Tax Planning & Compliance Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Planning & Compliance flashcards as text
When withholding taxes on RSU vesting, which method allows the company to retain a portion of the shares being delivered to cover the tax obligation?
Answer: Net settlement (share withholding)
Net settlement (share withholding) allows the employer to withhold a calculated number of shares to satisfy the tax withholding obligation, delivering only the net shares to the employee.
For purposes of the Net Investment Income Tax (NIIT) under Section 1411, which equity-related gain is typically subject to the 3.8% surtax?
Answer: Capital gains from the sale of employer stock by a high-income employee
The 3.8% NIIT applies to net investment income, which includes capital gains from stock sales, for taxpayers above the income threshold ($200K single / $250K married).
A company using the treasury stock method for diluted EPS must include in the share count:
Answer: Only options with exercise prices below FMV at year-end
The treasury stock method includes only in-the-money options (exercise price below average market price) in the diluted EPS denominator.
Under the tax rules, the employer's deduction for an NQSO exercise equals:
Answer: The spread at exercise (ordinary income recognized by the employee)
The employer receives a deduction equal to the spread recognized as ordinary income by the employee at NQSO exercise, in the same tax year the employee reports the income.
Which IRS form must employees file to report the exercise of an ISO during the calendar year?
Answer: Form 3921
Employers must furnish employees with Form 3921 for each ISO exercised during the calendar year, reporting the date, exercise price, and FMV at exercise.
Which IRS form must a company provide when an employee transfers ESPP shares acquired under a Section 423 plan?
Answer: Form 3922
Form 3922 is issued by employers when shares acquired under a Section 423 ESPP are transferred, providing information needed for the employee to determine their tax treatment.
For RSAs (restricted stock awards), the ordinary income recognized at vesting is reported to the employee on:
Answer: Form W-2, because RSA income is treated as wages
RSA income at vesting is classified as supplemental wages and must be included in Box 1 of the employee's Form W-2.