FASB Distributes Tax Reporting Guidance for Options Calculations

FSP FAS 123(R)-3 gives reporting companies who have complained that they could no longer access the necessary tax data to determine the tax benefits of employee stock options a new way to accomplish that goal.

According to the FASB document, the alternate suggested method provides, first, a computational component that sets a beginning additional paid-in capital (APIC) pool balance relating to employee compensation as well as a simplified method to calculate the subsequent impact of the APIC pool of employee awards that are fully vested and are outstanding when the entity adopts the options reporting requirements.

The staff position said an entity should follow either the transition guidance for the APIC pool in Statement 123(R)’s paragraph 81 or the newly described transition method. A company choosing to use its alternative method must classify tax benefits relating to an employee award that is fully vested before adoption of FAS 123(R) as a cash inflow from financing activities and a cash outflow from operating activities within the cash-flow statement, according to FASB.

The new guidance was designed to help reporting companies deal with paragraph 81 of Statement 123 ® that states that for the purposes of calculating a pool of excess tax benefits available to absorb tax deficiencies that are recognized after adoption of Statement 123(R) – the additional paid-in capital (APIC) pool–an entity is required to include “the net excess tax benefits that would have qualified as such had the entity adopted” original FAS 123 “for recognition purposes.”

Entities may make a one-time election to adopt the staff’s transition method, within one year of adoption FAS 123(R) or the November 10 effective date of the FASB staff position, whichever c omes later.