Employers must file a notice with the Internal Revenue Service by February 28, 2007, if they want to participate in the compliance resolution program (the Program) permitting employers to pay the taxes arising under Section 409A of the Internal Revenue Code (the Code) due to the exercise of certain discounted stock options and stock appreciation rights in 2006. The Program does not afford any reduction in the amount of Section 409A taxes due with respect to the exercise of discounted stock rights. However, the Program may minimize the administrative burdens on employers of complying with their Section 409A reporting obligations and may enhance employee relations.
Unveiled in IRS Announcement 2007-18, the Program:
- Applies to exercises of discounted stock rights during 2006 by employees and former employees, except for employees and former employees who are currently subject to the disclosure requirements of Section 16 of the Securities Exchange Act of 1934 (Section 16 persons) and those who were Section 16 persons on the grant date of the discounted stock rights
- Requires full payment by the employer of the 20% penalty and interest taxes imposed by Section 409A as a result of the exercise of the discounted stock rights, and relieves the employees of their 409A taxes with respect to such exercises
- Imposes a strict schedule pursuant to which employers must notify the IRS of their intent to participate in the Program by February 28, 2007
For a full description of the Program, please see our February 9, 2007, email alert.
For more information on this or other tax matters, please see our prior tax publications, or contact: