Employee Stock Purchase Plans (ESPPs) Flashcards

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

Answer: 15%

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

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

Answer: $25,000

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

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

Answer: 27 months

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

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

Answer: Employees who own 5% or more of company stock

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

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

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

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.

Under a Section 423 ESPP, the same rights and privileges must be granted to:

Answer: All participating employees equally

Section 423(b)(5) requires that the same rights and privileges be extended to all plan participants, ensuring non-discriminatory treatment.

Which of the following is a valid basis for setting the purchase price under a Section 423 ESPP?

Answer: 85% of the lower of FMV on the offering date or the purchase date

Section 423 allows the purchase price to be as low as 85% of the FMV on either the offering date or the purchase date, whichever is lower, when a look-back is used.