The NASPP Blog

Last year was the first year companies filed Section 6039 returns with the IRS for ISO and ESPP transactions. Those of us who lived through those filings are a little older and wiser now. So, as we head into our sophomore year of 6039 returns, I have a few tips for you.

Update Your FAQ

Participant statements have to be sent out by January 31, so updating your FAQ on Forms 3921 and 3922, as well as any other communications you include with the statements, should be first up on your list of things to do. The materials you created last year probably refer to the forms as “new,” state that this is the first year employees are receiving them, and fail to mention Form 8949 (and instead just tell employees to complete Schedule D). I’ve updated the sample memos and FAQ available in the NASPP’s Section 6039 Portal:

• Memo to Employees re: Form 3921
• Memo to Employees re: Form 3922 (purchase is triggering event)
• Memo to Employees re: Form 3922 (first transfer is triggering event)
• FAQ for Employees

If you are interested in seeing what I changed in the FAQ, I’ve posted a redline version of it in the NASPP Document Library. And, of course, I posted the updated Section 6039 Flow Charts last week.

Deja Vu

Forms 3921 and 3922 are currently not available through the IRS’s online order form (if you recall, last year the forms weren’t available until mid-March, well after the deadline for filing on paper). Yesterday was a federal holiday, so I couldn’t verify whether or not the forms were available through 1-800-Tax Forms, but I suspect not. If the forms aren’t available right quick, companies will have to use substitute statements for participants again this year. Hopefully the forms will be available this year before the deadline to submit paper filings. If they aren’t, anyone filing on paper will need to file for an extension on Form 8809. It’s best to file for the extension online, using the IRS FIRE system, even if you are submitting the returns on paper.

Lessons Learned

Here are a few tips and other things that I learned from last year’s filings:

• You can email the IRS many, many times with the same question and they won’t take out a restraining order against you. But they also still won’t answer your question. This probably isn’t the kind of tip you were looking for.
• You have to include employees’ full social security numbers on the participant statements. Yes, I know that employees already know their social security numbers and that this presents a security risk. It’s not my rule–email the IRS about it (see my first tip).
• If you are having trouble figuring out your grant date and grant date FMV for Form 3922, you are probably thinking too much. If you have a look-back, it’s the same date and FMV you use to determine the purchase price. If you don’t have a look-back, I take it back; you aren’t thinking too much.
• The corporation on Form 3922 has to be the corporation whose stock is purchased under the plan, even if this isn’t the company that operates the plan. I’ve asked this question of IRS staffers multiple times and I get the same answer every time; I don’t think they are going to change their minds. But I think you could include the address of the company operating the plan rather than the address of the corporation whose stock is purchased, so that any IRS communications about the filings at least go to the right place.
• If you are filing electronically, you probably went through some angst last year relating to rounding shares and/or monetary amounts. Publication 1220 was updated this year to specify that a true round should be used on share amounts. There’s still no instruction on how monetary values should be rounded, but it would seem reasonable to do the same thing. Then again, this seems like such an immaterial issue that I think you could probably use any reasonable rounding method (up, down, true) you want, so long as you are consistent about it.
• Account number is really a transaction number. And it’s important, because if you have to file a corrected return, the account number could be critical to matching the corrected form to the original filing. You can come up with your own system for assigning account numbers, just so long as each transaction you report has a unique number and the numbers aren’t longer than 20 digits. They can include numbers, letters, and symbols.
• You have to file Form 3921 for all ISO exercises, even same-day sales, even though an AMT adjustment is necessary for same-day sales. This is the way the law was passed by Congress, so the IRS can’t really do anything about it. Blame your Congressman.
• Dead men don’t wear plaid but they do still get Section 6039 statements. The death of an employee does not relieve you of the obligation to file Forms 3921 and 3922.

For more information on complying with all aspects of Section 6039, see the article “Figuring Out Section 6039 Filings” in the NASPP’s Section 6039 Portal and check out last month’s webcast, “6039: The Sequel–Putting Lessons Learned in 2010 to Use in 2011.” 

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara