[Federal Register Volume 73, Number 138 (Thursday, July 17, 2008)]
[Proposed Rules]
[Pages 40999-41003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16177]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-103146-08]
RIN 1545-BH69


Information Reporting Requirements Under Internal Revenue Code 
Section 6039

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
return and information statement requirements under section 6039 of the 
Internal Revenue Code (Code). These regulations reflect changes to 
section 6039 made by section 403 of the Tax Relief and Health Care Act 
of 2006. These proposed regulations affect corporations that issue 
statutory stock options and provide guidance to assist corporations in 
complying with the return and information statement requirements under 
section 6039.

DATES: Written or electronic comments and requests for a public hearing 
must be received by October 15, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103146-08), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
103146-08), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov/ (IRS REG-103146-08).

FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations, 
Thomas Scholz at (202) 622-6030 (not a toll-free number); concerning 
submissions of comments and/or to request a hearing, Richard Hurst at 
[email protected].

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and

[[Page 41000]]

Budget, Attn: Desk Officer for the Department of the Treasury, Office 
of Information and Regulatory Affairs, Washington, DC 20503, with 
copies to the Internal Revenue Service, Attn: IRS Reports Clearance 
Officer, SE:W:CAR:MP:T:T:SP; Washington, DC 20224. Comments on the 
collection of information should be received by September 15, 2008. 
Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.6039-1 and Sec.  1.6039-2. Section 6039 requires corporations 
to file an information return with the IRS and furnish a written 
statement to each employee, in a manner prescribed by the Secretary in 
regulations, regarding: (i) The corporation's transfer of stock 
pursuant to the employee's exercise of an incentive stock option 
described in section 422(b); and (ii) the transfer of stock by the 
employee where the stock was acquired pursuant to the exercise of an 
option described in section 423(c). The information on the statements 
required to be provided by the corporation will be used by employees to 
complete their income tax returns in the year of the disposition of the 
stock acquired pursuant to the statutory stock option. The likely 
respondents are for-profit corporations.
    Estimated total annual reporting burden: 25,000 hours.
    Estimated average annual burden hours per respondent: 30 minutes.
    Estimated number of respondents: 50,000.
    Estimated annual frequency of responses: annually.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Section 403 of the Tax Relief and Health Care Act of 2006 (Act) 
amended the information reporting requirements of section 6039. Prior 
to its amendment, section 6039 required corporations to furnish a 
written statement to each employee, in a manner prescribed by the 
Secretary in regulations, regarding: (i) The corporation's transfer of 
stock pursuant to the employee's exercise of an incentive stock option 
described in section 422(b); and (ii) the transfer of stock by the 
employee where the stock was acquired pursuant to the exercise of an 
option described in section 423(c). Corporations must furnish employees 
with the information statements required by section 6039 on or before 
January 31 of the year following the year for which the statement is 
required. Prior to the amendment of section 6039 made by the Act, the 
regulations under section 6039 were last updated in 2004. See TD 9144 
(69 FR 46401).
    As amended by the Act, section 6039 requires corporations to file 
an information return with the IRS, in addition to providing employees 
with an information statement, following a stock transfer. The time and 
manner for filing a return with the IRS, as well as the information to 
be contained in the return and furnished to employees, is addressed in 
these proposed regulations. Section 6039, as amended by the Act, 
applies to stock transfers occurring on or after January 1, 2007. 
However, in Notice 2008-8, 2008-3 IRB 276 (December 19, 2007) (see 
Sec.  601.601(d)(2)(ii)(b)), the IRS waived the obligation to file an 
information return for 2007 stock transfers governed by section 6039.

Explanation of Provisions

    These proposed regulations describe the information that would be 
required in the return filed with the IRS and the information statement 
furnished to employees pursuant to section 6039. There are two sections 
under these proposed regulations: Sec.  1.6039-1, Returns required in 
connection with certain options; and Sec.  1.6039-2, Statements to 
persons with respect to whom information is reported. In crafting these 
proposed regulations, one principal objective was to require 
corporations to furnish employees with sufficient information to enable 
them to calculate their tax obligations upon disposition of the shares 
acquired by the exercise of a statutory option. Under these proposed 
regulations, essentially the same information would be reported with 
respect to the transfer of stock pursuant to the exercise of an 
incentive stock option and the transfer of stock acquired pursuant to 
an employee stock purchase plan.
    With respect to a transfer of stock upon the exercise of an 
incentive stock option, the information required to be furnished to 
employees pursuant to the existing regulations under Sec.  1.6039-1 is 
sufficient to enable the employee to calculate his or her tax 
obligations upon disposition of the shares. Therefore, the information 
that would be required in the information return and the statement 
furnished to employees under these proposed regulations is generally 
the same information that is included in the statement furnished to 
employees pursuant to the existing regulations under Sec.  1.6039-1. 
With respect to an employee's transfer of stock acquired under an 
employee stock purchase plan, the information required to be furnished 
to employees pursuant to the existing regulations under Sec.  1.6039-1 
is not sufficient to enable the employee to calculate his or her tax 
obligations upon disposition of the shares. Accordingly, these proposed 
regulations would require that additional information be included in 
the information return and the statement furnished to employees.
    As discussed further in the preamble, the IRS will issue two forms 
with instructions that corporations must use to satisfy the return and 
information statement requirements under section 6039.

1. Returns Required With Respect to Incentive Stock Options

    Section 1.6039-1(a) of these proposed regulations would require 
every corporation that transfers stock pursuant to an employee's 
exercise of an incentive stock option described in section 422(b) to 
file a return with respect to each transfer made during a particular 
year. This return would include the following information:
    (i) The name, address, and employer identification number of the 
corporation transferring the stock;
    (ii) If other than the corporation identified in (i), the name, 
address and employer identification number of the corporation whose 
stock is being transferred;
    (iii) The name, address, and identifying number of the person to

[[Page 41001]]

whom the share or shares of stock were transferred pursuant to the 
exercise of the option;
    (iv) The date the option was granted to the person;
    (v) The exercise price per share;
    (vi) The date the option was exercised by the person;
    (vii) The fair market value of a share of stock on the date the 
option was exercised by the person; and
    (viii) The number of shares of stock transferred to the person 
pursuant to the exercise of the option.
    The information required to be included on the information return 
pursuant to these proposed regulations is generally the same 
information that is required to be furnished to employees pursuant to 
the existing regulations. However, while the existing regulations 
require that the corporation report the total cost of all shares 
acquired, these proposed regulations would require instead that the 
corporation report the exercise price per share. The exercise price per 
share, rather than the total cost of all shares acquired, is more 
readily useable by the employee in calculating the tax obligation when 
the employee later disposes of some or all of the shares.
    Returns required by Sec.  1.6039-1(a) must be filed on or before 
January 31 of the year following the calendar year for which the return 
is made. Such returns must be made on Form 3921, Exercise of an 
Incentive Stock Option Under Section 422(b) (or its designated 
successor) and filed in the manner provided in the instructions 
thereto. The IRS expects to release Form 3921 later this year.

2. Returns Required With Respect to Stock Purchased Under an Employee 
Stock Purchase Plan

    Section 1.6039-1(b) of these proposed regulations would require 
every corporation which records a transfer of the legal title of a 
share of stock acquired by the employee where the stock was acquired 
pursuant to the exercise of an option described in section 423(c) to 
file a return with respect to each transfer made during a particular 
year. This return would include the following information:
    (i) The name, address, and identifying number of the transferor;
    (ii) The name, address and employer identification number of the 
corporation whose stock is being transferred;
    (iii) The date the option was granted to the transferor;
    (iv) The fair market value of the stock on the date the option was 
granted;
    (v) The exercise price per share;
    (vi) The date the option was exercised by the transferor;
    (vii) The fair market value of the stock on the date the option was 
exercised by the transferor;
    (viii) The date the legal title of the shares was transferred by 
the transferor; and
    (ix) The number of shares to which legal title was transferred by 
the transferor.
    These proposed regulations would require that all of the 
information required pursuant to the existing regulations be included 
on the information statement furnished to employees. However, the 
information required to be furnished to employees pursuant to the 
existing regulations is not sufficient to enable the employee to 
calculate his or her tax obligations upon disposition of the shares. 
Accordingly, items (iii), (iv), (v), (vi) and (vii) in the list in the 
preceding paragraph would request new information that is not required 
to be reported under the existing regulations. This additional 
information, along with the information required under the existing 
regulations, will enable the employee to determine his or her tax 
obligations upon the disposition of shares.
    Returns required by Sec.  1.6039-1(b) must be filed on or before 
January 31 of the year following the calendar year for which the return 
is made. Such returns must be made on Form 3922, Transfer of Stock 
Acquired Through an Employee Stock Purchase Plan Under Section 423(c) 
(or its designated successor) and filed in the manner provided in the 
instructions thereto. The IRS expects to release Form 3922 later this 
year.

3. Information Statements Required With Respect to Incentive Stock 
Options

    Section 1.6039-2(a) of these proposed regulations would require 
every corporation filing a return under Sec.  1.6039-1(a) to furnish to 
each employee named in such return a written statement with respect to 
the transfer or transfers made to such employee during such year. Each 
information statement required by Sec.  1.6039-2(a) must be furnished 
to the employee on or before January 31 of the year following the 
calendar year for which the return under Sec.  1.6039-1(a) is made. 
Such information statements must be furnished to employees on Form 3921 
(or its designated successor) and be delivered in the manner provided 
in the instructions thereto. Rules regarding electronic furnishing of 
the information statements and furnishing the information statement by 
mail (items addressed under Sec.  1.6039-1(d) and (f) of the existing 
regulations) will be set forth in the instructions to Form 3921 (or its 
designated successor).

4. Information Statements Required With Respect to Stock Purchased 
Under an Employee Stock Purchase Plan

    Section 1.6039-2(b) of these proposed regulations would require 
every corporation filing a return under Sec.  1.6039-1(b) to furnish to 
each employee named in such return a written statement with respect to 
the transfer or transfers made by the employee during such year. Each 
information statement required by Sec.  1.6039-2(b) must be furnished 
to the employee on or before January 31 of the year following the 
calendar year for which the return under Sec.  1.6039-1(b) is made. 
Such information statements must be furnished to employees on Form 3922 
(or its designated successor) and be delivered in the manner provided 
in the instructions thereto. Rules regarding electronic furnishing of 
the information statements and furnishing the information statement by 
mail (items addressed under Sec.  1.6039-1(d) and (f) of the existing 
regulations) will be set forth in the instructions to Form 3922 (or its 
designated successor).

Proposed Effective Date

    These regulations under section 6039 are proposed to apply to any 
stock transfer occurring on or after January 1, 2007. However, 
corporations are not required to comply with the return requirements of 
Sec.  1.6039-1(a) and (b) for stock transfers that occur during the 
2007 and 2008 calendar years. Notwithstanding the waiver of the return 
requirements for 2007 and 2008 stock transfers, corporations must 
furnish information statements to employees for such 2007 and 2008 
stock transfers. For purposes of furnishing information statements for 
2007 and 2008 stock transfers, corporations may rely on Sec.  1.6039-1 
of the 2004 final regulations (TD 9144) or Sec.  1.6039-2 of these 
proposed regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It is hereby 
certified that the regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based on the fact that the filing of a return with the IRS and the 
provision of employee statements required under these proposed 
regulations will impose a minimal administrative burden on small

[[Page 41002]]

entities. It is estimated that it will take approximately 30 minutes to 
prepare and provide the information required by these regulations. 
Further, the information to be provided is readily available. 
Therefore, an analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required. Pursuant to section 7805(f) of the Internal 
Revenue Code, this regulation has been submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on their 
impact on small business.

Comments and Request for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are timely submitted to the 
IRS. The IRS and the Treasury Department request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing will be scheduled if requested in writing by 
any person that timely submits written or electronic comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the hearing will be published in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Thomas 
Scholz, Office of the Division Counsel/Associate Chief Counsel (Tax 
Exempt and Government Entities). However, other personnel from the IRS 
and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.6039-1 is revised to read as follows:


Sec.  1.6039-1  Returns required in connection with certain options.

    (a) Requirement of return with respect to incentive stock options 
under section 6039(a)(1). (1) Every corporation which in any calendar 
year transfers to any person a share of stock pursuant to such person's 
exercise of an incentive stock option shall, for such calendar year, 
file a return with respect each transfer made during such year. This 
return must include the following information--
    (i) The name, address, and employer identification number of the 
corporation transferring the stock;
    (ii) If other than the corporation identified in paragraph 
(a)(1)(i) of this section, the name, address and employer 
identification number of the corporation whose stock is being 
transferred;
    (iii) The name, address, and identifying number of the person to 
whom the share or shares of stock were transferred pursuant to the 
exercise of the option;
    (iv) The date the option was granted to the person;
    (v) The exercise price per share;
    (vi) The date the option was exercised by the person;
    (vii) The fair market value of a share of stock on the date the 
option was exercised by the person; and
    (viii) The number of shares of stock transferred to the person 
pursuant to the exercise of the option.
    (2) Each return required by this paragraph (a) shall be made on 
Form 3921, Exercise of an Incentive Stock Option Under Section 422(b) 
(or its designated successor) and shall be filed in such manner as 
provided in the instructions thereto.
    (b) Requirement of return with respect to stock purchased under an 
employee stock purchase plan under section 6039(a)(2). (1) Every 
corporation which in any calendar year records, or has by its agent 
recorded, a transfer of the legal title of a share of stock acquired by 
the transferor pursuant to the transferor's exercise of an option 
granted under an employee stock purchase plan and described in section 
423(c) (relating to the special rule where the option price is between 
85 percent and 100 percent of value of the stock), shall, for such 
calendar year, file a return with respect each transfer made during 
such year. This return must include the following information--
    (i) The name, address, and identifying number of the transferor;
    (ii) The name, address and employer identification number of the 
corporation whose stock is being transferred;
    (iii) The date the option was granted to the transferor;
    (iv) The fair market value of the stock on the date the option was 
granted;
    (v) The exercise price per share;
    (vi) The date the option was exercised by the transferor;
    (vii) The fair market value of the stock on the date the option was 
exercised by the transferor;
    (viii) The date the legal title of the shares was transferred by 
the transferor; and
    (ix) The number of shares to which legal title was transferred by 
the transferor.
    (2) Each return required by this paragraph (b) shall be made on 
Form 3922, Transfer of Stock Acquired Through an Employee Stock 
Purchase Plan Under Section 423(c) (or its designated successor) and 
shall be filed in such manner as provided in the instructions thereto.
    (3) A return is required by reason of a transfer described in 
section 6039(a)(2) of a share only with respect to the first transfer 
of such share by the person who exercised the option. Thus, for 
example, if the owner has record title to a share or shares of stock 
transferred to a recognized broker or financial institution and the 
stock is subsequently sold by such broker or institution (on behalf of 
the owner), the corporation is only required to file a return relating 
to the transfer of record title to the broker or financial institution. 
Similarly, a return is required when a share of stock is transferred by 
the optionee to himself and another person (or persons) as joint 
tenants, tenants by the entirety or tenants in common. However, when 
stock is originally issued to the optionee and another person (or 
persons) as joint tenants, or as tenants by the entirety, the return 
required by this paragraph shall be filed with respect to the first 
transfer of the title to such stock by the optionee.
    (4) Every corporation which transfers any share of stock pursuant 
to the exercise of an option described in this paragraph shall identify 
such stock in a manner sufficient to enable the accurate reporting of 
the transfer of record title to such shares. Such identification may be 
accomplished by assigning to the certificates of stock issued pursuant 
to the exercise of such options a special serial number or color.
    (c) Time for filing returns--(1) In general. Each return required 
by this section for a calendar year must be filed on or before January 
31 of the year following the year for which the return is required.
    (2) Extension of time. An extension of time to file returns 
required by this section may be granted in accordance with the 
guidelines and procedures set forth in the instructions to Form 3921 
and Form 3922.
    (d) Penalty. For provisions relating to the penalty provided for 
failure to file a return under this section, see section 6721.

[[Page 41003]]

    (e) Effective/applicability date--(1) In general. Upon the date of 
publication of the Treasury decision adopting the rules of this section 
as a final regulation in the Federal Register, these rules will apply 
as of January 1, 2007.
    (2) Transition period. Taxpayers are not required to comply with 
the return requirements of paragraphs (a) and (b) of this section for 
stock transfers that occur during the 2007 and 2008 calendar years.
    Par. 3. A new Sec.  1.6039-2 is added to read as follows:


Sec.  1.6039-2  Statements to persons with respect to whom information 
is reported.

    (a) Requirement of statement with respect to incentive stock 
options under section 6039(b). (1) Every corporation filing a return 
under Sec.  1.6039-1(a) shall furnish to each person whose name is set 
forth in such return a written statement with respect to the transfer 
or transfers made to such person during such year. This statement must 
include the information described in Sec.  1.6039-1(a)(1).
    (2) Each statement required by this paragraph (a) to be furnished 
to any person must be furnished to such person on Form 3921, Exercise 
of an Incentive Stock Option Under Section 422(b) (or its designated 
successor) and be delivered at such time and in such manner as provided 
in the instructions thereto.
    (b) Requirement of statement with respect to stock purchased under 
an employee stock purchase plan under section 6039(a)(2). (1) Every 
corporation filing a return under Sec.  1.6039-1(b) shall furnish to 
each person whose name is set forth in such return a written statement 
with respect to the transfer or transfers made by such person during 
such year. This statement must include the information described in 
Sec.  1.6039-1(b)(1).
    (2) Each statement required by this paragraph (b) to be furnished 
to any person must be furnished to such person on Form 3922, Transfer 
of Stock Acquired Through an Employee Stock Purchase Plan Under Section 
423(c) (or its designated successor) and be delivered at such time and 
in such manner as provided in the instructions thereto.
    (3) If the statement required by this paragraph is made by the 
authorized transfer agent of the corporation, it is deemed to have been 
made by the corporation. The term transfer agent, as used in this 
section, means any designee authorized to keep the stock ownership 
records of a corporation and to record a transfer of title of the stock 
of such corporation on behalf of such corporation.
    (c) Time for furnishing statements--(1) In general. Each statement 
required by this section to be furnished to any person for a calendar 
year must be furnished to such person on or before January 31 of the 
year following the year for which the statement is required.
    (2) Extension of time. An extension of time to furnish statements 
required by this section may be granted in accordance with the 
guidelines and procedures set forth in the instructions to Form 3921 
and Form 3922.
    (d) Penalty. For provisions relating to the penalty provided for 
failure to furnish a statement under this section, see section 6722.
    (e) Effective/applicability date--(1) In general. Upon the date of 
publication of the Treasury decision adopting the rules of this section 
as a final regulation in the Federal Register, these rules will apply 
as of January 1, 2007.
    (2) Reliance and transition period. For stock transfers that are 
subject to the return requirements under Sec.  1.6039-1(a) and (b), and 
occur during the 2007 and 2008 calendar years, taxpayers may comply 
with Sec.  1.6039-1 of the 2004 final regulations (69 FR 46401) or this 
section.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-16177 Filed 7-16-08; 8:45 am]
BILLING CODE 4830-01-P