CEP Equity Award Transactions & Processing Flashcards

What is the Form 3922 used for in equity compensation administration?

Answer: Reporting the transfer of stock acquired through an Employee Stock Purchase Plan (ESPP) to the IRS

Form 3922 is filed with the IRS by the corporation and provided to employees when shares are transferred upon exercise of an ESPP option under Section 423.

What is Form 3921 used for in equity compensation?

Answer: Reporting the exercise of an incentive stock option (ISO) to the IRS and the participant

Form 3921 must be filed with the IRS and furnished to employees whenever an ISO is exercised, reporting key data such as the exercise price, FMV, and number of shares.

Which of the following best describes a 'blackout period' in equity plan administration?

Answer: A designated time window during which employees are prohibited from exercising options or trading company stock, typically surrounding earnings announcements

Blackout periods restrict employee trading to prevent insider trading violations, and are typically imposed in the weeks before and immediately after quarterly earnings releases.

What is a 'trading window' in the context of company equity plans?

Answer: A designated period when insiders are permitted to buy or sell company stock, typically shortly after earnings are publicly released

A trading window opens after material non-public information has been disclosed, allowing insiders to transact in company stock within company policy guidelines.

In equity plan recordkeeping, what does 'reconciliation' typically involve?

Answer: Matching the equity plan administrator's records against the transfer agent's records and the company's share reserve to ensure accuracy

Reconciliation in equity administration ensures the shares outstanding and available under the plan on the record-keeper's system match those tracked by the transfer agent and company books.

What is the significance of Section 409A of the Internal Revenue Code for equity compensation?

Answer: It governs deferred compensation and requires options to be granted at fair market value or face severe tax penalties including a 20% excise tax

Section 409A applies to deferred compensation arrangements and imposes strict requirements; options granted below FMV are treated as deferred compensation and subject to immediate income recognition and a 20% penalty tax.