close

For more than four decades, Fenwick & West LLP has helped some of the world’s most recognized companies become, and remain, market leaders. From emerging enterprises to large public corporations, our clients are leaders in the technology, life sciences and cleantech sectors and are fundamentally changing the world through rapid innovation.  MORE >

Fenwick & West was founded in 1972 in the heart of Silicon Valley—before “Silicon Valley” existed—by four visionary lawyers who left a top-tier New York law firm to pursue their shared belief that technology would revolutionize the business world and to pioneer the legal work for those technological innovations. In order to be most effective, they decided they needed to move to a location close to primary research and technology development. These four attorneys opened their first office in downtown Palo Alto, and Fenwick became one of the first technology law firms in the world.  MORE >

From our founding in 1972, Fenwick has been committed to promoting diversity and inclusion both within our firm and throughout the legal profession. For almost four decades, the firm has actively promoted an open and inclusive work environment and committed significant resources towards improving our diversity efforts at every level.  MORE >

At Fenwick, we are proud of our commitment to the community and to our culture of making a difference in the lives of individuals and organizations in the communities where we live and work. We recognize that providing legal services is not only an essential part of our professional responsibility, but also an excellent opportunity for our attorneys to gain valuable practical experience, learn new areas of the law and contribute to the community.  MORE >

Year after year, Fenwick & West is honored for excellence in the legal profession. Many of our attorneys are recognized as leaders in their respective fields, and our Corporate, Tax, Litigation and Intellectual Property Practice Groups consistently receive top national and international rankings, including:

  • Named Technology Group of the Year by Law360
  • Ranked #1 in the Americas for number of technology deals in 2015 by Mergermarket
  • Nearly 20 percent of Fenwick partners are ranked by Chambers
  • Consistently ranked among the top 10 law firms in the U.S. for diversity
  • Recognized as having top mentoring and pro bono programs by Euromoney

MORE >

We take sustainability very seriously at Fenwick. Like many of our clients, we are adopting policies that reduce consumption and waste, and improve efficiency. By using technologies developed by a number of our cleantech clients, we are at the forefront of implementing sustainable policies and practices that minimize environmental impact. In fact, Fenwick has earned recognition in several areas as one of the top US law firms for implementing sustainable business practices.  MORE >

At Fenwick, we have a passion for excellence and innovation that mirrors our client base. Our firm is making revolutionary changes to the practice of law through substantial investments in proprietary technology tools and processes—allowing us to deliver best-in-class legal services more effectively.   MORE >

Mountain View Office
Silicon Valley Center
801 California Street
Mountain View, CA 94041
650.988.8500

San Francisco Office
555 California Street
13th Floor
San Francisco, CA 94104
415.875.2300

Seattle Office
1191 Second Avenue
10th Floor
Seattle, WA 98101
206.389.4510

New York Office
1211 Avenue of the Americas
32nd Floor
New York, NY 10036
212.921.2001

Shanghai Office
Unit 908, 9/F, Kerry Parkside Office
No. 1155 Fang Dian Road
Pudong New Area, Shanghai 201204
P.R. China
+86 21 8017 1200


Executive Compensation Alert: IRS Filing and Reporting Requirements for ISO Exercises and ESPP Stock Transfer

This Client 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 new Internal Revenue Service ("IRS") filing requirements for transactions that occurred in 2011.

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, which is required when an employee (or former employee) exercises an ISO, requires the following information:

 
  • The name, address, and employer identification number of the corporation transferring the stock;
    • If other than the corporation identified above, the name, address and employer identification number of the corporation whose stock is being transferred;
  • The name, address, and social security number of the person to whom the share or shares of stock were transferred pursuant to the exercise of the ISO;
  • The date the ISO was granted to the person;
  • The exercise price per share;
  • The date in 2011 the ISO was exercised by the person;
  • The fair market value of a share of stock on the date the ISO was exercised;
  • The number of shares of stock transferred pursuant to exercise of the ISO; and
  • An Account Number (only required if the corporation has multiple accounts for an employee for which multiple Forms 3921 are being filed).

 

 FORM 3922, which 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 was not fixed or determinable on the date of grant, requires the following information:

  • The name, address, and social security number of the transferor;
  • The name, address and employer identification number of the corporation whose stock is being transferred;
  • The date of grant of the purchase right (typically the offering date for the offering period of the ESPP) under which the shares were issued to the transferor;
  • The fair market value of the stock on the date of grant;
  • The price per share at which the shares were purchased under the ESPP;
  • The price per share determined as if the shares were purchased on the date of grant (to be provided only if the purchase price per share is not fixed or determinable on the date of grant);
  • The date the shares were purchased by the transferor;
  • The fair market value of the stock on the date of purchase by the transferor;
  • The date the legal title of the shares was transferred by the transferor;
  • The number of shares to which legal title was transferred by the transferor;
  • An Account Number (only required if the corporation has multiple accounts for a person for which multiple Forms 3922 are being filed).

 

Corporations must use the official Form 3921 and 3922 provided by the IRS. Only one transaction may be reported on each form 3921 and Form 3922.

UPCOMING DEADLINES

For ISO exercises and ESPP stock transfers which occurred in calendar year 2011, corporations must file with the IRS the completed Forms 3921 and Forms 3922 no later than February 28, 2012 for paper filers, and no later than April 2, 2012 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 2011, corporations must provide the employee (or former employee) the information statement (Copy B to the applicable Form) no later than January 31, 2012.

ACTION REQUIRED

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 http://www.irs.gov/pub/irs-pdf/f3921.pdfand Form 3922 is available http://www.irs.gov/pub/irs-pdf/f3922.pdf, and the joint instructions for both forms is available
http://www.irs.gov/instructions/i3921/ar02.html.
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, 2012), and $100 per form (for filings after August 1, 2012, 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 (i) discuss with employees the fair market value of common stock throughout the year to assist with estimated tax determinations upon exercise of an ISO, and (ii) value common stock delivered upon exercise of a non-qualified stock option for withholding tax purposes.

For more information, you may contact any attorney in the Executive Compensation and Employee Benefits Group at Fenwick & West LLP.

Scott P. Spector (650.335.7251–sspector@fenwick.com)
Shawn E. Lampron (650.335.7642–slampron@fenwick.com)
Blake W. Martell (650.335.7606–bmartell@fenwick.com)
Gerald Audant (415.875.2362–gaudant@fenwick.com)
Elizabeth A. Gartland (415.875.2361–egartland@fenwick.com)
Grace Chen (650.335.7676–gchen@fenwick.com)
Marshall Mort (650.335.7131–mmort@fenwick.com)
Adriana Sherwood (415.875.2364–asherwood@fenwick.com)

©2012 Fenwick & West LLP. All Rights Reserved.

The views expressed in this publication are solely those of the author, and do not necessarily reflect the views of Fenwick & West LLP or its clients. The content of the publication ("content") should not be regarded as advertising, solicitation, legal advice or any other advice on any particular matter. The publication of any content is not intended to create and does not constitute an attorney-client relationship between you and Fenwick & West LLP. You should not act or refrain from acting on the basis of any content included in the publication without seeking the appropriate legal or professional advice on the particular facts and circumstances at issue. IRS circular 230 disclosure: to ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice in this communication (including attachments) is not intended or written by Fenwick & West LLP to be used, and cannot be used, for the purpose of (i) avoiding penalties under the internal revenue code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.