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Certified Equity Professional > Level 2 Taxation > Flashcards

Level 2 Taxation Flashcards

1
Q

Evergreen Provision

A

A replinishment feature in a stock plan that automatically inreases at regular intervals the number of shares reserved under the plan.

Keeping the plan always “green”.

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2
Q

Evergreen Provision

ISO and 423 ESPP plans must

A

State the maximum number of allowed for issuance. To keep preferential tax treatment, evergreen provisions are limited (e.g., exact number of shares to add at specific date points).

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3
Q

Evergreen Provision

Evergreen Provision effect on IRC Section 162(m)

A

Requires shareholder approval of plan reserve increases but allows up until the fourth calendar year following the calendar year of the IPO.

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4
Q

Evergreen Provision

Evergreen Provision effect on taxation

A

Affect tax qualified awards under IRC 422 and 423, and the Section 162(m) deduction limit after a company goes public.

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5
Q

Evergreen Provision

ISOs and 423 plans complication with Evergreen Provisions

A

For ISO and 423 plans the maximum number of shares issuable under the plan must be specifically defined in the Plan at the time of adoption.

Therefore, a provision adding a set number of shares per year is fine (1m over the life of the plan, 100k per year) **would be in compliance.

Formula based plans such as “10% of what was previously exercised in the prior year”, are imposible to be in compliance because there’s no way to know at adoption of the plan the maximum number of issuable shares.

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6
Q

IRC Section 162(m)

IRC Section 162(m) Genreal Rule

A

Amount included in compensation income on W-2/1099-MISC is deductible in same year recognized. Exeptions are:

  • ESPP Qualified Dispositions which are reportable but not deductible.
  • Income less than $600 in the year with no taxes withheld does not require reporting but is still deductible.
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7
Q

IRC Section 162(m)

IRC Section 162(m) Limitation on deduction

A

Disallows deductions for publicly traded companies that pay over $1 million in compensation to its “covered employees”—CEO, CFO and the next three most highly compensated officers.

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8
Q

IRC Section 162(m)

IRC Section 162(m) – Public Company Definition

A

A corporation is considered to be “publicly held” if a class of its common equity securites is required to be registered under Section 12 of the 33’ Exchange Act as of the last day of the company’s taxable year.

This means that 162(m) does not apply to voluntarily registered companies.

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9
Q

IRC Section 162(m) – Private Company Transition

What would trigger Section 162(m) before the 12th month anniversery of IPO?

A

The earliest of

(1) the expiration or material modification of the plan
(2) the issuance of all the securities issuable under the plan as it existed at the time the company went public
(3) the first meeting of shareholders where directors are elected after the close of the third calendar year following the IPO year. Most people refer to this as the “IPO grace period”

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10
Q

IRC Section 162(m) – Private Company Transition

How long must a company be publicly held for before the deduction limit of Section 162(m) applies?

A

Must be publicly held for a minimum of 12 months

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11
Q

IRC Section 162(m) – Private Company Transition

In 2015, the IRS issued final regulations under 162(m) to clearify which securites are elegible

A

only options, SARS and RSAs qualify for this special rule

RSUs issued after the final regs were published in March 2015 must actually pay out within the grace period to be exempt

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12
Q

IRC Section 409A - General

The American Jobs Creation act, in the context of equity compensation.

A

The ability to delay or defer the taxation of certain types of equity compensation awards which are normally taxable at the time of vesting, such as restricted stock, stock appreciation rights and phantom stock awards, until the time that the vested award is actually received or paid out.

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13
Q

IRC Section 409A - General

IRS respons to the The American Jobs Creation act, in the context of equity compensation.

A

The IRS implemented Internal Revenue Code section 409A.

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14
Q

IRC Section 409A - General

Because of Section 409A, if you do issue a discounted non-qualified stock option

A

It is deemed to be deferred compensation, resulting in negative consequences. As you know, IRC Section 422 prevents you from issuing a discounted ISO.

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15
Q

IRC Section 409A - Exclusions

IRC 409A DOES NOT APPLY TO

A
  • Qualified benefit plans (e.g., ESOPs, 401(k) plans)
  • Leave benefits (e.g., maternity, death, disability, sick leave)
  • Statutory stock options (i.e., ISOs and ESPPs)
  • NSOs granted at fair market value (subject to certain limitations and requirements)
  • Restricted stock awards taxed under IRC Section 83
  • Non-discounted SARs (subject to certain limitations and requirements)
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16
Q

IRC Section 409A - Exemptions

For awards where 409A applies, then to be exempt from 409A:

A

Must pay out in “Service Recipient Stock”
Service Recipient
* Employer company
* 50% subsidiary, 20% subsidiary (with conditions)
Stock
* Must be common stock
* Public companies: Must be readily tradable
* Private companies: Must be class having greatest aggregate value of all classes of outstanding common stock

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17
Q

IRC Section 409A - Exemptions

Service Recipient stock

A
  1. The company receiving the compensable services by the individual can be either the issuer itself as employer, or a 50% subsidiary of the employer company, or a 20% subsidiary if certain conditions are met.
  2. Must be common stock
  3. Award must be granted at the grant date fair market value
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18
Q

IRC Section 409A - Exempt or Compliant?

Section 422 ISOs

A

Exempt

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19
Q

IRC Section 409A - Exempt or Compliant?

Section 423 ESPPs

A

Exempt

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20
Q

IRC Section 409A - Exempt or Compliant?

Nonqualified ESPPs:

A

Are not exempt if the purchase price is discounted, BUT, they can be compliant, even with a discount, if the exercise/purchase date is set in advance.

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21
Q

IRC Section 409A - Exempt or Compliant?

Restricted stock awards:

A

Exempt if no deferral of receipt of payment after vesting.

Taxation can be accelerated by filing an 83(b) election before the award vests, but it cannot be deferred.

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22
Q

IRC Section 409A - Exempt or Compliant?

RSUs

A

Always within the scope of Section 409A and must be either compliant or exempt. The initial deferral election must be made before the start of the “performance period” which is usually the grant date.

However, short-term deferrals of a payment that is no later than 2 ½ months into the year after the year in which payment was to be made are exempt from 409A.

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23
Q

IRC Section 409A - Exempt or Compliant?

NSOs

A

Exempt if granted at fair market value and there are no deferral features other than the right of the recipient to elect when to exercise.

The requirement that the exercise price be no lower than grant date FMV includes a view that offering dividends on unexercised options constitutes a discount. So paying dividends on unvested options, SARs or RSUs causes the awards to violate 409A.

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24
Q

IRC Section 409A - Exempt or Compliant?

SARs

A

Exempt if:
* They’re granted at FMV
* Have no deferral feature
* The employee controls exercise

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25
Q

ISOs – Modifications/Amendments

Changes in terms which gives optionee additional benefits:

A
  • Extending exercise period
  • Providing additional benefit upon exercise
  • Offering to change the terms of a grant (if such an offer is accepted or remains outstanding for more than 30 days)
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26
Q

ISOs – Modifications/Amendments

If an ISO is amended, then…

A

The exercise price must be adjusted to the fair market value on the date of amendment in order to maintain the ISO status of the award. If the exercise price is not adjusted, then the award will be treated as an NSO. there is still no withholding required at the time of exercise, as if the award were still an ISO.

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27
Q

ISOs – Modifications/Amendments

Effect of modifications on the Issue date

A

when a statutory award is modified, the date of modification becomes the new grant date for the purposes of calculating ISO holding periods.

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28
Q

ISOs – Modifications/Amendments

If an ISO is disqualified and treated as an NSO

A

There is still no withholding required at the time of exercise, as if the award were still an ISO

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29
Q

ISOs – Modifications/Amendments

Acceleration of vesting on an ISO if that acceleration was a provision laid out in the grant agreement

A

Is not considered a modification

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30
Q

ISOs – Modifications/Amendments

Acceleration of vesting on an ISO does occur that was outside of the terms of the original grant agreement

A

Is considered a modification

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31
Q

ISOs – Modifications/Amendments

Effect of an ISO that is early exercisable at the time of grant effect on the $100k rule

A

the entire award will be included in the $100k limit in the year of grant.

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32
Q

ISOs – Modifications/Amendments

effect of an ISO that is early exercisable at the time of grant effect on the $100k rule

A

then the entire value of the unvested shares at the time of the amendment will be included in the $100k limit in the year of the amendment.

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33
Q

ISOs – Modifications/Amendments

Not modifications

A
  • Stock splits and dividends
  • Changes due to corporate transactions
  • Acceleration of time within which option may be exercised (whether by vesting or early exercise)
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34
Q

Early Exercise – ISOs and NSOs

Taxation event on NSOs that are early exercised

A

There are no taxes due and the taxation event does not occur until the shares are vested. Until then the stock is still subject to a substantial risk of forfeiture

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35
Q

Taxation Upon Early Exercise

You “early exercise” a stock option before vest date, no 83(b) election

A

The ordinary income will equal the spread on the vest date (FMV on vest date – exercise price).

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36
Q

Taxation Upon Early Exercise

You “early exercise” a stock option before vest date and make an 83(b) election within 30 days of the exercise date.

A

The ordinary income will equal the spread on exercisedate. (FMV on exercise date – exercise price)

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37
Q

early exercise of tax qualified stock options

If an ISO is early exercisable on the grant date

A

the entire award will be included in that $100,000 limit calculation in the year of grant, whether or not it’s actually exercised before vesting.

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38
Q

early exercise of tax qualified stock options

If the ISO is actually early exercised

A

The one year post-exercise part of the holding period begins at exercise, but they’ll still have to complete the two years from Grant Date holding period

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39
Q

IRC 422 – ISO Disqualifying Dispositions

In a disqualified disposition, you lose the ability to convert the bargain element to long term capital gain, however…

A

you still get the benefit of not being taxed until the date of sale (versus NSOs which are taxed at exercise

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40
Q

IRC 422 – ISO Disqualifying Dispositions

Special rule under section 422(c)(2)

A

Limits the amount of ordinary income on a disqualified disposition of ISO shares to the shareholder’s actual gain, and that’s especially important if the stock’s price declines from the exercise date.

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41
Q

ISO Disqualified Disposition Scenerio

If share price doesn’t drop and sale price is greater than FMV at exercise date

Sales Price > FMV at exercise, then:

A

Compensation income = (FMV at exercise – Exercise Price)

  • Compensation income (Ordinary Income) is the same as non-qualified option spread
  • Capital Gain = (Sales Price – FMV at exercise)
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42
Q

ISO Disqualified Disposition Scenerio

If share price drops between exercise date and sale date, but still exceeds exercise price

If Sales Price < FMV on exercise but Sales Price > Exercise Price, then:

A

Compensation income = (Sales Price – Exercise Price)

  • Compensation income (Ordinary Income) only
  • No capital gain or loss
43
Q

ISO Disqualified Disposition Scenerio

If share price drops below exercise price

if Sales Price < Exercise Price, then:

A

Capital loss = (Sales Price – Exercise Price)

  • No compensation income (Ordinary Income)
  • Capital loss only
44
Q

Early Exercised ISOs

83(b) elections filed for stock obtained in an ISO early exercise only applies to the:

A

Calculation of AMT tax liability in the year of exercise (unless the stock is sold in the year of exercise)

44
Q

For an ESPP question you need to know four pieces of information to do the taxes properly:

A
  1. The fair market value at the beginning of the offering period. The exam sometimes refers to this as the enrollment date FMV
  2. The discount percentage
  3. The FMV on the purchase date
  4. And the sale price
    If you know those four things you can figure out any ESPP tax question.
45
Q

ESPP stock that is sold after meeting the holding requirements of 2 years after grant AND
1 year after purchase, the ordinary income to be reported is the lesser of:

A
  • the grant date discount or
  • the actual gain on the sale

That means if the stock declines in value after the date of purchase, the ordinary income
will be the sale price less the purchase price, if that amount is less than the grant date discount.

46
Q

When ESPP shares are sold in a disqualified disposition, how is ordinary income is calculated?

A

Purchase Price FMV - Exercise FMV = Ordinary income

difference between the exercise date (or purchase date) fair market value and the exercise price (or purchase price)

47
Q

Taxation Rules for Dispositions of Tax-Qualified Awards

For Section 422 ISOs with qualifying dispositions of ISO stock

A

there’s no ordinary income, only capital gain or loss (but don’t forget the AMT calculation).

48
Q

Taxation Rules for Dispositions of Tax-Qualified Awards

For Section 422 ISOs with regular disqualifying dispositions

A

The “lesser of” rule of section 422(c)(2) that limits the ordinary income on a disqualifying disposition to the (sales price – exercise price), as long as the shares are disposed of in an arms-length transaction (not a non-recognition event like a wash sale or gift).

49
Q

Taxation Rules for Dispositions of Tax-Qualified Awards

For Section 422 ISOs disqualifying dispositions that were early exercised

A

We have the “vest date gain” calculation which calculates ordinary income as the difference between the exercise price and the fair market value on each original vest date.

Ordinary Income = Exercise Price - FMV on Each Origional Vest Date

50
Q

Taxation Rules for Dispositions of Tax-Qualified Awards

For Section 423 ESPP qualifying dispositions

A

we have the “lesser of” test which calculates ordinary income as the lesser of the grant date discount or the actual gain on the sale (sales price – purchase price).

51
Q

Taxation Rules for Dispositions of Tax-Qualified Awards

For Section 423 ESPP disqualifying dispositions

A

The ordinary income is the exercise or purchase date spread, regardless of the selling price.

52
Q

423 ESPP – International Considerations

Separate Offerings

A

Frequently used for non-US employees to permit variances in terms that could otherwise risk disqualifying the entire offering.

  • Lump sum payments
  • Different participation for part-time employees
  • Define country-specific compensation components
  • Subsidiary vs branch office
53
Q

423 ESPP – International Considerations

Employee Exclusions

A

Citizens or residents of non-US jurisdiction if grant or participation is prohibited under local law or compliance with local law would violate IRC 423 requirements

54
Q

423 ESPP – International Considerations

Equal Rights & Privileges

A
  • Less favorable terms may be offered to citizens/residents of non-US jurisdiction if required under local law
  • if local law requires additional benefits to the nonUS employees, then those same benefits must be offered to US participants, again, unless that would cause the plan to violate Section 423 requirements.
55
Q

IRC Section 6039 - Reporting requirements

Company Reporting Timelines for providing Forms 3921 for ISOs and 3922 for ESPPs to the shareholder

A

by January 31 of the year following the calendar year of the transaction, and to the IRS based upon whether the company is filing paper returns, which must be provided to the IRS by February 28 of the following calendar year, or electronic returns, which must be transmitted to the IRS on their FIRE system by March 31st.

56
Q

IRC Section 6039 - Reporting requirements

Company Reporting Timelines for providing IRS reporting – paper filing

A

(for fewer than 250 reports).
Must be filed by February 28 of following calendar year.

57
Q

IRC Section 6039 - Reporting requirements

Company Reporting Timelines for providing IRS reporting - electronic filing

A

(for 250 or more reports).
Must be filed by March 31 of following calendar year.

58
Q

IRC Section 6039 - Penalties

Penalties for non-compliance: < 30 days overdue.

A

$50 per return within 30 days of original due date (maximum $565K/year or $197.5K/year for small businesses)

59
Q

IRC Section 6039 - Penalties

Penalties for non-compliance: > 30 days overdue

A

$110 per return if filed over 30 days overdue but before August 1st (maximum $1,669,500/year or $565K for small businesses)

60
Q

IRC Section 6039 - Penalties

Penalties for non-compliance: After August 1

A

$280 per return if filed after August 1 or not at all (maximum $3,392,000/year or $1,130,500/year for small businesses)

61
Q

IRC Section 6039 - Penalties

Penalties for willful disregard

A

Minimum $560 per return, with no maximum penalty

62
Q

Loans & Promissory Notes

Recourse Note

A

A note which allows the lender to take action against the borrower personally, including liquidation of the borrower’s assets.

63
Q

Loans & Promissory Notes

Full-recourse Note

A

A recourse note which does not limit the assets that can be liquidated by the note holder to repay the bborrower’s debt.

64
Q

Loans & Promissory Notes

Limited Recourse Note

A

A recourse note which gives the lender the right to retain a limited amount of the borrower’s assets in the event of default.

65
Q

Loans & Promissory Notes

Nonrecourse Note

A

A loan in which the borrower is not held personally liable in the case of default.

66
Q

Employer Loans & Promissory Notes for Exercise Costs

Using loans and promissory notes to pay for exercise cost

A

The Sarbanes-Oxley Act of 2002 prohibits executive insiders to pay for exercise cost using loans and promissory notes.

For other award recipients who are not executive insiders, loans and promissory notes are acceptable forms of payment under strict conditions.

67
Q

Employer Loans & Promissory Notes for Exercise Costs

For the exercise of an option to be respected when the company loans the optionee the exercise price, the optionee must be

A

Personally liable for the loan (at least in part) and must bear the risk of loss for the shares.

68
Q

Employer Loans & Promissory Notes for Exercise Costs

If the loan to exercise is secured only by the underlying shares then…

A

It’s essentially treated as a non-recourse loan, and generally will not be respected as a valid
exercise, since the optionee has no personal liability and no risk of loss.

The IRS may argue that the loan is a mere extension of the option, and that, for tax purposes, there has been no exercise.

69
Q

Employer Loans & Promissory Notes for Exercise Costs

If the loan and exercise are respected, when does the holding period under Rule 144 start?

A

Starets once the shares are fully paid or collateralized with security other than the underlying stock.

70
Q

Employer Loans & Promissory Notes

Adequate interest must be charged to avoid

A

having a below market loan and possible penalty taxes under 409A

71
Q

Employer Loans & Promissory Notes

What happens if an employee fails to pay back the loan or any portion of it?

IRS regulations under section 83

A

If a loan is used to exercise compensatory options (and the loan and exercise are respected by the IRS); then any subsequent forgiveness, cancellation or reduction of the loan principal must be treated as compensation, whether the loan is recourse or non-recourse.

72
Q

NSOs - Gifting and Transferability

Arm’s-length transaction

A

A transaction between “adverse” parties who have conflicting economic interests in the outcome.

73
Q

NSOs - Gifting and Transferability

If a transfer is considered an “arm’s-length transaction”

A
  • Then the difference between the fair market value of the stock and the exercise price on the transfer date is considered to be income to the optionee-gift giver on the day of transfer
  • Income is taxed to and paid by the optionee, even if the option hasn’t been exercised.
74
Q

NSOs - Gifting and Transferability

If a transaction is not considered an “arm’s-length transaction”

A

The calculation of the gain is postponed until the actual exercise of the award, but is still taxed to and paid by the original optionee, even though the optionee no longer holds the award.

75
Q

NSOs - Gifting and Transferability

IRS’s stance on divorce situations

A

IRS has ruled that the arm’s-length rules do NOT apply and, instead, takes the position that the non-employee former spouse “steps into the shoes” of the employee spouse for taxation purposes.

NEFS recognizes gain as income upon exercise in 1099-MISC.

76
Q

Performance Award Plans

If performace award payout is within 2 ½ months of termination it is considered a:

A

short-term deferral which is 409A exempt.

77
Q

Performance Award Plans

If performace award payout beyond 2 ½ months of termination it is considered a:

A

It can be considered deferred compensation, which means 409A regulations would kick in.

78
Q

Restricted Stock - Dividends and DEUs

If the dividend is deferred until a future release of the underlying shares, and continues to be subject to forfeiture, then

A

both the income taxes and the FICA taxes are due on the release date.

79
Q

Restricted Stock - Dividends and DEUs

If the dividend is deferred until a future release of the underlying shares, but is notsubject to forfeiture, then

A

the FICA taxes are due on the dividend payable date but the income taxes aren’t due until the release date (remember retirement eligibility award rules, it’s the same thing).

80
Q

Restricted Stock - Dividends and DEUs

If an 83(b) election has not been filed

A

Dividends are reported as compensation on form W-2 or 1099-MISC and the company is entitled to a tax deduction.

81
Q

Restricted Stock - Dividends and DEUs

If an 83(b) election has been filed

A

Dividends are reported on Form 1099-DIV and there is no corporate tax deduction because they are not considered compensation because they are treated as a regular share owner even though the stock will be forfeited if the employee leaves the company.

82
Q

Restricted Stock - Dividends and DEUs

Taxation of Dividend Equivalent Units

A

Taxable as compensation income when paid and reportable either on Form W-2 or 1099-MISC, with a corresponding tax deduction to the company.

May trigger 409A consequences if not properly structured.

83
Q

Restricted Stock - Dividends and DEUs

Dividend Equivalent Units

A

When the stock underlying an award, like an RSU, is not issued until vest but the company wants the award holder to receive dividends during the time before stock issuance.

84
Q

Restricted Stock - Retirement

When an employee is retirement eligible

A

The plan administrator will have to look at the award and the Plan to determine if there is a clause which accelerates vesting when the employee becomes retirement eligible or states that vesting will continue even after retirement. If such a provision is present, then the award is no longer subject to a substantial risk of forfeiture and becomes immediately taxable.

85
Q

Restricted Stock - Retirement

Three taxation possibilities for RSAs granted to recipients that are eligable for retirment:

A
  • taxation on the grant date if an 83(b) election is filed
  • taxation on the retirement eligibility date if that’s what the company’s Plan says
  • taxation on the vesting date

whichever of those dates comes first.

86
Q

Restricted Stock - Retirement

If the restricted stock is purchased – meaning either the employee paid cash or gave
other consideration for the stock (like an award for past services rendered, or for the
value of intellectual property rights surrendered)

A

then the taxable amount on the vest date will be the vest date stock fair market value less the value of the consideration paid or received for the stock.

87
Q

Restricted Stock - Retirement

If the restricted stock is a direct grant with no purchase price to the recipient, then

A

the taxable amount on the vest date will be the full vest date fair market value of the stock.

88
Q

Restricted Stock - Retirement

If it’s a grant that requires payment of a purchase price equal to the stock’s grant date fair market value (again, it can be paid for services rendered or for rights surrendered)

A

Then there will be $0 taxable income, because the stock’s fair market value and the
consideration paid are the same – so no difference.

89
Q

Restricted Stock - Retirement

If substantial risk of forfeiture is lost due to retirement eligibility (e.g. guarantee to accelerate
upon reaching a goal like age/years of service)

A

Income is realized when the retirement goal is met instead of the later release or actual acceleration upon termination.

Both Income and FICA/FUTA taxes are recognized whether award is vested or not.

90
Q

Restricted Stock - Retirement

Reporting “rule of administrative convenience.”

A

Employment taxes are also due on the same date as income taxes, however, the Internal Revenue Code allows the company to delay reporting and collection of employment taxes until any date within the same calendar year, up to and including December 31st

91
Q

Stock Appreciation Rights

If you are setting a SAR in stock and there is a rounding situatioin

A

aggregate appreciation and divide that by the exercise date fair market value and
round down because you don’t want to issue shares worth more than the actual
appreciation.

That means there could be a slight residual in cash that the employee would be due.

92
Q

Stock Appreciation Rights

Taxation for SAR exercised for stock

A

Income tax for the employee is triggered at the time of exercise and the taxation is under Internal Revenue Code section 83.

93
Q

Stock Appreciation Rights

Taxation for SAR exercised for cash

A

Income tax for the employee is triggered at the time of exercise and the taxation is under if exercised for cash, taxation is under Section 451.

94
Q

Stock Appreciation Rights

Duties of the employer for taxation on SARs

A

The employer company is required to withhold taxes upon the exercise of the SAR and is
entitled to a compensation deduction in the year of exercise by the employee as long as
the employer reports the income to the employee on their W-2 (or on a 1099-MISC if the exercise is by a non-employee).

95
Q

Section 423 ESPP shares purchased before death

For the employee the ordinary income in the year of death is

A

Ordinary income reported on the employee’s final tax return for the year of death equal to lesser of:

  • Offering date discount
  • Difference between the stock’s fair market value at date of death and the original purchase price
96
Q

Section 423 ESPP shares purchased by optionee before death

Tax basis for the Estate after Death

A

Tax basis is stock’s fair market value on date of death
* Sale of shares is always a long term capital gain or loss
* A sale by the estate is always a qualifying disposition
* There is never ordinary income to the estate because that was recognized at the date of death (see above)

97
Q

Special Circumstances - Divorce

Income taxes in the event of a divorce

A
  • Income taxes incur to Non-Employee Former Spouse and must be withheld by the company from the proceeds to the NEFS.
  • Company reports income and income taxes to NEFS on Form 1099
  • Reports employment taxes to employee on Form W-2
98
Q

Special Circumstances - Divorce

ISOs/ESPPs Unexercised:

A
  • Transfer disqualifies the options
  • Held and taxed as NSOs
  • Pre-exercise agreement to transfer post-exercise shares does not violate the non-transferability requirement and will remain taxqualified ISOs
99
Q

Special Circumstances - Divorce

ISOs/ESPPs Exercised:

A
  • Transfer does not disqualify options from preferential tax treatment
  • Taxed as ISOs
100
Q

Special Circumstances - Divorce

Non-qualified Options:

A
  • NEFS steps into optionee’s shoes
  • Tax reporting and FICA/FUTA taxes still weird tho
101
Q

Technical Issues

Cost Basis Reporting:

A
  • Cost basis reporting is on Form 1099-B.
  • Can conflict with taxable income that must be reported by stockholder
102
Q

Technical Issues

Withholding with Stock

A
  • Supplemental rate OR a rate based on participant’s W-4 instructions
    (minimum statutory vs maximum statutory)
103
Q

When must a company deposit taxes withled?

A

Once it reached $100k when they reach an aggregate of $100,000. The deposit deadline is by the next business day.

Only exception is withholding on a same-day-sale exercise which allows the deposit to be made 1 business day after the company receives the settlement from the broker

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