What use for employee stock repurchase: 1099-B, 1099-Div, W-2?
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How does a private pre-IPO company report stock repurchased from an employee shareholder? Company (not a broker) repurchased shares at termination under provision in plan and grant agreement (shares are registered in book form). The former employee exercised the ISO earlier and had received Form 3921.
Should it issue a 1099-DIV, 1099-B, and/or W-2 for the repurchase? I assume W-2 for any compensation income, but what about for the purchase itself related to capital gains reporting?
Thank you for you insights.
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Bruce - You are correct that the W-2 would report any compensation income, if this is a disqualifying disposition of the ISO shares. Otherwise, if this is a qualifying disposition, there is no income to report.
Under IRC ยง6045, a company that "regularly redeems its own stock" should issue a 1099-B. The 1099-B would report as sales proceeds the amount the company paid the employee shareholder for the stock. In addition, if the exercise occurred after 2010, the company should include the date of exercise as the acquisition date, and the cost basis equal to either 1) the exercise price, or ideally 2) the exercise price + any W-2 income recognized on the sale back to the company. If it paid dividends along with the proceeds, then the company would issue a 1099-DIV representing the dividends paid.
Andrew, Thank you for your insights. This is situation with private company and may be the first time they have repurchased any shares. Thus not certain rises to level of that IRS provision and not considered a "broker." I assume the conservative position to still issue it, as not real downside issuing 1099-B.
I have heard that some companies that use share surrender for restricted stock tax withholding issue 1099-Bs for the shares used for taxes (even though no real market sale). Have you seen any companies do this?
Elizabeth Dodge in NASPP Discussion #7466 asserts that 78% of companies don't send a 1099-B in this circumstance. Sending a 1099-B for this kind of transaction doesn't make a lot of sense, because the proceeds (FMV of stock) will always equal the cost basis, so there is no gain or loss to report. It could also create confusion for the employee. In addition, for RSUs no actual stock is being exchanged or sold when "share" withholding occurs.
I have heard the 1099-B issue argued both ways. The last stance I heard was that it was "proper" for a company to provide a 1099-B, but not required. I am not sure this made much sense to me. I try to live in a world where things are either right or wrong.