SECTION 7. REQUIRED

DECLARATIONS

Each application, certification, report or other document submitted under this

2005–52 I.R.B. 1213 December 27, 2005

information regarding this notice, contact Timothy L. Jones or Aviva M. Roth at (202) 622–3980 (not a toll-free call).

Guidance on Valuation of Stock-Based Compensation for Purposes of Qualified Cost Sharing Arrangements

Notice 2005–99

PURPOSE

Treas. Reg. § 1.482–7(d)(2)(iii)(B) provides an elective method of measurement and timing that is applicable for taking certain options on publicly traded stock into account as intangible development costs of a controlled participant in a qualified cost sharing arrangement (QCSA). This notice extends that elective method to certain stock-based compensation commonly referred to as “restricted shares” or “restricted share units.” It also addresses the determination of whether stock-based compensation subject to the elective method is related to the covered intangible development area. The Treasury Department and the Internal Revenue Service (IRS) expect to issue regulations that incorporate the guidance provided in this notice.

BACKGROUND

The Treasury Department and the IRS promulgated T.D. 9088, 2003–2 C.B. 841, on August 26, 2003, providing explicit guidance with respect to taking stock-based compensation into account as intangible development costs of a controlled participant in a QCSA under § 1.482–7. Section 1.482–7(d)(1) of the cost sharing regulations generally requires that all costs related to the intangible development area be taken into account. Section 1.482–7(d)(2)(ii) provides that the determination of whether stock-based compensation is related to the intangible development area (within the meaning of § 1.482–7(d)(1)) is made as of the date that the stock-based compensation is granted (the grant-date identification rule).

Under T.D. 9088, once stock-based compensation is identified by application of the grant-date identification rule, its cost must be measured to establish the

reports similar to the reports required under section 149(e) for tax-exempt State or local bonds. To satisfy this requirement, an issuer of clean renewable energy bonds must submit for each issue, at the same time and in the same manner as required under section 149(e), Form 8038-G, In- formation Return for Tax-Exempt Gov- ernmental Obligations . Issuers of clean renewable energy bonds should complete Part II of Form 8038-G by checking the box on Line 18 (Other), writing “clean renewable energy bonds” in the space provided for the bond description, and entering the amount of the bonds in the Issue Price column. For purposes of this notice, an “issue” means one or more bonds that are sold on the same day by the same qualified issuer with respect to the same qualified borrower.