The Internal Revenue Service has announced a compliance resolution program that permits employers to pay the additional taxes arising under § 409A of the Internal Revenue Code due to the exercise of certain discounted stock options and stock appreciation rights (stock rights) in 2006. The Program provides a means to minimize the burdens of compliance on employees who are not corporate insiders, while ensuring that all applicable taxes are paid. The program:

• applies only to discounted stock rights exercised during 2006.
  
  
• applies only to employees and former employees who are not subject to the disclosure requirements under section 16(a) of the Securities Exchange Act of 1934 (a non-insider), and were not subject to such requirements at the date of grant of the stock right.
  
  
• requires full payment by the employer of the applicable § 409A taxes arising from the exercise of the stock right.
  
  
• provides relief for the employees from the requirement to pay the § 409A taxes.
  
  
• does not affect an employer’s obligation to report the compensation income and wages arising from the exercise of the stock right on the Form W-2, in Box 1, 3 and 5, and to apply the appropriate employment taxes, and does not affect an employee’s obligation to report such compensation income on the Form 1040 and pay the applicable income tax (other than the additional § 409A taxes).
  
  
• requires treatment of the employer's payment of the employee's § 409A taxes as an additional payment of compensation to the employee in the employee's taxable year in which the payment is made.
  
  
• requires notice to employees and to the IRS of the employer's participation in the program.

Employers that wish to participate in this Program must notify the IRS no later than February 28, 2007 of their intent to participate, and must notify affected employees within 15 days of providing the notification to the IRS.

...US Tax News - Latest

Further information:
Link (pdf)

Discuss this news item in the PayPerShop Forum