The IRS recently published an updated Equity (Stock) – Based Compensation Audit Techniques Guide (the “ATG”).  The August 2015 ATG has been substantially expanded compared to the prior Stock Based Compensation Audit Techniques Guide (the “prior ATG”).

The ATG generally remains organized in the same fashion as the prior ATG. It begins by defining Equity-Based Compensation, and explaining where an examiner may find relevant information. There is a detailed description of the SEC documents (e.g. Form 10-K, Def 14A, Form S-3, Form 4), and the types of information that they have relating to executive compensation.  There is also a section addressing review of taxpayer’s internal corporate documents related to compensation.

After outlining the general sources of information available to examiners, the ATG briefly discusses specific types of equity compensation, including stock transfers and awards, stock options, phantom stock plans, stock appreciation rights, restricted stock units, and stock warrants and walks examiners through a number of routine questions intended to elicit information relating to a taxpayer’s equity based compensation practices.

The ATG is quite informative, even for those not working at the IRS. It gives a clear indication of the method in which the IRS expects examinations to occur, and shows the ways that information may be collected without having to request it directly from taxpayers. While it is not authoritative, the ATG also provides a perspective on the IRS’s positions about the treatment of equity based compensation.