New IRS Information Reporting for ISO and ESPP Stock Transfers


By Evan Ogrodnik

The Tax Relief and Health Care Act of 2006 requires new information return filing for certain stock transfers occurring after December 31, 2009.  Internal Revenue Service (IRS) Form 3921 will be used to report a corporation's transfer of stock pursuant to an exercise of an Incentive Stock Option (ISO), and Form 3922 will be used to report a transfer of stock acquired through an Employee Stock Purchase Plan (ESPP), where the exercise price is less than the fair market value (FMV) of the stock on the grant date.

Both forms are to be prepared in duplicate with one copy to be furnished to the IRS (due by February 28), and one provided to the employee (by January 31).

The information contained on Form 3921 will include:
1. Dates of grant and exercise
2. Exercise price
3. Fair market value on the exercise date
4. Number of shares transferred

The information contained on Form 3922 will include:
1. Dates of grant and exercise
2. Fair market value on grant and exercise dates
3. Exercise price
4. Number of shares transferred
5. Date legal title was transferred
6. Exercise price per share as if exercised on grant date

ISOs and ESPPs are considered statutory stock options. ISOs are typically granted to key employees of a business, and under an ESPP, all employees are given the right to purchase stock of a corporation, typically at a discount of fair market value. Under both types of options, the employee does not realize income at the time the option is granted or exercised. The taxable event occurs upon disposition of the stock.

The employer corporation generally receives no deduction for statutory stock options upon the employee's exercise of the options, unless certain holding period requirements are not met. Contrast this with non-statutory stock options, in which the employee is taxed on the difference between the fair market value of the option (at the time of exercise) and the option price. The employer corporation then receives a deduction in the form of wages at the time the non-statutory options are exercised.

To order IRS Forms 3921 or 3922, please call the IRS at 1-800-TAX-FORM (1-800-829-3676), or visit http://www.irs.gov/businesses/page/0,,id=23108,00.html.

Please contact Evan Ogrodnik at eogrodnik@schneiderdowns.com or your Schneider Downs tax advisor with any questions you may have.



Schneider Downs provides accountingtax, wealth management, technology and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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