New IRS Reporting Forms for ISOs and Employee Stock Purchase Plans

by Frankfurt Kurnit Klein & Selz PC

The IRS has just released Form 3921 to cover the reporting of incentive stock options ("ISOs") and Form 3922 to cover qualified employee stock purchase plans ("ESPPs"). ISOs are the tax favored stock options issued pursuant to plans that satisfy certain requirements (e.g., the maximum amount per year is $100,000). ESPPs, which are subject to different requirements (e.g., broad non-discrimination rules that effectively require most employees to be covered by the plan), permit the purchase of stock at a discount. The use of ISOs is more prevalent than ESPPs.

The Forms are required to be used to report stock transactions relating to ISOs and ESPPs, commencing with transactions in the current year. In the case of ISOs, Form 3921 must be filed with the IRS by a corporation (or its transfer agent) to report the transfer of its stock during the year to an employee pursuant to the exercise of an ISO; in the case of ESPPs, Form 3922 must be filed by a corporation (or its transfer agent) to report the transfer during the year by an employee of stock acquired under an ESPP. Copies of the Forms (which include on the Forms tax information for an employee) are also sent to the employee. The Forms are available on the IRS website. (Click here.)

The Forms themselves are relatively simple and straightforward, akin to a Form 1099. Note, though, that the Forms do require that you state the fair market value of the shares on the exercise date in the case of ISOs or on the grant date in the case of an ESPP.

The Forms must be provided to an employee by January 31st of the following year and to the IRS by February 28th (or March 31st if filed electronically).

If you have any questions about the new IRS reporting forms, or any other tax-related issues, please contact Bernard Topper at 212.826.5547 or btopper@fkks.com, or Jerry Spiegel at 212.826.5543 or jspiegel@fkks.com.

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