The NASPP Blog

Monthly Archives: May 2010

May 27, 2010

Passage of Senator Dodd’s Bill

The Restoring American Financial Stability Act of 2010, passed by U.S. Senate on May 20th, contains provisions that apply to all public companies. Fortunately, you won’t need to read the daunting almost 1500 pages of the bill to weed out the pieces that could impact stock plan managers because we’ve posted the corporate governance and executive compensation portions, courtesy of Davis Polk. Here are the main sections that I think you should be aware of.

Say on Pay and Majority Voting

This bill, like the corresponding House bill, does include a required non-binding shareholder vote to approve executive compensation. Unlike the House bill, this legislation does not require a shareholder advisory vote on golden parachute payments. This provision would take effect six months after enactment of the bill. This does mean that say on pay for all public companies is eminent. Additionally, there is a provision that requires majority voting by shareholders in uncontested board elections that would require any board member who does not receive a majority vote to submit his or her resignation.

These two provisions mean that companies will need to prepare for the voting process, but also get a game plan together on how to address the possibility that shareholders will reject either uncontested board members or executive compensation. In both scenarios, the company can still choose to do what it wants–the executive compensation vote is non-binding and the board can reject a resignation letter. On that note, the blog this week covers three companies that are already grappling with how to respond to a shareholder rejection of executive pay packages; Motorola, Occidental Petroleum, and KeyCorp. I’ll definitely be tracking this blog to see how say on pay pans out! If you’re looking for more help with executive compensation, don’t forget that the 7th Annual Executive Compensation Conference is included with your 18th Annual NASPP Conference Registration.

Proxy Disclosures

Although this version of the bill does not require the chairman of the board and the CEO to be separate individuals, it does require companies to disclose the reasons they have chosen to keep these positions separate or combine them. In addition, there are a host of required disclosures regarding the company’s compensation committee and executive compensation. This includes a discussion of the relationship between executive compensation and financial performance as well as how the amount of executive compensation compares to the company’s financial performance or investor-return.


The bill requires the SEC to direct exchanges to prohibit the listing of any company that does not adopt certain clawback policies. This provision is not included in the House bill. Stock plan managers should pay particular attention to this part of the bill. If it is enacted, you will need to work with your legal team to determine if your grant agreements need to be updated and nail down a policy on how to respond to financial restatements that trigger compensation recovery.

Get Smart

As you know, we’ve rolled out our NASPP Question of the Week. I’m really excited about this new challenge for NASPP members! What you may not know is that if you missed out on our first announcement, you still have the unique and never-to-come-again opportunity to catch up. The first four quiz questions will remain available at the full point value until the second month of our contest. So, don’t feel like you’re starting at a disadvantage–you can still work toward that number one position. Create your screen name and get started now!


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May 25, 2010

So You Think You’re So Smart

The NASPP “Question of the Week” Challenge
So you think you’re an equity compensation genius, do you? Now you can prove it with the NASPP’s new “Question of the Week” challenge.

The “Question of the Week” challenge allows you to compete against your colleagues and peers (and lifelong enemies) in feats of intellectual strength and skill. You can see how your expertise stacks up–and learn in the process.

Each week a new question will be posted; you get ten points for each question you answer correctly. This year’s challenge will run until December 31, so that’s a possible maximum of 330 points. Questions can be on any area related to equity compensation–accounting, tax, securities law, and global stock plans. This week’s challenge is on Section 16. The answers for most questions can be found somewhere on the NASPP website and the challenge is “open book” (or “open website”), so if you’re good at research, you’ll ace the challenge.

Once you answer the question, your score is then ranked against all of the other players to see how you compare. But don’t worry, the rankings are on an anonymous basis–you choose your screen name when you register to play–so no one will know your score but you.

Create your NASPP “Question of the Week” screen name and get started today! We will post a new question each Monday. For the first month, we’ll leave the questions up in case you miss them, but after that you’ll have to hurry. After the first month of the contest, to get full points for a correct answer, you must participate before the next quiz is posted–miss a question and you’ll fall behind in the rankings.

18th Annual NASPP Conference
Don’t miss the 18th Annual NASPP Conference from Sept 20-23 in Chicago. We just posted this year’s program and it is phenomenal.  We’ve planned over 40 sessions on critical and timely topics–it’s a great opportunity to catch up on recent developments and to increase your professional expertise (and improve your NASPP “Question of the Week” ranking).  Register for the Conference today.

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

May 20, 2010

My Top Five Conference Workshop Selections

It’s the moment we’ve all been waiting for! Our program for the 18th Annual NASPP Conference has been finalized and was posted yesterday. With so many fantastic proposals to choose from in our selection process this year, I know that you’ll be as excited as I am to see which workshops have made it to our final offering!

One of the special perks of being Editorial Director here at the NASPP is that the Conference workshops remain a total mystery to me until the final vetted program is ready to be announced. It’s like having a big birthday present sitting in front of me waiting to be opened! Once I get my hands on the line-up, though, I do have to start my own selection process. Even though I know that I’ll be able to catch the audio of any workshop I miss, it’s still such a struggle to decide which presentations I will have the pleasure of attending live. So, today I’d like to let you in on the top five workshops that I’m looking forward to this September.

  1. DOUBLE SESSION: State-to-State Mobility: What State Are Your Employees In? AND Global Mobility: Are you Prepared for an IRS Audit?

    This double session is a one-two punch on mobility. Because employee mobility is an increasingly visible issue that many companies are still struggling to reach an acceptable level of compliance in, it’s one of my favorite topics.

    The first half of this double session is all about state-to-state mobility. This is an important issue that I think a lot of companies still haven’t faced. I’m especially interested in digging into recent legislative updates impacting multijurisdictional tax considerations and the details that will be provided by the panelists on legislation for the largest states. What really are the trends and best practices for state-to-state mobility? Come to this workshop with me and find out!

    The second half of this double session dissects operational compliance for tax withholding and reporting obligations in the U.S. for globally mobile employees. The truly exciting facet of this workshop is that it really does have the inside scoop on preparing for an IRS audit–one of the panelists is the IRS executive who is leading the enforcement action on this specific issue. It doesn’t get much better than this!

  2. Get the Lead Out: Ten Essential Stock Plan Updates

    This workshop exemplifies what makes the NASPP Conference so essential. What better way to stay on top of the hottest issues in equity compensation? These three panelists have their work cut out for them because this workshop will be adjusted to encompass any late-breaking developments that stock plan professionals will need to be in touch with! Not only will they cover today’s top issues, they’ll also provide specific recommendations on language companies can include in plan or grant documents to address them.

  3. Thinking Outside the Equity Compensation Box

    I’m always excited to learn more about cutting-edge equity compensation strategies! This workshop will walk us through practical guidance on implementing and administering some truly creative stock plan programs. The panelists will also delve into the strategic motivation behind moving to these equity vehicles and why traditional equity awards may not be serving their intended purpose.

  4. Proxy Statements 101 for Stock Plan Administrators

    The recent focus on executive compensation coupled with the new disclosure requirements intensifies the importance of understanding the process of drafting proxy statements. The panelists will provide a detailed review of the equity compensation items and potential disclosures that stock plan professions should be aware of. This is a workshop that I expect to walk away from with some really valuable materials!

  5. Stop the Spreadsheet Madness: Getting Your Systems to Do What You Need

    Truth be told, I’m a real fan of Excel spreadsheets. The more I know about Excel, the more I realize I’m barely scratching the surface of its potential. Unfortunately, relying on manual manipulation of spreadsheets for crucial calculations also carries with it a heavy potential for costly and embarrassing errors. This workshop will walk us through the top alternatives though relevant scenarios that we can all relate to. These panelists will be tackling some solutions that go beyond the basics, including using Crystal Reports, Microsoft Access, and even spreadsheet macros.

Registration and Workshop Selection

If you haven’t already done so, don’t wait a moment longer to register for this year’s Conference. Now that our agenda is out, workshop selection is automatically incorporated into the registration process. For those of you who are already signed up for our power-packed offering, read over the Workshop Descriptions and let us know which workshops you plan on attending by completing this online form. This is a critical part of our planning because it makes it possible for us to accommodate seating in our most popular workshops!

See you in Chicago this September!


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May 13, 2010

Options and Divorce

Options Transferred Subsequent to a Divorce

When all or a portion of a nonstatutory stock options is transferred to the former spouse of one of your employees subsequent to a divorce, there are no income reporting or tax withholding obligations on the transfer. However, the exercise of those option shares requires special handling by the company.

When an incentive stock option is transferred in a divorce settlement, it no longer qualifies for preferential tax treatment. Once the ISO has been transferred, the income reporting and tax withholding obligations are the same as for NSOs. However, if the transfer of the shares happens only at exercise, then the ISO shares maintain their preferential tax treatment. The transfer of the shares at exercise does not constitute a disqualifying disposition. The transferred shares are then subject to the same holding requirements from the date of grant and exercise to determine if the sale is a qualified or disqualified disposition.

Revenue Rulings

There are two important revenue rulings that govern the income reporting and tax withholding on options transferred pursuant to a divorce.

Revenue Ruling 2002-22 establishes that a transfer of nonstatutory stock options as part of a divorce settlement does not constitute an income event. For stock plan managers, this means that there is no need to establish the fair value of the option, report any income, or withhold any taxes on the date of transfer. It also establishes that the former spouse realizes income on the exercise of those option shares.

Revenue Ruling 2004-60 clarifies the withholding and reporting obligations for an exercise made by the non-employee former spouse of options that were transferred in a divorce settlement.

Withholding and Reporting at Exercise

So, we know from Revenue Ruling 2004-60 that the former spouse realizes income at the exercise of options transferred pursuant to a divorce. What’s more, FICA and FUTA are both applied to the income at exercise. But, don’t worry; you won’t need to collect a Form W-4 from the former spouse. The income and FICA tax rates are applied based on the employee’s supplemental income and the Social Security tax she or he paid in that tax year as of the exercise date.

When the former spouse exercises the option, the company withholds income, Social Security, and Medicare from the exercise proceeds based on the employee’s withholding rates. The income tax withholding is attributed to the former spouse, but the FICA taxes are attributed to the employee even though they are paid by the former spouse. The income (i.e.; spread at exercise) and the income taxes withheld are reported on a Form 1099-MISC to the former spouse. That same income amount is reported to the employee as Social Security and Medicare wages on Form W-2. Additionally, the Social Security (if applicable) and Medicare withheld are reported on the employee’s Form W-2. For a great example of this, see our Tax Withholding on Option Exercises Subsequent to Divorce alert. You can also find more information in these recorded webcasts: Death and Divorce: The Lighter Side of Equity Compensation and The 2nd Annual NASPP Webcast on Tax Reporting.

Last Chance for Special Conference Rates

Registrations for our 18th Annual NASPP Conference are pouring in! If you haven’t already registered, don’t miss out on the special $200 discount on registration fees. This special rate is only available through tomorrow, May 14th!


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May 11, 2010

Fun Facts About Forms 3921 and 3922

More Information on Forms 3921 and 3922
Last week I blogged about the general instructions for Forms 3921 and 3922, which will be used to report ISO and ESPP transactions to the IRS beginning in 2011 (for 2010 transactions). This week I discuss some of the details relating to these forms. (This information is also from the general instructions to the forms.)


The penalties for late filings are as follows:

  • $15 per form if you file within 30 days of the deadline (maximum of $75,000 per year)
  • $30 per form if you file by August 1 (maximum of $150,000 per year)
  • $50 per form if you file after August 1 or never complete the filing (maximum of $250,000 per year)
  • At least $100 per form if the late filing or failure to file is due to intentional disregard (no annual maximum). It could be very expensive to intentionally disregard these filings.

In addition, if you fail to distribute the employee statements, you can be subject to an additional penalty of $50 per statement (maximum of $100,000 per year). The same penalty for intentional disregard applies–so if you intentionally disregard both filing the return and distributing the employee statement, then the minimum penalty is $200 per transaction with no maximum.


If you make a mistake in a filing, you will correct it by re-filing the form with all of the same information (except, of course, with the error corrected) and selecting the “Corrected” checkbox on the form. This is the same process used to correct errors on Form 1099.

Corrections are subject to the same deadline and penalties for late filings as the original form. There is an de minimus exemption for corrections, however: no penalties if the corrections you file are fewer than 1% of the total number of returns you filed (or less than ten, if you filed less than 1,000 returns). To be eligible for the de minimus exemption, you have to file the original return on time and you have to file the correction by August 1.

If you have less than 250 corrections, you can file them on paper, even if you were required to file the original forms electronically. Just like with the original filings, you can always file the corrections electronically on a voluntary basis. But you don’t get anything special if you do. (Not even the gratitude of some poor grunt at the IRS that would otherwise have to enter your paper form into the database because that grunt doesn’t exist. All the paper forms are scanned into the system–that’s why you have to write very, very neatly.)

Combined Reporting for Acquirers/Targets

When a company acquires another company, the acquirer can agree to assume the target’s reporting obligations for the year with respect to Forms 3921 and 3922. If the acquirer doesn’t agree to assume the target’s obligations, then the target is still required to file the returns with the IRS and distribute the statements to the employees. This might be hard for the target to do, since it won’t exist anymore or have any staff, so it’s probably smart to discuss this at the time of the merger.

No Truncation of Employee IDs

The employee ID number that must be included in the form filed with the IRS and the statement provided to employees is the employee’s Social Security Number. You cannot truncate or mask this number on either the form filed with the IRS or the employee statement. The IRS has a pilot program allowing truncation on employee statements for Forms 1098,1099, and 5498, but unfortunately Forms 3921 and 3922 aren’t included in this program. Hopefully the pilot will be successful and the program will be expanded.

No Logos

You cannot include any company logos on the forms filed with the IRS or the statements distributed to employees.  My guess is that the statements you currently distribute to employees include your logo; removing the logo is just one of the many changes you’ll need to make to the statements for 2011.

Last Chance for NASPP Conference Early Bird Discount–I Mean It!
This week is your very last chance to save $200 on your NASPP member registration for the 18th Annual NASPP Conference.  Get your registration in now, because the discount won’t be available after this Friday, May 14. 

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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May 6, 2010

Domestic Mobility

Domestic mobility can be as complex as international mobility, but it certainly gets less press. With state governments dealing with budgetary difficulties, state tax authorities will be looking to capture as much “lost” tax revenue as possible. There are many situations where an individual may be required to report income and pay taxes in one or more states other than their state of residence, and stock option income is no exception. Most states follow federal income tax treatment for equity compensation, but only some specifically address how equity compensation should be sourced when mobility is an issue. For this reason, it really is best to get tax advice before creating a policy on domestic mobility.

Identifying Mobile Employees

There are three main situations that can lead to equity compensation being sourced to more than one state. The first, and probably easiest, is a permanent move made by an employee or former employee. When an employee or former employee moves from one state to another, you generally only need to assess the income sourcing once and then apply it to equity compensation going forward. Next on the list are employees that work outside their state of residence. This is most likely in the New England states where commuting across state lines can be quite common. Finally, there are employees who perform services for the company in more than one state. These situations can be the most challenging for stock plan mangers not only in determining compliance, but also in simply obtaining the travel information. Unlike with moves or permanent transfers, the details surrounding business trips or temporary assignments may not be evident in standard employee demographic details and must be communicated to the stock plan management team separately.

Sourcing Issues

When it comes to equity compensation, the key to handling domestic mobility is identifying when your company has an obligation to report or withhold on income from stock plan transactions in more than one state, or in a state other than your employee’s state of residence. Once that is established, the next step is to understand how each state sources the income. In many cases, the sourcing is between the grant and the exercise date for options (or vesting date for restricted stock). However, some states only consider residency at grant or at exercise and some completely have unique parameters.

Just like with international mobility, there will likely be situations of double taxation. States generally tax residents on all equity income, regardless of where it was earned. Alternatively, many states will also tax non-residents on equity income considered to be earned in that state. To address double taxation, there may be tax credit available to employees in either their state of residence or the non-residence state where equity income is earned. Additionally, some states have specific reciprocity agreements between them to avoid double taxation. It may be possible for your company to rely on these arrangements when reporting and withholding on equity compensation.

Steps to Compliance

A great way to tackle domestic mobility compliance is to start with the most visible (i.e. riskiest) and most common situations. Check to see if you have particular locations or employee segments where mobility is more common and determine which types of sourcing issues you are dealing with. Once you have an idea of what mobility issues you are going to address first, get informed on the sourcing and taxation requirements for the states in question. You can find information on our site in the State and Local Tax portal, but before making any decisions, consult your company’s tax advisor. Once you’ve made decision on how your company will handle specific situations, document a clear policy and run it past your auditor for confirmation.


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May 4, 2010

Forms 3921 and 3922

In our January webcast on the new regulations for filing Section 6039 returns for ISOs and ESPPs, Thomas Scholz of the IRS said that he expected the forms to be available by April. Since it’s now May, presumably the forms will be available soon. In the meantime, however, the general instructions to the forms have been updated.

Forms 3921 and 3922
Beginning for transactions in 2010, companies will have to file information returns with the IRS for ISO and ESPP transactions. The returns will be filed on Form 3921 for ISOs and Form 3922 for ESPPs. The general instructions include the deadlines for filing the forms, filing procedures, how to file corrections, information on distributing the employee statements, penalties, and other general information.

In addition to filing the returns with the IRS, companies are required to provide an information statement to employees.


As expected, the deadlines to file Forms 3921 and 3922 with the IRS are February 28 for paper filers and March 31 for electronic filers.

The deadline for distributing the statements to employees is still January 31. Even if you file the returns with the IRS electronically, you will probably still distribute the statements to employees in paper format because the requirements to distribute the statements in electronic format are so onerous. See the general instructions to the forms for a summary of these requirements.

Electronic Filing

You are required to file Forms 3921 and 3922 electronically if you have 250 or more returns to file with the IRS. This is a per-form requirement. So if you have 251 Forms 3921 to file and only 249 Forms 3922, then you only have to file the Forms 3921 electronically. Likewise, if you have 249 of each to file, then you don’t have to file any of the forms electronically. But you can always file electronically on a voluntary basis. Whether you are required to file electronically or do so on a voluntary basis, either way, you still benefit from the extended deadline, which gives you a whole extra month to get your act together on this. That would motivate me to file electronically.

Instructions for preparing the data files that must be submitted for electronic filing are available in IRS Publication 1220, but don’t get too excited because this publication hasn’t been updated since July of last year, which was before the final Section 6039 regs were published. Thus, it isn’t current for Form 3922 because the final regs added a data element.

Hopefully one of your service providers will come through with a solution and you won’t actually need to read Publication 1220 yourself. Now is the time to start talking to your payroll providers; providers of filing support for Forms W-2, 1099, etc.; and your stock plan administration providers. IRS Publication 1582 includes a list of providers that assist with filing electronic returns, but this list was last posted to the IRS website in January, so it doesn’t indicate which providers can assist with Forms 3921 and 3922.

You can request a waiver from the requirement to file electronically by filing Form 8508. Well, you can’t right now because the waiver form doesn’t include Forms 3921 and 3922, but presumably the IRS will fix this by the end of the year. Hopefully you won’t need it anyway; it seems like it would be real pain to complete all the forms manually. Interestingly, if you do have to complete the forms manually, handwritten forms are acceptable, so long as you write very, very neatly.

Less Than Two Weeks to Save on NASPP Conference
We are offering a $200 discount on NASPP member registrations for the 18th Annual NASPP Conference that are received by May 14.  This is your last chance to save on the Conference–we won’t extend the deadline for this rate.

The Conference will be held from September 20-23 in Chicago.  Last year’s Conference sold out and we expect even more attendees this year.  

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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