Equity Compensation Solutions
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.
Corporations are required under Section 6039 of the Internal Revenue Code (IRC) to report the transfer of stock acquired through an Employee Stock Purchasing Plan (ESPP) to IRS as well as Incentive Stock Options (ISO) when it is exercised by employees. This can be mind-numbing for corporations since they must report every transaction by each employee.
Time is important and valued in business during tax seasons. The deadline for 6039 reporting to participants is January, 31st. Penalties are exorbitant for non-compliance, and they get excessive the later you file. Here is what you need to know to stay compliant and avoid penalties.
6039 Reporting Solution – 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 exercised and Form 3922 for each ESPP transaction. This is required by the Internal Revenue Service and failure to do so may incur consequences.
As a result of huge volume of data received for processing, potential for errors is high and therefore puts pressure on corporations for accurate and precise completion. Our team of 6039 reporting will simplify all of these, ensuring accurate and timely filing of the corporation’s tax return to meet deadline and avoid penalties.
What 6039 Reporting Entail
- IRS Form 3921, “Exercise of an Incentive Stock Option Under Section 422(b),” corporations are required to report the dates the options were granted and exercised, along with the number of shares, the fair market value of shares exercised and the exercise price.
- IRS Form 3922, “Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c),” requires corporations 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 as well as number of shares transferred.
- Statement to Participants – Corporations who are obligated to file Forms 3921 and 3922 must issue a copy to their employees by January 31st for transactions that happened the previous year.
Filing Exceptions of Form 3921/3922
ISOs exercised by or ESPP Shares transferred to non-resident aliens (as defined in section 7701(b) of the Internal Revenue Code) for whom the corporation does not have to provide a W-2 and Tax Statement, are not required to be reported to the IRS.
Penalties for Non-Compliance
Penalties may apply if Forms 3921 or 3922 are not timely filed with IRS and can be severe for non-compliance. Penalties apply to both information filings with IRS as well as statements to employees. Corporations will incur penalties for late or unreported filing.
Penalties:
- $50 fine per information return may apply for a filing that occurs within 30 days after the filing deadline.
- $110 fine per information return may apply after 30 days of the filing deadline, but on or before August 1.
- $280 fine per information return may apply if you file after August 1 for each delinquent filing 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.
DeadLines:
- Form 3921 – March 31 if filed Electronically to IRS
- Form 3921 – January 31 due to Recipient (unless indicated otherwise)
- Form 3922 – March 31 if filed Electronically to IRS
- Form 3922 – January 31 due to Recipient (unless indicated otherwise)
Form Creation
We have put together a comprehensive system to manage your 6039 Reporting obligations. Once you provide us the necessary data, we handle the entire process for you, freeing you to focus on other priorities.
Upload Data
Send your raw ISO exercise and ESPP purchase data through our secure site and we will have all we need to proceed.
Form Audit
Our team perform multiple audits and reviews on the tax form prior to sending to client’s for final review and approval.
Prepare Data
Our team prepare the data necessary to complete your required participant statements and IRS filings.
Client final Review & Approval
The Forms are then provided back to Clients in PDF format for approval and ultimate distribution to employees.
Data Audit
Our team perform multiple data audits and reviews prior to participant statement and e-file generation.
Mailing to Participants
We mail tax forms 3921 and/or 3922 to participants typically sent by last week of January.
Prepare Forms
Our team create consolidated Form 3921 and/or 3922 for transactions in your qualified plans, minimizing costs and streamlining participant communications. Transactions are aggregated by participants and Substitute Forms 3921/3922 are created saving time while reducing participant confusion.