Section 423 (IRC) Plans
The majority of stock purchase plans in the United States are qualified IRC 423 Plans. In general, the participants do not recognize ordinary income when they purchase stock, but they do at the time of sale. The following IRS Section 423 eligibility rules are supported in the Governing Body Rules Table:
Only employees of the company are eligible to participate in Section 423 plans. This includes employees who are not administered by HR.
Employees who are major shareholders (those who hold 5 percent or more of the company's stock) may not participate in the plan.
The maximum purchase discount is no more than 15 percent.
The maximum offering length is no more than 27 months.
An employee may not purchase more than $25,000 of stock in any calendar year (based on the value at participation). PeopleSoft supports the two most common interpretations of the IRC 423 maximum purchase value limit: 1) a $25,000 limit applies to purchases within a calendar year, and 2) a $25,000 limit applies to the years that the offering is outstanding. You select one of these purchase limit rules when you define the stock purchase plan rules.
The system calculates the value of purchases made by a participant in a calendar year and applies the purchase limit to any amount over the $25,000 by adjusting the value so that it is below the limit. For example:
Offering Period: 12 months
Begin: 01/01/1999
End: 12/31/1999
Purchase Periods: 6 months
Begin: 01/01/1999
End: 06/30/1999
Begin: 07/01/1999
End: 12/31/1999
|
Date |
Activity |
Value |
Adjusted Value |
|---|---|---|---|
|
06/30/1999 |
Purchase #1 |
$17,500 |
$17,500 |
|
12/31/1999 |
Purchase #2 |
$8,500 |
$7,500 |
|
Calculated Totals |
|
$26,000 |
$25,000 |
The second purchase exceeds the $25,000 limit, so the purchase is adjusted.
The Years Offering is Outstanding interpretation is more complex and allows the participant to accumulate the $25,000 value per year that the offering is outstanding. This allows a participant to purchase stock up to a $25,000 value for each year the offering remains outstanding. If the offering extends to more than one calendar year, the unused portion of the limit is added to the next year's limit. For example:
Offering Period: 24 months
The offering period is as follows:
|
Begin |
End |
|---|---|
|
7/1/1999 |
6/30/2001 |
Purchase Periods: 6 months
The purchase periods are as follows:
|
Begin |
End |
|---|---|
|
7/1/1999 |
12/31/1999 |
|
1/1/2000 |
6/30/2000 |
|
7/1/2000 |
12/31/2000 |
|
1/1/2001 |
6/30/2001 |
|
Purchase Date |
Activity |
Value |
|---|---|---|
|
12/31/1999 |
Purchase #1 |
$17,500 |
|
6/30/2000 |
Purchase #2 |
$18,500 |
|
12/31/2000 |
Purchase #3 |
$12,000 |
|
6/30/2001 |
Purchase #4 |
$17,500 |
Year 1999 Calculation
This is the 1999 calculation:
|
Limit |
Value |
|---|---|
|
Limit |
$25,500 |
|
Value |
$(17,500) |
|
Remaining |
$7,500 |
Year 2000 Calculation
This is the 2000 calculation:
|
Limit |
Value |
|---|---|
|
Limit |
$25,500 |
|
Remaining from 1999 |
$7,500 |
|
|
$32,500 |
|
06/30/2000 Value |
$(18,500) |
|
12/31/2000 Value |
$(12,000) |
|
Remaining |
$2,000 |
Year 2001 Calculation
This is the 2001 calculation:
|
Limit |
Value |
|---|---|
|
Limit |
$25,000 |
|
Remaining from 2000 |
$2000 |
|
|
$27,000 |
|
06/30/2000 Value |
$(17,500) |
|
Remaining |
$9,500 |