Academic journal article Journal of Accountancy

Stock Options Get Final Regs

Academic journal article Journal of Accountancy

Stock Options Get Final Regs

Article excerpt

In final regulations (TD 9471), the IRS updated and clarified rules governing options granted under employee stock purchase plans (ESPPs) and certain information reporting requirements for ESPPs and incentive stock options (TD 9470). The amendments to regulations under IRC [section][section] 421 through 424 provide comprehensive rules with examples by which ESPPs may qualify for favorable tax treatment of stock options.

Generally, such treatment is available if a stock option granted under an ESPP is held at least two years from the date of the grant of the option or one year from its exercise, and the recipient remains an employee of the granting corporation (or its parent or subsidiary) continuously from the date of the grant to three months before the date of the exercise of the option.

TD 9471 adopts with several modifications proposed regulations issued in 2008 (REG-106251-08). In one such modification, the final regulations adopt an offering-by-offering approach to rules requiring identical rights and privileges for employees who are granted stock options and related requirements. The final regulations clarify that when more than one offering is made, the offerings may be consecutive or overlapping. Their terms need not be identical, as long as each offering and the plan together satisfy Treas. Reg. [section][section] 1.423-2(a)(2) and (3) as amended by the final regulations. The regulations address plan participation and approval, equal rights and privileges of employees granted options, and other matters. …

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