What is 6039 Reporting?
Beginning in tax year 2010, the Internal Revenue Service (IRS) adopted regulations under Section 6039 of the Internal Revenue Code. The IRS requires corporations to report ISO (Incentive Stock Option) exercises on a Form 3921 and ESPP (Employee Stock Purchase Plan) transfers (purchases) on a Form 3922. The corporations are required to file these forms as an information return with the IRS, in addition to providing employees with an information statement, who have received or transferred stock in conjunction with either a 423(b) qualified employee stock purchase plan or an incentive stock option plan.
Section 6039 of the Internal Revenue Code (IRC) requires companies to report to the IRS when transferring stock acquired through an Employee Stock Purchasing Plan (ESPP) or when employees exercise Incentive Stock Options (ISO). Since companies must report every transaction by every employee, 6039 reporting can be tedious.
Time is valuable in business. Especially around tax season. The deadline for 6039 compliance is January, 31st. Penalties are steep for non-compliance, and they get steeper the later you file. The following is what you need to know to stay compliant and avoid penalties.
6039 Reporting Solutions
Streamline Your Year-End Reporting
Section 6039 reporting is a complicated process. Corporations have to provide transaction statements to their employees who have acquired stock through a 423(b) qualified employee stock purchase plan (ESPP) or exercised an incentive stock option (ISO). Corporations have to file Form 3921 for each ISO exercise and file Form 3922 for each ESPP transaction. This is required by the Internal Revenue Service requires and failure to do so have consequences.
That’s a lot of paperwork, a lot of data, a lot of potential for errors, and a whole lot of pressure on you to make sure it’s all done right. Our line of 6039 solutions team will simplify your life, save you time and reduce your company’s risk. Our team have experience in generating and mailing hundreds of thousands of tax forms to participants.
What 6039 Reporting Involves
- IRS Form 3921, “Exercise of an Incentive Stock Option Under Section 422(b),” requires companies to report the dates the options were granted and exercised, as well as the number of shares, the exercise price, and the fair market value of shares exercised.
- IRS Form 3922, “Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c),” requires companies to report the dates the options were granted and exercised; the fair market values on the dates the options were granted and exercised; and the exercise price and number of shares transferred
- Records and Statement to Participants – Companies who are required to file forms 3921 and 3922 must issue a copy to employees by January 31st for transactions that occurred the previous year. Companies should retain a copy for their own records as well.
When Don't Companies Have to File a 3921 or 3922?
ISOs exercised by or ESPP Shares transferred to non-resident aliens (defined by the IRS as a “non-U.S. citizen, or foreign national, who doesn’t pass the green card test or the substantial presence test”) for whom the company does not have to issue a W-2, Wage and Tax Statement, are not required to be reported to the IRS.
What Are The Penalties for Non-Compliance?
- $50 fine per information return if you correctly file within 30 days (by March 30 if the due date is February 28)
- $110 fine per information return if you correctly file more than 30 days after the due date but by August 1
- $280 fine per information return if you file after August 1 or you do not file required information returns
- There is an additional penalty for failure to provide timely statements to employees. An intentional failure to report will be subject to a greater penalty.
- Form 3921 – March 31st 2021 if filed Electronically to IRS
- Form 3921 – January 31st 2021 to Recipient (unless indicated otherwise)
- Form 3922 – March 31st 2021 if filed Electronically to IRS
- Form 3922 – January 31st 2021 to Recipient (unless indicated otherwise)