Download New Reporting Requirements for Exercise of Incentive Stock Options

New Reporting Requirements for Exercise of Incentive Stock Options
The IRS has new reporting requirements for employee exercises of incentive stock options (ISOs). The
new requirements mandate all exercises of ISOs are required to be disclosed on IRS Form 3921. This
disclosure is required regardless of the fair market value (FMV) of the stock on the exercise date.
The newly issued IRS Form 3921s must be filed with the IRS by February 28, 2011 (or March 31, 2011, if
filed electronically). If a corporation is required to file 250 or more Form 3921s, the forms must be filed
electronically. A statement of information is also required to be sent to employees who exercised ISOs
during 2010 by January 31, 2011.
History
In prior years, taxpayers issuing stock from the exercise of an ISO were only required to provide an
information statement to the employee who exercised the options. This information statement indicated
the number of options exercised, the exercise price and the FMV on the date of exercise. For ISO
exercises in 2010, this information must be disclosed to the IRS (using Form 3921).
The excess of the FMV over the exercise price for an ISO is considered an alternative minimum tax
(AMT) adjustment to the shareholder. Employees exercising ISOs have always been required to report
this AMT adjustment on their income tax return. The new reporting requirements allow the IRS to match
the AMT adjustment to the employee’s individual income tax return. If the exercised shares are also sold
in a disqualifying disposition, the excess noted above is potentially reportable as ordinary income and
must be included in the employee’s Form W-2.
Form 3921 Information Reporting Requirements
The new Form 3921 disclosures provide the following information to the IRS:

the issuing corporation's name and identification number,

the employee's name and social security number and address,

the date the option was granted to the employee,

the date the option was exercised by the employee,

the exercise price per share,

the FMV of the stock on the date the option was exercised, and

the number of shares of stock transferred pursuant to the exercise of the option.
Penalties
The IRS will assess a penalty of $100 per filing for the failure to file the Form 3921. This penalty will be
assessed for each filing.
Altum Partners, LLP is available to assist with these new reporting requirements. Please contact Mark
Beeman at [email protected] for assistance.
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