Qualified ESPP Drafting Checklist

Summary

Use this checklist to ensure that an employee stock purchase plan (ESPP) intended to satisfy the requirements of I.R.C. § 423 meets all of the necessary conditions for favorable tax treatment of the purchase rights granted under the plan. Such plans allow the sponsoring corporation to grant to its employees—and the employees of its related corporations)—rights to purchase stock of the sponsoring corporation at a price that may be up to 15% less than the fair market value of the underlying stock. If ESPP participants satisfy certain holding requirements, the acquisition of stock through a qualified ESPP is not a taxable event. Rather, participants are taxed at the time they dispose of the shares.