Upcoming Deadline: Exercised Incentive Stock Options & Employee Stock Purchase Plans – Reporting Requirements

As the new year begins, corporations should be aware of the reporting requirements related to employee stock purchase plans (ESPPs) and incentive stock options (ISOs) in 2013. Every corporation that transferred to an employee in 2013 a share of stock related to that person's exercise of an ISO is required to file IRS Form 3921 for each transfer made. Form 3921 includes information such as the date the option was granted, the date the employee exercised the option, the number of shares of stock transferred to the employee, the fair market value (FMV) of the stock when the option was exercised, and the exercise price of the stock.

For an ESPP, corporations are required to file Form 3922 if there was transfer of legal title of a share of stock acquired by an employee exercising the option of an ESPP (where the exercise price is less than 100% of the value of the stock on the date of grant, or is not fixed or determinable on the date of grant). The corporation is required to file Form 3922 for each transfer made during that year. Form 3922 includes the same information as Form 3921 with the addition of the FMV on grant date and the date legal title was transferred to the employees.

The forms are not required for an employee who is a nonresident alien. Employees must be furnished with their copy of Forms 3921 or 3922 by January 31, 2014. Additionally, the forms must be filed with a corresponding Form 1096 by the corporation with the IRS by February 28, or by March 31, 2014 if filing electronically.

Unless certain exceptions are met (such as reasonable cause), a corporation’s failure to file Forms 3921 or 3922 by the due date could be very costly. The penalty is $100 per information return if filed after August 1, 2014; the maximum penalty is $1,500,000 per year ($500,000 for small businesses).