Client Alert

Reminder: Information Statements Due by January 31, 2017, for 2016 Incentive Stock Option and Employee Stock Purchase Plan Transactions; IRS Filings Also Required

23 Jan 2017

This is a reminder to public and private companies that grant incentive stock options (“ISOs”) or maintain a tax-advantaged employee stock purchase plan (“ESPP”) of certain year-end reporting requirements.

Under IRS regulations, these companies must provide information statements on Forms 3921 and 3922 (or statements reflecting the same information) no later than January 31, 2017, to any employee or former employee who exercised an ISO during 2016 or transferred shares of stock during 2016 that were previously acquired pursuant to an ESPP. Companies that fail to provide such statements on a timely basis may be liable for penalties of up to $260 per statement, up to a maximum of $3,218,500 per year (higher penalties are possible for companies that intentionally disregard the rules).

In addition, companies must file information returns with the IRS on Forms 3921 and 3922 no later than February 28, 2017 (if filed on paper), or March 31, 2017 (if filed electronically). Companies that are required to file 250 or more of either type of form must file those returns electronically. A 30-day extension of the deadline may be requested by filing Form 8809 with the IRS prior to the original deadline. Companies that fail to timely file these information returns with the IRS may be liable for penalties of up to $260 per information return, up to a maximum of $3,218,500 per year (higher penalties are possible for companies that intentionally disregard the rules).

Content of Information Statements and Returns

The returns provided to the IRS need to be made on a specified form. Form 3921 is used for ISO exercises and Form 3922 is used for ESPP share transfers. The information statements provided to employees may alternatively reflect the information specified on the applicable form. Sample Forms 3921 and 3922 are available on the IRS website for informational purposes but cannot be used for filing. The official forms to be used for filing may be ordered from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or visiting the IRS website. Only one transaction can be reported on each Form 3921 or 3922, so more than one Form 3921 or 3922 must be filed for any participant that effected more than one ISO exercise or more than one ESPP share transfer in 2016.

ISO Exercises

Form 3921 provides the following information regarding the exercise of an ISO:

  1. The name, address, and employer identification number of the corporation transferring the stock;
  2. The name, address, and identifying number of the person to whom the share or shares of stock were transferred;
  3. The name, address, and employer identification number of the corporation whose stock is the subject of the option (if other than the corporation transferring the stock);
  4. The date the option was granted;
  5. The date the option was exercised;
  6. The exercise price per share;
  7. The fair market value of a share on the date the option was exercised;
  8. The number of shares of stock transferred pursuant to the exercise of the option; and
  9. The account number (if corporation has multiple accounts for a person exercising stock).

ESPP Share Transfers

Form 3922 provides the following information regarding the first transfer of shares of stock acquired by an individual pursuant to an option granted under an ESPP, where the exercise price was less than 100 percent of the fair market value of the shares on the date of grant or was not fixed and determinable on the date of grant:

  1. The name, address, and employer identification number of the corporation whose stock was transferred;
  2. The name, address, and identifying number of the transferor (i.e., the employee or former employee who transferred the previously acquired ESPP stock);
  3. The date of grant of the purchase right under which shares were issued;
  4. The fair market value of the stock on the date of grant;
  5. The actual exercise price paid per share;
  6. The exercise price per share determined as if the shares were purchased on the date of grant (provided only in certain circumstances);
  7. The date the shares were purchased;
  8. The fair market value of the stock on the date the shares were purchased;
  9. The date the person transferred legal title of the shares;
  10. The number of shares to which the person transferred legal title; and
  11. The account number (if corporation has multiple accounts for a person transferring shares under an ESPP).

The “first transfer of legal title” that triggers the ESPP share transfer reporting requirements includes an immediate deposit of the shares acquired under the plan into a brokerage account established on behalf of the employee, which may occur on the ESPP purchase date. If shares acquired under the ESPP are issued in certificate or book-entry form, the “first transfer of legal title” will occur when the employee subsequently sells the shares or transfers them to a brokerage account.

Close
Feedback

Disclaimer

Unsolicited e-mails and information sent to Morrison & Foerster will not be considered confidential, may be disclosed to others pursuant to our Privacy Policy, may not receive a response, and do not create an attorney-client relationship with Morrison & Foerster. If you are not already a client of Morrison & Foerster, do not include any confidential information in this message. Also, please note that our attorneys do not seek to practice law in any jurisdiction in which they are not properly authorized to do so.