Carta has made it easier for private companies running a tender offer to invoke IRS Revenue Procedure 2002-50, which is applicable to certain transactions involving the exercise of options and sale of the resulting securities during a transaction on the same day. This procedure allows for the exclusion of those same day option sales from Form 1099-B reporting if certain conditions are met. For example, this may apply to cashless exercised options in connection with a secondary transaction on Carta where there is no capital gain (Sale Price = Fair Market Value).
How does it work?
To make a Revenue Procedure 2002-50 election on an applicable transaction, company administrators may request an Officer Certificate template from Carta to complete and get signed by a Company Officer who has the authority to make decisions on the tax treatment of cashless exercises in a tender offer.
Fig 1: Sample of an Officer Certificate
The completed form can then be returned to Carta, who will then trigger the Revenue Procedure.
Any employee whose transactions on Carta were excluded from 1099-B reporting as a result of Revenue Procedure 2002-50 will, if applicable, receive a supplemental Disclosure Statement detailing the fees and gross proceeds on cashless exercises of options so they can complete their Form 8949 reporting. Compensatory income from cashless exercises is reported as ordinary income on the W-2.
This statement will be delivered electronically by February 15th of the following year in the same manner as all other tax documents on Carta. No such statement will be generated if the employee was not charged any fees by Carta.
Fig 2: Sample of IRS Revenue Procedure 2002-50 Disclosure Statement
The company administrator can also generate a new report of all the Disclosure Statements issued after the transaction. The Revenue Procedure Disclosure Statements Report will assist in auditing transactions ahead of the tax season to ensure completeness and accuracy for tax filing purposes. The report can be found under your Reports section in Carta.
Fig 3: Sample of Disclosure Statements Report
Make tax reporting easier for same-day option exercises and sales during a tender offer by invoking Revenue Procedure 2002-50
The Revenue Procedure feature will:
- Remove an employee’s burden to reconcile their Form 1099-B and Form W-2 when determining their Taxable Income after a same day option exercise and sale
- Reduce the risk of paying capital gains tax on proceeds that were already taxed as ordinary income
Reach out to Carta to get the process started
Is your company running a tender offer? If so, the Revenue Procedure 2002-50 will be enabled on the platform after returning a completed and signed Officer Certificate to Carta. Companies who ran a tender offer previously in 2022 can retroactively upload the appropriate Officer Certificate to benefit from this feature until the end of 2022. Please contact your CSM or Liquidity representative for more information.