Jan 25, 2012

REMINDER: Upcoming Deadline for Information Reporting Requirements for Incentive Stock Options and Employee Stock Purchase Plans

Section 6039 of the Internal Revenue Code of 1986, as amended, requires employers to report certain information to employees and the IRS regarding an employee’s exercise of an incentive stock option (ISO) or transfer of stock acquired by an employee under an employee stock purchase plan (ESPP).

Employee Reporting Requirement

Under Section 6039 of the Code, no later than January 31 of the year following the year in which the exercise or transfer occurs, the employer must provide a written statement (in the form of a copy of the information return filed with the IRS, described below) to each person who, during the previous calendar year, exercised an ISO or transferred stock acquired under an ESPP. For the 2011 calendar year, the return to the employee must be delivered by January 31, 2012.

IRS Reporting Requirement

Additionally, the employer must file an information return with the IRS on Form 3921 for ISOs and Form 3922 for ESPP transfers no later than February 28 for paper filers, or March 31 for electronic filers, in the year following the year of the exercise or transfer.

Although the requirement to file the information return with the IRS was originally effective beginning with the 2007 calendar year (as explained in a previous SGR Client Alert), there has been uncertainty as to how to comply with these requirements in past years. Recent guidance has resolved many of these uncertainties and has clarified that beginning with transfers occurring in the 2010 calendar year, Forms 3921 and 3922 must be filed with the IRS.

It is important to note that only transfers of ESPP stock acquired at less than 100% of the fair market value on the date acquired need to be reported.

Forms 3921 and 3922

Generally, the information to be included on Forms 3921 and 3922 includes the dates that the option was granted and exercised, the exercise price per share, the number of shares transferred, and the fair market value per share on the exercise date. Copies of Forms 3921 and 3922 can be obtained through the links provided.

For more information on the reporting requirements under Section 6039 of the Code, please contact your SGR Executive Compensation and Employee Benefits counsel.


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