Reporting Deadline for 2010 ISO Exercises and ESPP Stock Transfers is Fast Approaching
Employers must file returns with the IRS and provide statements to employees reporting exercises of incentive stock options (ISOs) and transfers of stock purchased under employee stock purchase plans (ESPPs). For ISO exercises and ESPP stock transfers that occurred in 2010, the information statement must be provided to employees by January 31, 2011.
Deadlines for Providing Information Statements to Employees and Filing with the IRS
Beginning in 2011, each transfer of equity under an Incentive Stock Option Plan or an Employee Stock Purchase Plan must be reported to the IRS and an information statement must be provided to the employee. These obligations, required under Section 6039 of the Internal Revenue Code, are satisfied using Form 3921 (for ISOs) and Form 3922 (for ESPPs). For transfers that occurred in 2010, Copy B of Form 3921 (or Form 3922 for ESPPs) must be furnished to employees no later than January 31, 2011. Employers also must submit these forms to the IRS no later than February 28, 2011 (for paper filings) or March 31, 2011 (for electronic filings). The IRS will impose fines on employers who fail to comply for each instance of noncompliance.
Form 3921 and Form 3922
Reporting on Form 3921 is triggered by exercise of an ISO.
Reporting on Form 3922 is triggered by the transfer of legal title to the shares purchased under an ESPP if (i) the purchase price of the shares was less than the fair market value of the stock on the date of grant (generally the case for ESPP purchases) or (ii) the purchase price for the shares was not fixed or determinable on the grant date. If shares purchased under an ESPP are transferred directly to a brokerage account for ESPP participants, this transfer will trigger the reporting obligation. On the other hand, if the Company issues stock certificates or the shares are registered in the participant’s name, then the Form 3922 will not be required until a subsequent legal transfer of title.
Although reporting is required only once per year, only one transaction may be reported on each Form 3921 (or 3922). For example, if an employee exercised an ISO on April 30, 2010, and again on June 15, 2010, then the company must provide two Forms 3921 to both the IRS and the employee.
The IRS information versions of Forms 3921 and 3922 and instructions are available here.
Paper Forms Not Yet Available
As of this writing, scannable versions of Forms 3921 and 3922 are not available from the IRS. This means that you cannot download the information versions of Forms 3921 and 3922 available on the IRS website to use for paper filing. Employers should be advised that submitting these non-scannable information versions of the forms to the IRS may result in fines. Employers may pre-order Forms 3921 and 3922 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676). When filing paper versions of Forms 3921 or 3922, be sure to include Form 1096 – Annual Summary and Transmittal of U.S. Information Returns.
If you have questions about the new reporting and disclosure requirements and how they apply to your Incentive Stock Option Plan or Employee Stock Purchase Plan, please contact the employee benefits attorney with whom you work.