This alert is intended to remind you of certain year-end reporting requirements under Section 6039 of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to stock issued to employees (or former employees) upon the exercise of an incentive stock option (an “ISO”) or transferred under a tax-qualified employee stock purchase plan (an “ESPP”) and inform you of Internal Revenue Service (“IRS”) filing requirements for transactions that occurred in 2013.
The IRS has issued two forms (along with accompanying instructions) that corporations must use to satisfy the return and information statement requirements under Section 6039. Form 3921 is required when an employee (or former employee) exercises an ISO, and Form 3922 is required when a corporation records a transfer of legal title of shares acquired under an ESPP (including to a broker or other financial institution) when either (a) the purchase price of the shares was less than the fair market value of the shares of stock on the date of grant or (b) the purchase price of the shares was not fixed or determinable on the date of grant.
For ISO exercises and applicable ESPP stock transfers which occurred in calendar year 2013, corporations must file completed Forms 3921 and Forms 3922 with the IRS no later than February 28, 2014 for paper filers, and no later than March 31, 2014 for electronic filers. If a corporation will file 250 or more forms, electronic filing is required.
For ISO exercises and ESPP stock transfers that occurred in calendar year 2013, corporations must provide the employee (or former employee) the information statement (Copy B to the applicable Form) no later than January 31, 2014.
Corporations must use the official Form 3921 and 3922 provided by the IRS. ONLY ONE TRANSACTION MAY BE REPORTED ON EACH FORM 3921 OR FORM 3922.
Exercise of an Incentive Stock Option Form 3921
Transfer Of Shares Acquired Under An ESPP Form 3922
Corporations should order the official Forms 3921 and 3922 from the IRS as soon as possible. Forms may be obtained by calling 1-800-TAX-FORM or ordering the forms online on the IRS website. For informational purposes, Form 3921 is available at http://www.irs.gov/pub/irs-pdf/f3921.pdf and Form 3922 is available at http://www.irs.gov/pub/irs-pdf/f3922.pdf and the joint instructions for both forms are available at http://www.irs.gov/instructions/i3921/ar02.html. You must send Form 1096 with paper copies of the Forms 3921 and 3922. If filing electronically, Form 1096 is not required. FORMS MAY NOT BE COPIED.
All Dispositions – The information statement and return requirements under Section 6039 are not dependent on whether the exercise or stock transfer is a qualifying or disqualifying disposition.
Non-Resident Aliens – A corporation is not required to file a return with respect to, or provide an information statement to, an employee who is a non-resident alien and to whom the corporation is not required to provide a Form W-2 for any calendar year beginning with the first day of the calendar year that the ISO or purchase right (typically the offering date for the offering period of the ESPP) was granted and the last day of the calendar year that the ISO was exercised or stock transfer occurred.
Non-Compliance – A penalty will be imposed for each statement that has not been timely filed with the IRS. For example, with respect to electronic filings, and subject to certain maximum penalties, the penalty will be $30 per form (for filings late by 30 days or less), $60 per form (for filings late by over 30 days, but filed by August 1, 2014), and $100 per form (for filings after August 1, 2014, or a complete failure to file). There is an additional penalty for failure to provide timely statements to employees. An intentional failure to report will be subject to a greater penalty.
Important Note For Private Corporations – Corporations are advised to discuss with employees the fair market value of common stock throughout the year to facilitate tax planning by the employees. Please note that even though the corporation is not required to file Form 3921 when an employee exercises a non-qualified stock option, it must collect and report withholding taxes upon such exercise and will need to value common stock delivered to the employee for purposes of W-2 reporting.