CEP Employee Stock Purchase Plans (ESPPs)

Question 1

What is the maximum discount from fair market value that a Section 423 ESPP may offer to participants?

Accepted Answer

15%

Answer

Section 423 of the IRC permits a maximum discount of 15% from the fair market value of the stock.

Question 2

Under Section 423, what is the annual dollar limitation on the fair market value of stock an employee may purchase through an ESPP?

Accepted Answer

$25,000

Answer

Section 423(b)(8) limits each employee to accruing rights to purchase no more than $25,000 in FMV of stock per calendar year.

Question 3

What is the maximum length of an offering period permitted under a Section 423 ESPP?

Accepted Answer

27 months

Answer

Section 423(b)(7) requires that the offering period not exceed 27 months when a look-back provision is included.

Question 4

Which of the following employee groups may a Section 423 ESPP plan document NOT exclude from participation?

Accepted Answer

Employees who own 5% or more of company stock

Answer

Section 423(b)(3) prohibits excluding employees who own 5% or more of the company's stock from participating in a qualified ESPP.

Question 5

What is a 'look-back' provision in the context of an ESPP?

Accepted Answer

A feature that sets the purchase price as the lower of the FMV at the offering date or purchase date

Answer

A look-back provision allows the purchase price to be based on the lower of the FMV at the beginning of the offering period or the FMV at the purchase date, maximizing the employee's benefit.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Employee Stock Purchase Plans (ESPPs)