To start off the new year, I have a few reminders for Section 6039 filings for ISO and ESPP transactions.
Deadlines
Participant statements need to be furnished by February 2, 2015 (normally the deadline is January 31, but that’s a Saturday). Paper returns need to be filed with the IRS by March 2 (February 28, the normal deadline, is a Saturday) and electronic returns need to be filed by March 31 (this deadline applies regardless of whether electronic filing is on a mandatory or voluntary basis).
Extensions
It’s easy to get an extension for filing the returns with the IRS; log into the IRS Fire system and complete Form 8809. So long as you do this by the deadline, you get an automatic 30-day extension—no questions asked. It is harder to get an extension for the participant statements. You can’t use Form 8809 for this; you have to write a polite letter to the IRS explaining why you need the extension and hope that they grant it to you. See pg 13 of the “General Instructions for Certain Information Returns” for details of what you need to say in the letter and where to send it. The extension is not automatic, so you’d best get on this right away if you think you’ll need one.
Substitute Participant Statements
You can create a substitute statement for participants that lists all their transactions on one page, rather than a separate form for each transaction. You still have to use the IRS terminology, but you can include your own statement that explains what all the words mean (or even annotate the statement itself). But you can’t include any slogans or taglines on the form and if you are going to include your company logo, you have to comply with specific guidelines explained in IRS Publication 1179 (see pg 6). The IRS is serious about this—they are worried your logo might make the form look like junk mail—so it might be best to skip the logo.
Rounding
Shares and dollar amounts have to be rounded in electronic filings (to the nearest whole share or penny, respectively). The IRS says to use a true round for share amounts (that’s rounding down for .4 and under, up for .5 and above). They don’t specify how dollar values should be rounded but since they recommend a true round for share amounts, it’s probably reasonable to use the same approach for dollar values (that’s also how dollar values are rounded on other tax forms (e.g., tax returns). But other approaches might be reasonable as well; I’m fairly certain the IRS isn’t that concerned about how you round. Just be consistent.
Employee ID Number
This needs to be the employee’s tax ID number. Also, you can’t truncate it or mask it on the participant statements. The IRS eventually checks to make sure the number is correct and you’ll have to pay a fine if it is wrong. But they won’t get around to checking until you are in the maximum penalty period. So be smart and run a TIN matching program on your returns before you file them with the IRS.
Account Number
For our purposes, think of this as a transaction number. You can use any system you want to come up with the number (and it can include letters as well as numbers), but you need to assign a unique number to every transaction reported. If you later have to file a correction, this number is how you will identify the transaction being corrected.
Names
Don’t include any special characters in employee names other than hyphens and ampersands.
Just a Few Filings?
Even though you only have a handful of filings, you cannot download the form from the IRS website and fill it out or gin up a form that looks similar in Word and use that to file your returns. The IRS has all sorts of fussy requirements for returns filed on paper, including that they be printed on special paper with special ink. If you don’t want to pay a third party to help with this, you have to order the paper forms from the IRS and wait for them to send them to you. Then you need to scare up a typewriter or print very very neatly. There are tools that are quite affordable that can be used to file even just a handful of forms—personally, I think this approach would be easier than finding a typewriter. Email me and I can send you a list.
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.