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Don't Forget Forms 3921 and 3922

January 11, 2022

It’s that time of year again. I feel like I say that phrase a lot—usually when I’m reminding you to renew your NASPP membership. But this time, I’m referring to Forms 3921 and 3922. It is once again time to file these forms with the IRS and to provide copies of the forms to stock plan participants. In this blog entry, I review the filing requirements and answer some common questions.

Don’t have time to read? Check out my 8-minute video on Form 3922.

More questions? Check the NASPP article " Figuring Out Section 6039 Filings ."

 

The Basics

Under Section 6039, companies are required to file returns with the IRS and issue participant statements for transactions under ISOs and ESPPs. For ISOs, the reporting obligation is triggered upon exercise and is fulfilled using Form 3921. For ESPPs, the reporting obligation is triggered by the first transfer of legal title of the shares and is fulfilled using Form 3922. If the shares acquired under an ESPP are deposited into an account at the company's designated broker, the purchase is considered to be the first transfer of legal title.

Deadlines

None of the deadlines fall on a weekend this year, so you don’t get any extra days to distribute/file the forms:

  • The participant statements must be distributed to employees by January 31
  • Returns filed on paper must be filed by February 28
  • Returns filed electronically must be filed by March 31

Paper or Electronic?

You must file electronically if you have more than 250 returns to file. Any company can file electronically voluntarily to take advantage of the extended deadline available to electronic filers. If you have more than five returns to file, I recommend going electronic; there are solutions that are reasonably priced even for companies with only a handful of returns to file (email me if you need a list) and frankly, it’s likely easier than trying to file on paper.

The threshold at which electronic filing is required is going to be lowered to 100 forms at some point, but probably not this year. The IRS notes in the General Instructions for Certain Information Returns that the agency already has authorization from Congress to make this change (see pg 9). They haven’t announced the change yet, however, so I assume it won’t be implemented for 2021 filings.

Filing 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 letter to the IRS explaining why you need the extension and hope that they grant it to you. See pg 18 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.

Rounding

Share 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 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.

Account Number

Both Form 3921 and Form 3922 have a box for an account number. Think of this as a transaction number. This box should be used to assign a unique number to every transaction reported. If you have to file a correction, this number is used to match the correction with the original filing, so it is critical that the number be unique for each transaction/form.

You can use any method you want to assign account numbers (and they don’t have to be numbers—the box can accommodate letters, spaces, and some symbols). If your recordkeeping system assigns transaction numbers, you can use that number.   

Employee TINs

Make sure employees' tax identification numbers are correct. The IRS will match the TINs against their own records to ensure the numbers are correct, but they won't get around to this until well after the filing deadline, when the correction will be subject to the maximum late filing fee. Consider using a TIN matching service before filing your returns.

Protect your employees—mask the TINs that appear on their participant statements.

ISOs and Form 3921

Answers to some common questions I get about Form 3921:

  • Form 3921 is required for all exercises of ISOs, including same-day sale exercises. If you treat the sale price as the FMV, the sale price should be reported as the FMV in box 4.
  • Form 3921 is not required for exercises of the portion of an ISO that exceeds the $100,000 limitation.
  • Form 3921 is not required for exercises more than three months after termination of employment that are taxed as NQSOs.
  • The form is due for the year of exercise, not the year of settlement.

Returned Statements

If an employee’s copy is returned because the address is incorrect, you should make an effort to determine if a better address is available (e.g., check with HR and payroll). If you can identify a better address, you should resend the statement.

Participant Materials

We have some great templates to help you create your own participant educational materials for Forms 3921 and 3922:

  • Barbara Baksa
    By Barbara Baksa

    Executive Director

    NASPP