Section 4. Terms of Participation in the

Program

If an employer complies with all of the requirements in this section 4 with respect to an employee, the employer and the employee will be eligible for the relief set forth in section 5 of this announcement.

A. Notice to the IRS of Intent to Participate

An employer must submit to the IRS by February 28, 2007 a notice of the employer’s intent to participate in the Program. The notice of intent to participate must state, under penalties of perjury, the following:

[Insert name of the employer and taxpayer identification number] hereby provides notice to the IRS of its intent to participate in the Program described in Announcement 2007–18. [Insert name] is the person for the IRS to contact regarding the participation of [Insert name of the employer] in the Program, and may be contacted at [Insert address and phone number]. Choose either sentence A or sentence B . Sen- tence A . [Insert name of the employer] hereby certifies that [Insert name of the employer] is not under examination by the IRS. Sentence B . [Insert name of the employer] hereby certifies that [Insert name of the employer] is under examination by the IRS and is providing a copy of this notice of intent to participate in the Program to the examining revenue agent.

An employer must also submit a Form 2848, Power of Attorney and Declaration of Representative, as appropriate. For information regarding the submission of this notice, see section 6 of this announcement.

B. Notices to Affected Employees and IRS

i. Notice to Affected Employees of Intent to Participate

No later than 15 days after the employer submits the notice of intent to participate described in section 4.A of this announcement, an employer must provide a notice to all employees that the employer reasonably anticipates may be affected by the employer’s participation in the Program. Such notice must provide the following information:

(i) the employer has notified the IRS of the employer’s intent to participate in the Program (the Program must be specifically referred to in the notice to employees as the program set forth in Announcement

2007–9 I.R.B. 627 February 26, 2007

d. Additional Amount Due for Taxes Remitted After April 17, 2007

For payments sent to the IRS after April 17, 2007, the amount required to be submitted is increased by an amount equal to the underpayment interest rate applied to the amount that would otherwise be due on April 17, 2007 through the date the further submission (with payment) is sent to the IRS.

iii. Section 409A Tax Payments Constitute Compensation to the Employee

The payment of the § 409A taxes due as part of this Program constitutes additional compensation income to the employee for the employee’s taxable year in which such payment is made. Accordingly, the employer must represent under penalties of perjury that the employer is treating such payment as additional compensation to the employee for the taxable year of such employee in which such payment is made, in accordance with this section iii. With respect to any employee for whom a payment of § 409A taxes has been made as part of the further submission, no relief shall be provided under this announcement with respect to the exercise of a stock right by such employee during 2006 if it is determined that the employer has failed to treat such payments as additional compensation for the taxable year of such employee in which such payment is made, in accordance with this section iii.

Payments made on behalf of an employee or former employee to cover § 409A taxes are wages for Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and Federal income tax withholding purposes for the employee’s taxable year in which the payment is made. Such wages, as well as any additional wages resulting from the employer’s payment of the employee’s share of FICA tax and income tax without withholding such amounts from the employee, must be reported on Form 941, Employer’s QUARTERLY Fed- eral Tax Return, and in box 1, 3 and 5 of the employee’s Form W–2, Wage and Tax Statement, for the year in which the payment is made. See Rev. Rul. 58–113, 1958–1 C.B. 362, and Rev. Proc. 81–48, 1981–2 C.B. 623, for methods of comput

C. Employer’s Further Submission of Information and Payment to the IRS

An employer must make a further submission of information and payment (a further submission) to the IRS by June 30, 2007 meeting all of the requirements of this section 4.C.

i. Information

An employer must include in the further submission to the IRS the following information, signed under penalties of perjury:

a. The employer’s name and taxpayer identification number.

b. A list of employees for whom the employer is remitting the § 409A taxes due (the 20% tax and the interest tax) under section 4.C.ii below, including each such employee’s taxpayer identification number.

c. For each identified employee, an identification of each stock right exercise resulting in the § 409A taxes, including information that specifically identifies the specific stock right that was exercised, the date of exercise, the exercise price, the fair market value of the underlying shares on the date of exercise, and the number of shares purchased or, in the case of a stock appreciation right, the number of shares used to calculate the payment made.

d. For each identified stock right exercise for each identified employee, the amount of § 409A taxes remitted, including the manner in which such § 409A taxes were calculated.

ii. Remittance of All § 409A Taxes Due

a. Remittance of Taxes

With respect to an exercise of a stock right subject to § 409A by an employee during 2006, the employer must remit to the IRS by June 30, 2007, an amount equal to the full amount of the additional tax liability of the employee under § 409A that results from such exercise. Such additional tax consists of the 20% tax and the interest tax described below. For purposes of determining the § 409A taxes, the amount of income includible under § 409A must be determined in accordance with applicable guidance under § 409A. With respect to such exercise of a stock right, an employer is treated as having remitted an amount equal to the full amount of the ad

ditional tax liability if the employer remits substantially all of the additional tax liability based upon a reasonable, good faith interpretation of the applicable guidance. Where it is determined that an employer has failed to submit substantially all of the additional tax liability that results from the exercise of a stock right subject to § 409A during 2006 based upon a reasonable, good faith interpretation of the applicable guidance, neither the employer nor the employee is entitled to any relief under this announcement with respect to the § 409A taxes resulting from the exercise of such stock right.

b. Calculation of the 20% tax

For purposes of this Program, the amount of the 20% tax equals 20% of the excess of the fair market value of the stock on the date of exercise over the sum of the exercise price paid by the employee and any other amount paid by the employee for the stock right. See Notice 2006–100.

c. Calculation of the Interest Tax

For purposes of this Program, the amount of the interest tax equals the amount of interest at the underpayment rate plus 1% on the underpayment of Federal income tax that would have occurred had the portion of the amount deferred under the stock right as of December 31, 2005, that was not subject to a substantial risk of forfeiture (as defined for purposes of § 409A) as of December 31, 2005, been includible in gross income as of December 31, 2005. For this purpose, the amount deferred under the stock right as of December 31, 2005 equals the excess of the fair market value of the underlying stock on December 31, 2005 over the sum of the exercise price and any other amount paid by the employee for the stock right. For purposes of this Program, employers must calculate the underpayment based on the highest marginal Federal income tax rate in effect for 2005 (35%). For purposes of determining the applicable interest, the underpayment is treated as due on April 17, 2006, and the interest runs from that date through the earlier of April 17, 2007 or the date the further submission is sent to the IRS with payment.

February 26, 2007 628 2007–9 I.R.B.

W–2c that does not report the § 409A inclusion amount in box 12 of Form W–2c using Code Z, and such employer will not be subject to any penalties under § 6721 or § 6722 of the Code. Nothing in this Program relieves the employer of any information reporting requirements with respect to an employee or an exercise of a stock right that was not identified in the employer’s further submission. Nothing in this announcement or Program affects the employer’s obligation to report the amount that would be required, without regard to § 409A, to be included in income and wages due to the exercise of a stock right, and to withhold and pay the applicable employment taxes, or the employee’s obligations to include such amounts in income and pay Federal taxes on them (other than § 409A taxes).

B. Employee’s § 409A Taxes

If an employer complies fully with the provisions of section 4 of this announcement with respect to amounts includible in income under § 409A due to the exercise of an applicable stock right by an employee during 2006, the employee will not be required to pay the § 409A taxes on the applicable Federal income tax return for the 2006 tax year with respect to such amounts includible in income under § 409A. Nothing in this Program relieves the employee of any § 409A taxes with respect to an exercise of a stock right that was not identified in the employer’s further submission, or relieves the employee or employer of any other tax, including Federal income tax and employment taxes that would otherwise arise from the exercise of the stock right. In addition, nothing in this Program addresses or relieves the employee of any § 409A taxes due to participation in a nonqualified deferred compensation plan, other than the exercise of an applicable stock right in 2006.

An employee who received a notice of application under section 4.B.i of this announcement, and who files a return before finding out that, due to a failure by the employer to comply with the requirements for relief set forth in this announcement, the employee is not relieved of the duty to report and pay § 409A taxes, will be treated as having had reasonable cause and as having acted in good faith with respect to the portion of any underpayment that

ing gross wages when paying FICA and Federal income tax withholding on behalf of an employee.

iv. Further Representations by the Employer

The further submission must include the following representations by the employer, signed under penalties of perjury:

a. In accordance with section 4.B.i of this announcement, the employer provided the notices of the employer’s intent to participate in the Program to all employees the employer reasonably anticipated would be affected by the employer’s participation in the program by no later than 15 days after the employer submitted its notice of intent to participate in the Program to the IRS.

b. With respect to any employee for which a payment of § 409A taxes has been made as part of the further submission, the employer has made reasonable, good faith efforts to identify all exercises of a stock right by such employee during 2006 that resulted in the inclusion of income under § 409A, applying a reasonable, good faith interpretation of the applicable guidance under § 409A, has listed all such identified exercises of a stock right in its further submission, and has accurately calculated and paid the § 409A taxes resulting from such identified exercises of a stock right in accordance with this announcement.

c. The employer will, upon a written request from an affected employee, disclose to the employee any portion of such information that is relevant to the employee’s 2006 Federal income tax return, including information the employee reasonably needs to respond to an information request from the IRS, an examination, or tax litigation involving issues related to the exercise of a stock right and the application of § 409A.

D. Notice to Affected Employees of the Employer’s Further Submission

An employer must provide a notice to all employees to whom a notice was provided pursuant to section 4.B.i, and any additional employees that are listed in the employer’s further submission to the IRS, by no later than July 15, 2007, certifying the following:

(i) the employer has made a further submission under the Program, that

is specifically referenced as the program provided under Announcement 2007–18, Compliance Resolution Program for Employees Other than Corporate Insiders for Additional 2006 Taxes Arising Under § 409A due to the Exercise of Stock Rights, that to the best of the employer’s information, knowledge and belief, satisfies the requirements of this announcement, and that such further submission (a) includes the employee and makes payment of such employee’s § 409A taxes addressed by this announcement or (b) does not include the employee because the employer has concluded that the employee does not owe any § 409A taxes addressed by this announcement, or

(ii) the employer has failed to make a further submission under the Program, that is specifically referenced as the program provided under Announcement 2007–18, Compliance Resolution Program for Employees Other than Corporate Insiders for Additional 2006 Taxes Arising Under § 409A due to the Exercise of Stock Rights, and the employee is therefore liable for any applicable § 409A taxes.

The notice to affected employees may provide additional information that is not inconsistent with the required information. The notice must be provided directly to the individual employee, but may be provided electronically.