Employers are obligated to annually report information regarding incentive stock options (ISOs) and employee stock purchase plans (ESPPs). The information must be reported to both employees and the IRS, and corporations should now be collecting the necessary information.
Section 6039 requires corporations to furnish a written statement that includes certain information to any employee who exercises an ISO or receives stock under an ESPP.
The Tax Relief and Health Care Act of 2006 (P.L. 109-432) added a requirement that corporations also furnish certain information to the IRS. In November 2009, the IRS finalized the regulations (T.D. 9470) to reflect the new reporting requirements and to make changes to the rules for reporting to employees.
The reporting requirements took effect for stock transfers occurring in 2010 and later years. The IRS has developed two forms for fulfilling the reporting requirements:
- Form 3921, Exercise of an Incentive Stock Option under Section 422(b)
- Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan under Section 423(c)
For stock transfers that occurred during 2013, the returns are due on Jan. 31, 2014. Fortunately, the same form is used to fulfill the requirements for informing both employees and the IRS. The forms can be found on IRS website.
The reporting obligation for ISOs arises when an employee exercises an ISO. The reporting obligation for ESPPs arises when an employee first transfers stock acquired through the ESPP to another party. This includes a transfer of the stock to an account maintained for the employee by a broker or a financial institution. Reporting is required for an ESPP only when the exercise price is less than 100% of the value of the stock on the date of grant or when the exercise price is not fixed or cannot be determined on the date of the grant.
For ISOs, Form 3921 requires the following information:
- Name, address and identifying number of the person to whom the shares were transferred pursuant to the exercise
- Date the option was granted
- Date the option was exercised
- Exercise price per share
- Fair market value per share on the exercise date
- Number of shares transferred pursuant to the exercise
For ESPPs, Form 3922 requires the following information:
- Name, address and identifying number of the transferor (i.e., the employee)
- Name, address, EIN of the corporation whose stock is being transferred
- Date of grant
- Fair market value of stock on grant date
- Exercise price paid per share
- Exercise price per share determined as if the option was exercised on the date the option was granted (to be provided only if the exercise price per share is not fixed or able to be determined on the date the option was granted)
- Exercise date
- Fair market value on the exercise date
- Date legal title of the shares was transferred
- Number of shares for which legal title was transferred
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