AICPA Comments on IRS Proposed Regulations on Employee Stock Purchase Plans 

    October 1, 2008

    Thomas Scholz
    Assistant Branch Chief
    Office of Division Counsel/Associate Chief Counsel
    Tax Exempt & Government Entities
    Internal Revenue Service
    1111 Constitution Avenue, N.W.
    Washington, D.C. 20224


    RE: Proposed Regulations on Employee Stock Purchase Plans (CC:PA:LPD:PR)

    Dear Mr. Scholz:

    The American Institute of Certified Public Accountants (AICPA) has prepared the attached comments on Prop. Reg. sections 1.421-1.423. These comments were prepared by the Employee Benefits Taxation Technical Resource Panel (EBTRP) and approved by our Tax Executive Committee (TEC).

    The AICPA is the national professional association of CPAs, with more than 350,000 members, including CPAs in business and industry, public practice, government, and education; student affiliates; and international associates. Our members provide audit, tax, retirement consulting, and plan administration services. It is from this diverse perspective that we offer our comments.

    We commend the Treasury Department for developing a comprehensive set of rules governing stock options issued under an employee stock purchase plan. In particular, we support the proposed change to this regulation and the ISO regulation providing that the stockholders of the subsidiary, rather than the stockholders of the parent, have the authority to approve changes to an ESPP established for the benefit of employees of the subsidiary. We believe there is a strong statutory basis for doing so and believe that it will help streamline plan administration. We also support the idea of a correction program for employee stock purchase plans but require more time to develop specific suggestions for the types of violations that might be covered and the methods of correction.

    However, there are areas within these regulations that we feel require clarification. These include:

    1. Consistency rules for plan, offering and option terms.
    2. More detailed explanation of why the coverage exclusion for certain foreign citizens and residents is necessary.
    3. An explanation that the coverage exclusion only applies to a corporation if any of its employees are granted options under an employee stock purchase plan by reason of their employment by the corporation.
    4. An exclusion from Section 6039 reporting for nonresident aliens if the statutory options were not compensation for service performed in the U.S.
    5. The limitations on covering a subset of an employer’s highly compensated employees.

    We appreciate the opportunity to comment and urge you to clarify these issues. If we can be of further assistance please contact me at; Eddie Adkins, Chair of the AICPA Employee Benefit TRP, at; or Lisa Winton, AICPA Technical Manager, at


    Jeffrey R. Hoops
    Chair, Tax Executive Committee

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