guest authored by speakers for the 18th Annual NASPP Conference. For this installment of the series, we feature Emily Cervino of the CEP Institute on “Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!

Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!
By Emily CervinoCEP Institute

The NASPP Conference agenda is full of best practices, emerging trends, and successful case studies. But, don’t forget about the darker side of equity compensation. At the 2009 Conference, the “Night of the Living Dead” panel was a huge hit…and 2010 will bring back the same concept, with a completely new slate of horror stories!

Why are we dwelling on epic failures, monumental disasters, and crippling catastrophes? Because we can learn just as much (if not more) from these fiascos as we can from stunning successes. Hearing these horror stories will help attendees avoid a similar fate, stockpile their ammunition for making a case to management, and sleep easier knowing that even with these calamities, not a single panelist has had to enter the witness protection program. A major problem doesn’t end your career…if you know how to handle the problem and ensure it doesn’t happen again.

For example, take the humble ESPP…these plans may not have the allure or status of other equity programs, but with broad participation, infrequent processing, and the final regulations for Section 423 plans providing for the possible inadvertent disqualification of the plan, the risks for ESPP are at an all time high.

One of the horror stories starts as many horrors do… as a new employee, quickly flung into the frenzy of processing an ESPP. The ESPP had been run on “autopilot” and on the date of the purchase, the fearless new stock plan administrator received the report of payroll contributions for the plan participants. Noticing that there were suspiciously high amounts for many employees, a frantic red flag was raised. The “investigative work” resulted in a shocking revelation–the company had been allowing employees who hit the $25,000 limit following a purchase to carry over those leftover funds to the next offering period. Just to be clear…the company was carrying forward the contributions, not the limit. So, if an employee hit the $25,000 limit, the company did not refund the excess contributions, but added those contributions to the payroll contributions for the next offering. This was clearly not permitted under the plan. Other employees weren’t permitted to make a lump sum contribution. So, what we have here is the dreaded violation of the equal right and privileges provision of Section 423.

The end result was a frantic scramble on the day of the purchase to recalculate, notify the impacted (and now unhappy) employees about sizeable refunds, and determine what those refunds were. Lessons learned? Read your plan. Don’t accept the status quo when you are in a new position. Get ESPP contributions (or, at a minimum, estimated contributions) at least a week in advance of the purchase. Educate and befriend Payroll. And, in case you missed that first one…it bears repeating–read your plan.

Join us as we frighten you with nightmare stories and set you on the path to safety with recommendations on how to avoid similar misfortune. Due to the popularity of last year’s premier, our panel is offered twice, during Session III on Tuesday at 1:45 PM and again during Session V on Wednesday at 9:00 AM.

Got your own horror story to share? The NCEO is soliciting stories for an edition of the book “Don’t Do That” focused on equity compensation. This is a great way for others to learn from the challenges you have overcome. Submit your story today!

Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!” promises to keep attendees on the edge of their seats. Make sure you’re there to enjoy the thrill at the 18th Annual NASPP Conference.  The Conference will be held from September 20-23 in Chicago. Register today and bring popcorn!

NASPP Members Eligible for Discount on CEP Exam
If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the November 6, 2010 exam.*

The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self-study program in the technical regulatory issues affecting equity compensation.  

Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187.

* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187.

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