Action May Be Required
Corporations, both publicly and privately held, that transferred stock in 2014 pursuant to the exercise of incentive stock options (ISOs) are required to report each transfer to both the IRS and the exercising person.
Form 3921 (Exercise of an Incentive Stock option Under Section 422(b)) is used for both reporting purposes. Form 3921 requires the corporation to furnish certain information regarding the exercise, including the fair market value of the shares of stock on the date the ISO was exercised.
This year, corporations must furnish Forms 3921 to all exercising persons on or before February 2, 2015 and to the IRS on or before March 2, 2015 (March 31, 2015, if forms are filed electronically). Each exercise by an employee requires a new Form 3921, which may require corporations to fill out and furnish multiple Forms 3921 for some employees.
In general, for each Form 3921, failure to furnish all statements in a timely manner, failure to include all required information, inclusion of incorrect information, or the filing of unofficial Forms 3921 that cannot be scanned by the IRS will result in the imposition of penalties on the corporation.
Transfers of stock under an employee stock purchase plan (ESPP) are also subject to similar reporting requirements (using Form 3922) and deadlines.
Morse, Barnes-Brown & Pendleton would be pleased to assist you in understanding and complying with these ISO and ESPP reporting obligations.
This Tax Alert provides general information only. It is not intended to provide advice with respect to any specific set of facts, nor is it intended to advise on all developments in the law.