Q. (cont.) He still has options that remain outstanding and will for some time (some are in the money while others are underwater). We’re working with E*TRADE to transition the account to his estate / beneficiary and are working through the details of how to ensure we properly report income for 1099 purposes in both 2015 and beyond.
E*TRADE has told us that any income from stock option exercises must be reported under his tax ID for the longer of 12 months or until the options have legally been moved to a beneficiary. In other words, even if the estate settles these assets with a beneficiary this month, any income from stock option exercises through December 2015 (12 months from the date of death) must be reported under the board of directors' tax ID rather than the beneficiary.
Do you know if this is correct or have a suggestion as to how to verify? This impacts how we transition the account so that we provide accurate info to AP.
A. We spoke with IRS information reporting specialist Ms. Oroke (ID# 1000269880), who indicated that a 1099 would go to whomever received the income. Note that there is a distinction to be made between the 1099-MISC, issued by your company, and a 1099-B, issued by E*TRADE upon sale of the stock.
Ms. Oroke had other questions about the circumstances; for example, were these statutory or non-statutory options? She suggested that you might find help in IRS Publication 15B and IRS Publication 525. But she thought there were more questions behind this that need to be answered, and she would be happy to talk through them with you. You can reach the IRS information reporting hotline directly by dialing (866) 455-7438.