Code V reporting on nonstatutory stock options: December 14, 2001.

On December 14, 2001, Tax Executives Institute submitted the following letter to the U.S. Department of the Treasury and the Internal Revenue Service on an IRS notice requiring the separate information reporting of the compensatory element of nonstatutory stock options. The comments were prepared under the aegis of TEI's Federal Tax Committee whose chair is Mitchell S. Trager of Georgia-Pacific Corporation.

On September 18, 2001, the Internal Revenue Service issued Announcement 2001-92, 2001-39 I.R.B. 301, which extends until 2003 the optional period for separate reporting of any compensation arising from the exercise of any employer-provided nonstatutory stock options. The Announcement also requests comments on cost-effective alternatives for reporting such income. In the absence of subsequent guidance modifying or eliminating the separate reporting requirement first announced in Announcement 2000-97, Announcement 2001-92 states that the amount of compensation from the exercise of nonstatutory stock options included in boxes 1, 3, and 5 must also be shown separately in box 12 of Form W-2, using Code V.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. TEI has nearly 5,300 individual members who represent more than 2,800 of the leading corporations in the United States, Canada, and Europe. It represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, promoting the uniform and equitable enforcement of the tax laws, and reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that is both administratively sound and ensures tax compliance in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We continue to believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by Announcement 2001-92.

Recommendation

TEI strongly urges the government to eliminate the Code V reporting requirement. In addition, while appreciating the extension of the period for optional reporting of compensation arising from the exercise of...