The NASPP Blog

November 23, 2010

Account Number on Forms 3921 and 3922

This week I explain the account number box on Forms 3921 and 3922, which will be used to file returns with the IRS for ISO and ESPP transactions. For those of us that are new to filing returns of this sort with the IRS, this box has been causing a fair amount of consternation, as the instructions for its use aren’t completely clear.

Account number isn’t mentioned under the final regulations for Section 6039, so most of us weren’t expecting this box on the forms. It is included because it is a standard box that is part of all of the forms in the 1098 and 1999 series, as well as other similar forms. I, and several practitioners that I spoke to about the forms, had a number of questions regarding what should be reported in this box and whether or not it was required, so I emailed a contact I have at the IRS. Last week, I got a response via phone and email from the IRS tax law specialist that originated the forms.

(Can I mention how unnerving it is to check your voicemail and find that someone from the IRS has left you message? Your first thought is: “Oh no! They’ve found out about the funds in that illegal tax shelter in the Cayman Islands.” Then you remember that you don’t have any funds in any illegal tax shelters anywhere in the world, much less the Cayman Islands. At this point, you aren’t sure whether you should be relieved or disappointed. But, I digress…)

What the Heck is the Account Number?

The Instructions for Forms 3921 and 3922 state: “The account number is required if you have multiple accounts for an employee for whom you are filing more than one Form 3921 [or Form 3922]. Additionally, the IRS encourages you to designate an account number for all Forms 3921 [or Form 3922] that you file. See part L in the most current version of the General Instructions for Certain Information Returns.”

This makes it sound like the account number probably isn’t applicable for our purposes, since employees aren’t likely to have more than one account in their company’s ESPP or stock option plan. This impression is incorrect–the account number is important and, in some circumstances, may be required.

What Purpose Does the Account Number Serve?

The account number serves two purposes, the most important of which is to help the IRS match any corrected forms that are submitted to the original forms that they are intended to correct. The second, less critical, purpose is to help employees match the form to other reports or records they may have of the reported transaction, and, if they are audited, to the IRS’s records. I say that this purpose is less critical because, in these circumstances, I think there are other ways that the forms and records could be matched. But, if multiple forms are submitted for an employee during a calendar year, the system that matches corrected forms to their originals relies solely on the account number.

Say that an employee purchases stock twice in one year in the company ESPP and that the purchases are the triggering event for Section 6039 purposes. The company will file two Forms 3922 for the employee with the IRS. If the company then has to file a corrected Form 3922 for one of the employee’s purchases, the only way the IRS will be able to match the corrected form to the original will be via the account number. Ditto for Form 3921 if an employee has multiple ISO exercises during a year.

The IRS system is not capable of matching the corrected and original forms based any of the other transaction-related fields (grant date, exercise date, etc.). Even if it could, if one of these fields had to be corrected there would be no way to match the two forms without a unique number identifying the transaction.

When Is an Account Number Required?

Where an employee has more than one transaction that must be reported, an account number is required and a unique number should be used for each transaction.

What Number Should be Used as the Account Number?

The account number must be unique to the transaction, not just to the employee. For our purposes, it’s really more of a transaction number than an account number. If you have a system that assigns a unique number to each option exercise or ESPP purchase, you could use that number. If you don’t, you’ll have to devise a system for assigning a unique number to each transaction. You could use employees’ ID or broker account numbers with an additional number or code appended onto the end. For example, if an employee’s ID number is 88888, you could use 8888801 for her first transaction and 8888802 for her second transaction.

The account number should not be longer than 20 digits and can contain letters, numbers and even special characters (dashes, spaces,etc.)

When is an Account Number Optional and Should I Use One Anyway?

Account number is not required if an employee has only one transaction that must be reported during a year. In this case, the IRS system can match the correct form based on the employee’s name or tax ID number and the company’s EIN.

But even in this circumstance, the IRS encourages companies to use an account number. What if the employee’s Tax ID Number is wrong on the original form and there is another employee with the same name? Then, even though every employee has only one form, the account number would still be necessary for the IRS to be able to match the corrected form to the original form. (And, let’s face it, Murphy’s Law demands that the employee whose TIN you get wrong is going to have the same name as another employee.)

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NASPP “To Do” List
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Rachel won’t be blogging on Thursday in light of the Thanksgiving holiday. Hopefully you will all be spending time with your families and friends and wouldn’t have been reading the blog anyway.  Happy Thanksgiving!

– Barbara