Feature
Article
08-20-10
IRS
Releases New Incentive Stock Option Reporting Requirements
Effective for 2010
By
Jeff Weinkle and Mitchell
Kopelman
>>
HA&W News Archive
Late
last year, the IRS released final regulations that require
corporations to report the exercise of incentive stock options.
The new rules require both public and private corporations
to file an information return with the IRS for the year
an option is exercised.
Prior
to 2010, there were no formal reporting requirements and
corporations were only obligated to provide the employee
the fair market value (FMV) of an exercised incentive stock
option. The actual gain from exercising an incentive stock
option is not taxed until the shares are sold. However,
taxpayers have been required for years to include the excess
of the FMV over the cost of the exercised option as an adjustment
to income for Alternative Minimum Tax (AMT). In 2009, this
excess was reflected on line 15 of IRS Form 6251 to compute
AMT.
Beginning
in 2010, any corporation that transfers shares due to the
exercise of an incentive stock option must report details
of the transaction to the Internal Revenue Service on new
IRS Form 3921. The information on this form will likely
be matched to the tax returns of exercising shareholders
to ensure that AMT is correctly computed.
IRS
Form 3921, “Exercise of an Incentive Stock Option Under
Section 422(b),” requires the following information:
-
The name and identification number of the corporation
transferring the stock;
-
The name and social security number of the employee who
exercised the shares;
-
The date the option was granted to the person;
-
The date the option was exercised by the person;
-
The exercise price per share;
-
The fair market value of a share of stock on the date
the option was exercised; and
-
The number of shares of stock transferred pursuant to
the exercise of the option.
Separate
forms are required for each exercise of options by an employee.
Form
3921 is similar to other IRS information returns and filed
with a Form 1096 at the same time: February 28 for paper
filers or March 31 for electronic filers. The required statement
to exercising employees must be sent by January 31.
Although
it has been mandatory to report this information to employees
who exercise options in prior years, the new IRS requirements
provide a check on whether the options are correctly included
in employees’ AMT and impose stiff penalties on employers
for late or missed filings. Corporations that issue incentive
stock options should be aware of the new rules and track
the appropriate detail for filing Form 3921 at the end of
the year.
If you
have any questions, please contact: Jeff
Weinkle or Mitchell
Kopelman.
>>
HA&W News Archive |
