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Reporting Deadline Approaches For 2010 ISO Exercises and ESPP Stock Transfers

For many years, public and private corporations have been required to provide a written statement to employees and former employees who exercised an incentive stock option (“ISO”) or first transferred legal title of stock under an employee stock purchase plan (“ESPP”) on or before January 31 of the year following the year in which the exercise or transfer occurred. Beginning with regard to exercises or transfers that occurred in 2010, public and private corporations are also required to file an information return with the Internal Revenue Service (“IRS”). The IRS issued two forms, Form 3921 and Form 3922, which now are used in satisfying both of these requirements.

Deadlines

Information statements (copy B of Forms 3921 or 3922) must be provided to employees and former employees by January 31, 2011. Corporations must file returns (copy A of Forms 3921 or 3922) with the IRS no later than February 28, 2011 for paper filings or March 31, 2011 for electronic filings.

An automatic 30-day extension for filing Form 3921 and Form 3922 returns with the IRS may be obtained by completing and filing by the due date an application for extension on Form 8809.

Information For Filing Requirements

Form 3921 (used for ISO exercises) requires the following information:

  • The name, address and employer identification number of the corporation transferring the stock;
  • The name, address and social security number of the person to whom the stock was transferred pursuant to the ISO exercise;
  • The date the ISO was granted;
  • The exercise price per share of stock;
  • The date the ISO was exercised;
  • The fair market value of a share of stock on the exercise date; and
  • The number of shares transferred pursuant to the exercise.

Form 3922 (used for ESPP stock transfers) 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 was transferred;
  • The grant date of the option under which the stock was transferred;
  • The fair market value of the stock on the grant date;
  • The exercise price per share of stock;
  • The exercise price per share determined as if the option were exercised on the grant date;
  • The date the option was exercised;
  • The fair market value of the stock on the exercise date;
  • The date legal title of the stock was transferred by the transferor; and
  • The number of shares of stock transferred.

Unlike the ISO reporting requirement which is triggered when ISOs are exercised, reporting on Form 3922 for an ESPP is triggered on the initial transfer of the legal title of the shares of stock after purchase under the ESPP if the exercise price was less than the fair market value of the stock on the grant date, or the exercise price is not fixed or determinable on the grant date. Accordingly, if shares purchased are transferred directly to a brokerage account for the employee or former employee, the transfer will trigger the reporting obligation. If the shares of stock are registered in the employee’s or former employee’s name or stock certificates are issued, the reporting obligation is not triggered until the legal transfer of title.

Non-Resident Aliens

Corporations are not required to file returns or provide information statements to a non-resident alien (as defined in Section 7701(b) of the Internal Revenue Code) and to whom the corporation is not required to provide a Form W-2 for any calendar year within the time period beginning with the first day of the calendar year in which the option was granted and ending on the last day of the calendar year in which the option was exercised.

Forms and Instructions

Only the official printed version of Forms 3921 and 3922 may be used for paper filings. Electronic filings are permitted in all cases and required in certain cases. Electronic filing is required by any corporation with 250 or more of each form to be filed, respectively. Corporations that may submit paper filings must order the official forms from the IRS because the forms are scanned during processing. Official forms may be ordered by calling 1-800-Tax-Form or ordering the forms online on the IRS website.

For informational purposes, sample forms are available on the IRS website but because paper forms are scanned during processing, corporations cannot file using the IRS sample forms printed from the website. A sample Form 3921 is available here, and a sample Form 3922 is available here. The instructions for both forms are also available online.

Only one transaction may be reported on each form. For example, if an employee exercises ISOs three times during a calendar year, the corporation must file three Form 3921s with the IRS and provide the employee with three information statements.

Penalties

A penalty of $50 is imposed for each employee information statement not timely furnished or containing incomplete or incorrect information up to a maximum of $100,000 for all such failures during any calendar year.

A penalty ranging from $15 to $50 (depending on the time of correction) is imposed for each return not timely and correctly filed with the IRS up to a maximum ranging from $25,000 to $250,000 for all such failures during any calendar year. 

Intentional failures are subject to greater penalties.

©2019 MICHAEL BEST & FRIEDRICH LLP

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Paul Jones, Michael Best, technology lawyer, life sciences attorney,
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Paul draws on his extensive business experience as a successful serial venture capital-backed entrepreneur, investor, and angel investor to represent emerging technology and life sciences companies, and venture capital firms in financing and other strategic transactions and general corporate matters. His focus includes:

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Bob has participated in hundreds of transactions during the course of more than 30 years’ experience in his practice, advising closely held and family-owned U.S. and European (German, Swiss, Polish) clients involved in mergers and acquisitions, joint ventures, venture capital financings and other significate business events. His work includes:

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