Revenue to Chase Unpaid Taxes on Stock Option Plan Awards

Revenue threatens thorough audits of employees who fail to properly report their stock option tax liability after detecting material non-compliance with company plans.

Ax officials plan to write to 1,200 employers in the coming weeks raising their concerns and asking them to circulate a briefing note to share recipients.

A spokesperson for the tax department said the communication is “focused on informing employees of their tax obligations and ensuring that they are not exposed to unforeseen tax liabilities and the possibility of interest and penalties”.

Revenue told a June 14 meeting of the audit subcommittee of the Tax Administration Liaison Committee (Talc) that its data showed issues with both capital gains tax returns (CGT) and the so-called “relevant stock option tax” – income tax and USC due to share rewards.

The Institute of Chartered Accountants, which participates in Talc through the Consultative Committee of Accountancy Bodies-Ireland, told its members that “a key message coming from Revenue is that it intends to carry out level interventions 2 in the event of non-compliance by participants with employee share ownership plans”.

A Level 2 compliance intervention by the tax administration involves either a risk review or a full audit of a person’s tax affairs.

A taxpayer notified of a Level 2 intervention cannot avail himself of the self-correction procedures or make a voluntary qualifying disclosure, according to the tax code of practice.

However, a person subject to Level 2 intervention can still mitigate penalties and avoid publication as a defaulter if they make a reasoned disclosure and cooperate fully with the intervention.

With the exception of some tax-approved stock-based compensation plans, when an employer offers stock to its employees for free or at a reduced price, it counts as a taxable benefit. This means the employee must pay income tax, USC, and PRSI on their company’s stock or plan options.

Generally, the corporation issuing the shares makes the necessary deductions and pays the tax directly to the Receiver General. When options are exercised or shares are sold, employees may also be subject to capital gains tax.

Revenue also informed the Talc Audit Subcommittee that many PAYE taxpayers may be entitled to unclaimed refunds dating back three years and officials will contact them in the coming weeks to advise them of the preliminary PAYE and USC positions.

Sallie R. Loera