I understand that Forms 3921 and 3922 still are not available from the IRS, so, in today’s blog, I provide instructions for requesting an extension of the filing deadline.
Note: I was not able to personally verify the availability (or lack thereof) of the forms prior to posting this blog entry because, of course, the IRS was closed yesterday for Presidents’ Day. Here at the NASPP, we were working–just one more way in which the NASPP is better than the IRS (see NASPP Discussion Forum Topic #6788 for more proof that the NASPP provides better service than the IRS).
Time is Running Out A week or so ago, when I placed my order for one copy each of Forms 3921 and 3922, I was told that it takes five to seven days to receive the forms. Thus, at this point, it seems unlikely that the paper forms will arrive in time for the filing deadline on February 28. Any company that is planning on filing on paper should probably go ahead and file for a 30-day extension.
How to Request an Extension
You can file Form 8809 to request a 30-day extension of the filing deadline. If you file Form 8809 electronically–which is easy peasy; the IRS provides an online fill-in form for this purpose–the extension is granted automatically, no questions asked. You don’t even have to state a reason for needing the extension (I know, I know, you really want to explain that the reason you need the extension is that the IRS HASN’T MADE THE FORMS AVAILABLE). You can file for the extension online, even though you will be filing the returns on paper. So long as you submit your extension request by February 28, there are no penalties for filing for the extension.
Log in. If you don’t have a login, you can easily create one for yourself. Follow the instructions provided.
Click “Main Menu” (in the left column). This will take you to the FIRE system main menu.
Click “Extension of Time Request” (in the left column). This will take you to the Extension of Time Request page.
Select “Fill-In Extension Form.” This takes you to a short explanation of the request form.
Read the explanation. Wonder to yourself why the IRS has to be so wordy all the time. Click the Continue button. This will take you to the online extension request form.
Complete the form and click the Submit button. You should get an online confirmation that your extension has been approved. (I say “should” because I didn’t actually click the Submit button myself when I tested this. The NASPP doesn’t have any Forms 3921 and 3922 to file so it didn’t seem very smart to confuse the IRS by filing for an extension on forms we aren’t filing. I can’t imagine trying to explain that to an IRS auditor.)
Print the confirmation for your records.
Once your extension request is approved, you’ll have until March 30 to file the returns. Hopefully the forms will be available long before then. If they are not, however, you can file for another extension. That extension isn’t granted automatically and you have to give a reason for the request, but I can’t really imagine a better reason than that the IRS hasn’t yet made the forms available.
Electronic Filers Don’t Need an Extension
If you are filing Forms 3921 or 3922 electronically, you don’t need an extension because: 1) you already have until March 31 to submit the filing and 2) you don’t need the actual forms from the IRS. You are submitting an ASCII text file via the FIRE system. If you have your file ready to go, you could submit it today, even though the official forms aren’t available yet.
More Information???
We are trying to get more information from the IRS about when the forms will be available. If we find out anything, you can be sure we’ll let our members know. Follow the NASPP on Twitter or Facebook to make sure you don’t miss any announcements we make about the forms.
Update: I spoke to two IRS representatives this morning, February 22. Forms 3921 and 3922 are still not available and they did not know when they will be available. They encouraged companies to request a filing date extension (as I’ve described in this blog) or to file electronically.
Last Chance to Submit Speaking Proposals for the NASPP Conference The IRS isn’t the only one with a February 28 deadline. All speaking proposals for the 19th Annual NASPP Conference must be submitted by February 28. (And unlike the IRS, the NASPP won’t grant an automatic 30-day extension, no matter how nicely you ask–you can chalk one up for the IRS, but I still think the NASPP is better.)
If you missed the big announcement last week, the NASPP Conference will be held from November 1-4 in San Francisco. Look for information on registering for the Conference soon.
Last Chance for the Early-Bird Rate for the Online Fundamentals This is also the last week to qualify for the early-bird rate on the NASPP’s acclaimed online program, “Stock Plan Fundamentals.” This multi-webcast course covers the regulatory framework and administrative best practices that apply to stock compensation. It’s a great program for anyone new to the industry or anyone preparing for the CEP exam. Register by February 25 for early-bird savings.
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.
When the NASPP conducted our quick survey on Section 6039 back in October, there were a lot of “undecided” responses. So we conducted another survey last month. The results are in and decisions have been made.
Filing Section 6039 Returns with the IRS
Electronic filing is the clear winner here, with 78% of respondents filing the returns for ISOs electronically and a landslide 90% filing electronically for their ESPP transactions. Surprisingly, 5% of respondents are planning to file ESPP returns on paper; they must be from very small companies or have very low participation rates in their ESPP to manage this. I can’t imagine trying to file the returns on paper–my handwriting would never pass muster with the IRS and I have no idea where to scare up a typewriter these days.
In terms of getting the job done, the trend is towards outsourcing. Only 23% of respondents are preparing and filing in-house for ESPP returns; more–41%–are handling the job in-house for ISOs. When we asked this question back in October, 29% were undecided, but now that the deadline looms near, almost everyone has made a decision: only 2% remain undecided about outsourcing for ISO returns and only 5% are undecided for ESPP returns.
Participant Statements
More companies than I expected were planning on distributing copies of the actual Forms 3921 and 3922 to their employees: 32% of respondents for ISOs and 26% of respondents for ESPPs. Of course, as I’m sure all of these folks know, the IRS did not make the forms available in time for this, so these folks most likely ended up distributing substitute statements (unless they requested an extension from the IRS).
Most of the rest of the respondents distributed substitute statements that aggregated multiple transactions on one page: 58% of respondents for ISOs and 64% of respondents for ESPPs.
Back in October, 50% of respondents were on the fence about including an explanatory letter with the statements. I’m pleased to see that the majority decided to go with the more-information-rather-than-less approach: 86% of respondents ended up including an explanatory letter with ISO statements and 88% did so for ESPP statements.
Decisions went the opposite way on distributing the statements electronically. 24% of respondents were considering this back in October, but the majority (90% for ISO statements, and 87% for ESPPs) ended up distributing the statements on paper. Not surprising, given the onerous requirements for electronic distribution. It will be interesting to see how many companies move towards electronic distribution in the next few years.
More Information
For everything you need to know about Section 6039, check out the NASPP’s Section 6039 Portal.
A More Social NASPP The NASPP is networking socially: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on Naspp.com–it’s a great way to keep up with all the content we have on the website.
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.
As the deadline for Section 6039 returns and information statements gets closer, the activity on the NASPP Discussion Forum regarding them increases. This week, I’d like to highlight some of the issues that have been coming up for stock plan administrators and give a couple reminders.
If you don’t already peruse the Discussion Forum, submit your questions, or share your experience there, you really should check it out. It is a great place to bounce ideas off other stock plan professionals before you confirm with your own advisors.
Paper Forms
If you planning on ordering Forms 3921 and/or Forms 3922 for paper filing with the IRS, they aren’t yet available. (Thanks to Bruce Brumberg of myStockOptions.com for bringing this to my attention!) It’s my understanding that you should be able to place an order by the end of January, giving you plenty of time to complete them even with the 7-10 day processing period. Alternatively, you may choose to do an electronic filing even if your company is eligible for paper filing.
If you are planning on ordering the forms to use for employee information returns and are concerned about the timing, consider using a substitute form. We have examples available on the Section 6039 portal. To order official IRS forms or to check on the status of availability, call 1-800-TAX-FORM (1-800-829-3676).
Same-Day Sales
Unlike W-2 reporting, a disqualifying disposition of ISO shares does not impact your Section 6039 reporting. Even if the exercise is a same-day sale, you are required to report the exercise on Form 3921. (See Topic 6689.)
Multiple Transactions
If you have multiple transactions for an employee to report, you may choose to create a substitute form that consolidates all ISO exercises into one substitute Form 3921 and all ESPP transfers into one substitute Form 3922. However, you may not report multiple transactions on a paper filing of either form with the IRS. Electronic filing, of course, is not impacted by the format you choose for the employee statements. Also, if you have more than one transaction for an employee, you will need to include a unique account number for each transaction on the filing to the IRS and most likely also need to include it on any substitute form that you use for employee communications. (See Topics 6782, 6778, and 6710.)
Foreign Nationals
You will most likely need help to identify any foreign nationals for whom a Form 3921 or 3922 is required because of the complexity surrounding resident status. You do not need to file for foreign nationals who are considered nonresident aliens and who have not received a Form W-2 from the company between the grant and the ISO exercise or ESPP transfer. However, you should file a return and send an employee statement to all U.S. citizens with applicable transactions regardless of their current location. (See Topics 6790, and 6713.)
Unusual Situations
For ISOs that are treated as an NQ at the time of the exercise (e.g. more than three months after termination), you should not have a Section 6039 reporting obligation for the exercise. (See Topic 6787.)
If you have an ISO that was exercised in 2010 by the beneficiary or estate of a deceased employee, it would be safe to file Form 3921 and provide an information statement to the beneficiary or estate for the exercise. There is nothing in the Section 6039 regulations to indicate that there is an exemption for these types of transactions, a you would absolutely want to check with your advisors if you are leaning towards not filing in this situation. (See Topic 6773.)
Reminder #1: The returns are due to the IRS by February 28 (if filing on paper) or March 31 (if filing electronically). You can, however, receive an automatic 30-day extension by filing Form 8809, which can be filed electronically or on paper by the applicable deadline for filing returns.
Reminder #2: If you are filing electronically and haven’t already sent a test file, the FIRE system is accepting test filings through February 15th. IRS Publication 3609 details the electronic filing process. If you still need a TCC Number, you must apply for one 30 days prior to the filing deadline.
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.)
Free Conference Session Audio If You Renew by Dec 31 All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free!
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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.
Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today). Renew or join by Dec 31 to qualify for the audio of one NASPP Conference session for free.
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!
Last week I announced that the IRS had posted the final versions of Forms 3921 and 3922 and discussed a few action items companies can take now to prepare for filing these returns. This week I discuss a few more ways in which companies can get ready.
Make New Friends
As I mentioned last week, your friends in Payroll probably won’t be much help with filing these returns, since the filing system they use for Forms W-2 is completely different. Forms 3921 and 3922 will be filed using the same procedures, and for electronic filing, the same system, that is used to file Forms 1099-MISC. Typically the Accounts Payable group is responsible for filing Forms 1099-MISC, so my guess is that these folks could be very helpful as you try to figure the process out. If you don’t know them, now would be a good time to introduce yourself. Maybe schedule a lunch date so that everyone can get to know one another.
Know the Risks (and Make Sure Your Boss Does Too)
At the recent Silicon Valley NASPP chapter meeting, Alison Wright of Baker & McKenzie pointed out that the penalties for late filings and failures to file were recently increased–news to me.
If the form is filed late by 30 days or less, the penalty is $30 per form, up to a maximum of $250,000 per year.
If the form is late by more than 30 days but is filed by August 1, the penalty is $60 per form, up to $500,000 per year.
If the form is filed after August 1 or not at all, the penalty is $100 per form, up to a maximum of $1.5 million per year!
The penalty for intentional disregard now starts at $250 per form with no maximum.
The penalties for late participant statements (or failures to distribute participant statements) are now aligned with the penalties for late or omitted returns. This means that if you fail to file or are late with both the return and the participant statement, the penalties listed above are doubled.
These penalties are a lot steeper than they used to be; it would be a good idea for everyone involved to be aware of the financial risks to the company.
Submit a Test File
You don’t want to wait until your live filing to figure out if you’ve made a mistake. The FIRE system will accept test filings until February 15, 2011–take advantage of this opportunity.
Be Ready to Request an Extension
The returns are due to the IRS by February 28 (if filing on paper) or March 31 (if filing electronically). You can, however, receive an automatic 30-day extension–no questions asked–by filing Form 8809, which can be filed electronically or on paper. The request for an extension must be filed by the applicable deadline for filing the returns (either Feb 28 or Mar 31) and you still have to distribute the participant statements on time.
As far as I can tell, there are no penalties for requesting the extension. If it gets down to the wire and you aren’t ready to go with the returns, you can always get a 30-day reprieve.
Comparing Solutions for Section 6039 Compliance Don’t miss this Thursday’s webcast on “Comparing Solutions for Section 6039 Compliance,” which will present a side-by-side comparison of the third-party solutions available for Section 6039 compliance. This is a great way to kick off your search for a vendor.
Free Conference Session Audio If You Renew by Dec 31 All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free!
Join Now and Get Three Months Free and Free Conference Session Audio! If you aren’t currently an NASPP member, now is the time to become one! Join the NASPP for 2011 and you’ll get the rest of 2010 for free. If that’s not enough, you’ll also get the audio for one NASPP Conference session for free. Tell all your friends!
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.
Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today). Renew or join by Dec 31 to qualify for the audio of one NASPP Conference session for free.
As of yesterday, the final versions of Forms 3921 and 3922, as well as the associated instructions, are available from the IRS. These are the forms that will be used to file the returns required under Section 6039 for ISOs and ESPPs with the IRS. No surprises–the forms are largely unchanged from the draft versions that the NASPP obtained earlier this year. See our alert on the final forms for more information and background.
Getting Ready for Electronic Filing of 6039 Returns – Part I
Based on the last Silicon Valley NASPP Chapter meeting, I think we are starting to get to panic mode on these returns. Alison Wright of Baker & McKenzie and Jessica Carbullido of Con-way, gave a great presentation on the nuts and bolts of filing the returns, particularly on the electronic filing process.
Here are few action items that I came away with. This is only Part I; I’ll have a few more action items for you next week. For general overview of the electronic filing process, read IRS Publication 3609 (look how happy the woman on the cover is, now that she files electronically with the IRS–that could be you!)
Figure Out Your Transmitter Control Code
If you are submitting the returns electronically, you need a TCC. Chances are, your company already has one, but now would be a good time to make sure.
If you are outsourcing the filing to a vendor that is going to submit the returns to the IRS on your behalf, the vendor will likely have their own TCC, so you won’t need to worry about this (but verify this with your vendor).
If you are working with a vendor that is going to create the submission file for you but you will have to submit it (or if you are creating the file yourself), you’ll need your company’s TCC code. If your company submits Forms 1099-MISC electronically (and there’s a pretty good chance that you do), your company already has this code. You just need to find out who has it and what it is. You don’t want to request a new TCC if your company already has one–the IRS frowns on this.
If you need a TCC and you’ve determined that your company doesn’t already have one, you need to apply for one using Form 4419. Might as well get started on this now.
Set Up Your FIRE Account
Electronic filings of Forms 3921 and 3922 will be submitted to the IRS via the FIRE system. (FIRE stands for “Filing Information Returns Electronically”–those IRS folks are so clever!) This is not the same system that is used to file Forms W-2 electronically (those are filed with the Social Security Administration, not the IRS), thus, your friends in payroll and your payroll service providers aren’t going to be much help here. It is, however, the same system that is used to file Forms 1099-MISC electronically. Accounts payable, which is typically the group that files this form, may be your new BFF.
If you are submitting the electronic filing yourself, then you’ll need a FIRE account as well as a TCC. You can (and probably should) set up your own FIRE account even if someone else at your company already has one. To set up your account, go to http://www.irs.gov/efile/article/0,,id=165534,00.html and follow the instructions under “Create Your Account.” (You’ll have to wait until after 8:00 AM Eastern today to do this–until then, the FIRE system is down for maintenance. It’s been down since last Thursday; that’s a lot of maintenance!)
Find a Vendor
If you were thinking that you could just download some data to Excel and create the submission file yourself, think again. Publication 1220 includes the specifications for the submission file. And, while at 136 pages, this publication is no picnic, the kicker is that the files must be in a fixed-width ASCII format, which requires some advance programming skills to create from Excel. Why the IRS couldn’t use a nice, easy, comma-delimited file–which anyone can create using the Save As function in Excel–is a mystery.
If you haven’t already, you probably want to get started on finding a vendor that can help you create these files (either that, or start making friends with your IT department). The NASPP’s just announced webcast on November 18, “Comparing Solutions for Section 6039 Compliance,” is a great place to begin your vendor search.
Free Conference Session Audio If You Renew by Dec 31 All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free!
Join Now and Get Three Months Free and Free Conference Session Audio! If you aren’t currently an NASPP member, now is the time to become one! Join the NASPP for 2011 and you’ll get the rest of 2010 for free. If that’s not enough, you’ll also get the audio for one NASPP Conference session for free. Tell all your friends!
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.
Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today). Renew or join by Dec 31 to qualify for the audio of one NASPP Conference session for free.
Don’t miss the local NASPP chapter meetings in Boston, the Carolinas, Orange County, San Diego, and Seattle. Robyn Shutak, the NASPP’s Education Director, will be attending the San Diego meeting; be sure to say hello!
Today I discuss two completely unrelated, but blog-worthy, developments: 1) A recent development in the accounting treatment of share withholding under IFRS 2 and 2) Updated electronic filing specifications for Section 6039 returns.
Share Withholding: The More Things Change, the More They Stay the Same We received an alert from PricewaterhouseCoopers reporting that the interpretations committee of the IASB, or IFRIC, recently met to consider the accounting treatment of share withholding transactions.
As I’m sure our readers are aware from the numerous memos posted in our IFRS 2 Portal, share withholding is subject to liability (mark-to-fair value) treatment under IFRS 2. This is a significant divergence from U.S. GAAP, where liability treatment is not required. According to the NASPP’s 2010 Domestic Stock Plan Design Survey, over three-fourths of respondents indicate that share withholding is used to cover the taxes due on more than 75% of RS/RSU transactions. That’s a lot of companies that are going to be subject to share withholding once IFRS 2 is required in the United States (and that may already be subject to it for their foreign subsidiaries).
The good news is that this issue is on the IFRIC’s radar, but the bad news is that they decided they couldn’t do anything about it. They’ve referred the matter up to the IASB for consideration. Stay tuned…
Electronic Filing Specs for 6039 Returns The IRS has finally updated Publication 1220 with the specifications for electronic filing of Forms 3921 and 3922, which will be used to file the returns required for ISOs and ESPPs under Section 6039. (I know the cover says it was updated in July, but the update wasn’t posted to the IRS website until August 26, so I’m not as late with this announcement as it looks).
If you are planning on creating your own files for electronic filing (rather than outsourcing this) or if you are a service provider that will be creating these files for your clients, you’ll want to get cracking on the files right away. Test filings can only be submitted in the fourth quarter of the calendar year–if you wait until the last minute, i.e., the March 31 deadline, you won’t be able to submit a test filing.
It’s Here (Almost)! It’s hard to believe, but the 18th Annual NASPP Conference is just a week out. With Conference registrations going strong–on track to reach nearly 2,000 attendees–and Say-on-Pay looming, you don’t want to be caught unprepared as we head into 2011. There’s still time to register but don’t wait any longer.
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.
More Information on Forms 3921 and 3922 Last week I blogged about the general instructions for Forms 3921 and 3922, which will be used to report ISO and ESPP transactions to the IRS beginning in 2011 (for 2010 transactions). This week I discuss some of the details relating to these forms. (This information is also from the general instructions to the forms.)
Penalties
The penalties for late filings are as follows:
$15 per form if you file within 30 days of the deadline (maximum of $75,000 per year)
$30 per form if you file by August 1 (maximum of $150,000 per year)
$50 per form if you file after August 1 or never complete the filing (maximum of $250,000 per year)
At least $100 per form if the late filing or failure to file is due to intentional disregard (no annual maximum). It could be very expensive to intentionally disregard these filings.
In addition, if you fail to distribute the employee statements, you can be subject to an additional penalty of $50 per statement (maximum of $100,000 per year). The same penalty for intentional disregard applies–so if you intentionally disregard both filing the return and distributing the employee statement, then the minimum penalty is $200 per transaction with no maximum.
Corrections
If you make a mistake in a filing, you will correct it by re-filing the form with all of the same information (except, of course, with the error corrected) and selecting the “Corrected” checkbox on the form. This is the same process used to correct errors on Form 1099.
Corrections are subject to the same deadline and penalties for late filings as the original form. There is an de minimus exemption for corrections, however: no penalties if the corrections you file are fewer than 1% of the total number of returns you filed (or less than ten, if you filed less than 1,000 returns). To be eligible for the de minimus exemption, you have to file the original return on time and you have to file the correction by August 1.
If you have less than 250 corrections, you can file them on paper, even if you were required to file the original forms electronically. Just like with the original filings, you can always file the corrections electronically on a voluntary basis. But you don’t get anything special if you do. (Not even the gratitude of some poor grunt at the IRS that would otherwise have to enter your paper form into the database because that grunt doesn’t exist. All the paper forms are scanned into the system–that’s why you have to write very, very neatly.)
Combined Reporting for Acquirers/Targets
When a company acquires another company, the acquirer can agree to assume the target’s reporting obligations for the year with respect to Forms 3921 and 3922. If the acquirer doesn’t agree to assume the target’s obligations, then the target is still required to file the returns with the IRS and distribute the statements to the employees. This might be hard for the target to do, since it won’t exist anymore or have any staff, so it’s probably smart to discuss this at the time of the merger.
No Truncation of Employee IDs
The employee ID number that must be included in the form filed with the IRS and the statement provided to employees is the employee’s Social Security Number. You cannot truncate or mask this number on either the form filed with the IRS or the employee statement. The IRS has a pilot program allowing truncation on employee statements for Forms 1098,1099, and 5498, but unfortunately Forms 3921 and 3922 aren’t included in this program. Hopefully the pilot will be successful and the program will be expanded.
No Logos
You cannot include any company logos on the forms filed with the IRS or the statements distributed to employees. My guess is that the statements you currently distribute to employees include your logo; removing the logo is just one of the many changes you’ll need to make to the statements for 2011.
Last Chance for NASPP Conference Early Bird Discount–I Mean It! This week is your very last chance to save $200 on your NASPP member registration for the 18th Annual NASPP Conference. Get your registration in now, because the discount won’t be available after this Friday, May 14.
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.
Register for the 18th Annual NASPP Conference–don’t wait; the early-bird discount is only available until this Friday, May 14.
Complete the Compliance-O-Meter quiz on Excel Skills.
It’s a big week for local NASPP chapter meetings! Attend chapter meetings in DC, NY/NJ, Phoenix, Sacramento, San Francisco, and Seattle. I’ll be at the San Francisco meeting; I hope to see you there.
In our January webcast on the new regulations for filing Section 6039 returns for ISOs and ESPPs, Thomas Scholz of the IRS said that he expected the forms to be available by April. Since it’s now May, presumably the forms will be available soon. In the meantime, however, the general instructions to the forms have been updated.
Forms 3921 and 3922 Beginning for transactions in 2010, companies will have to file information returns with the IRS for ISO and ESPP transactions. The returns will be filed on Form 3921 for ISOs and Form 3922 for ESPPs. The general instructions include the deadlines for filing the forms, filing procedures, how to file corrections, information on distributing the employee statements, penalties, and other general information.
In addition to filing the returns with the IRS, companies are required to provide an information statement to employees.
Deadlines
As expected, the deadlines to file Forms 3921 and 3922 with the IRS are February 28 for paper filers and March 31 for electronic filers.
The deadline for distributing the statements to employees is still January 31. Even if you file the returns with the IRS electronically, you will probably still distribute the statements to employees in paper format because the requirements to distribute the statements in electronic format are so onerous. See the general instructions to the forms for a summary of these requirements.
Electronic Filing
You are required to file Forms 3921 and 3922 electronically if you have 250 or more returns to file with the IRS. This is a per-form requirement. So if you have 251 Forms 3921 to file and only 249 Forms 3922, then you only have to file the Forms 3921 electronically. Likewise, if you have 249 of each to file, then you don’t have to file any of the forms electronically. But you can always file electronically on a voluntary basis. Whether you are required to file electronically or do so on a voluntary basis, either way, you still benefit from the extended deadline, which gives you a whole extra month to get your act together on this. That would motivate me to file electronically.
Instructions for preparing the data files that must be submitted for electronic filing are available in IRS Publication 1220, but don’t get too excited because this publication hasn’t been updated since July of last year, which was before the final Section 6039 regs were published. Thus, it isn’t current for Form 3922 because the final regs added a data element.
Hopefully one of your service providers will come through with a solution and you won’t actually need to read Publication 1220 yourself. Now is the time to start talking to your payroll providers; providers of filing support for Forms W-2, 1099, etc.; and your stock plan administration providers. IRS Publication 1582 includes a list of providers that assist with filing electronic returns, but this list was last posted to the IRS website in January, so it doesn’t indicate which providers can assist with Forms 3921 and 3922.
You can request a waiver from the requirement to file electronically by filing Form 8508. Well, you can’t right now because the waiver form doesn’t include Forms 3921 and 3922, but presumably the IRS will fix this by the end of the year. Hopefully you won’t need it anyway; it seems like it would be real pain to complete all the forms manually. Interestingly, if you do have to complete the forms manually, handwritten forms are acceptable, so long as you write very, very neatly.
Less Than Two Weeks to Save on NASPP Conference We are offering a $200 discount on NASPP member registrations for the 18th Annual NASPP Conference that are received by May 14. This is your last chance to save on the Conference–we won’t extend the deadline for this rate.
The Conference will be held from September 20-23 in Chicago. Last year’s Conference sold out and we expect even more attendees this year.
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.
Register for the 18th Annual NASPP Conference–don’t wait; the early-bird discount is only available until May 14.
Complete the Compliance-O-Meter quiz on Excel Skills.