Wednesday, February 2, 2011

Section 6039 Requires New Tax Reporting

Changes to Section 6039 were caused in an attempt to boost compliance and make the reporting procedure much easier for participants. These changes were created useful for transactions occurring in twelve months 2010 and later, so if you haven't already, now could possibly be an excellent time to consider how very best to incorporate these changes into your routine. Here's what you'll want to know to make sure your procedures have been in compliance.

What is Section 6039

Historically, IRC Section 6039 needed firms granting ISOs or providing qualified ESPPs to transmit annual statements to participants who a) exercised an ISO or b) initial transferred ESPP shares via a disposition or re-registration during the calendar year. The objective of the reporting ended up being to supply the necessary data for participants to accurately calculate and report income and tax obligations related to dispositions for qualified equity plans. These statements had been from January 31 the year after and normally followed a standard, flexible format. Regardless of the penalties for non-compliance, many firms took a relatively relaxed approach for this requirement, utilizing exercise or buy confirmations or year-end tax statements to satisfy the participant reporting obligation.

What Changes Were Created in 2010?

The new 6039 rules are intended to create the reporting procedure simpler for participants and to reduce non-compliance. For tax year 2010, firms are required to report exactly the same transaction information to the IRS, along with the data components essential to be reported have changed, particularly on the ESPP side. The IRS has issued Types 3921 (ISOs) and 3922 (ESPPs) as guidelines for participant reporting; organizations might elect to make use of these formats, or a "substitute format" that aggregates numerous transactions right into a single report to create the participant notification additional easy to use.

IRS filing must be performed electronically when the total amount of unique types exceeds 250, though the IRS recommends e-filing regardless of the total number. There's no alter towards the participant reporting deadline of January 31; e-filing ought to occur by March 31, comparable to Type W-2 reporting for the IRS. Penalties for non-compliance can begin at up to $250,000/year for late or non-reported transactions and there is no maximum amount for intentional disregard.

What It is best to Do

If you haven't already, start studying and planning now.

• Familiarize your self with the new rules and fully grasp the requirements. Also, it is critical to comprehend what events trigger this reporting. Read Publication 1220 for filing specifications and check out the draft versions of Type 3921 and Type 3922. Speak to your outside counsel concerning 6039 reporting obligations in special situations, including mergers/ acquisitions, and remedy for non-U.S. employees.

• Fully grasp your selections and budget for administration. Talk about your choices with internal and external partners.

• Ascertain if your organization plans to concern the formats of Types 3921 and 3922 prepared by the IRS, or perhaps a substitute statement. When you choose to utilize a substitute format, be sure it complies using the specifications specified through the IRS for debt consolidation loans for people with bad credit. Determine regardless of whether these statements might be mailed or emailed to participants -- electronic distribution could sound straightforward, but you will discover quite a bit of restrictions involved.

• Develop participant communications just before issuing these statements, to clarify the types, their objective, and the best way to rely on them.

• Find out your Transfer Control Code for e-filing. This may possibly be obtained by means of your payroll department or the third-party provider that files your Forms W-2.

• Prepare to conduct a test filing by means of the IRS Filing Facts Returns Electronically (FIRE) method, that will likely be accessible in Q4 2010.

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