By Jim Griffin

Beginning in 2010, corporations that use incentive stock options ("ISO"s) to compensate their employees must file a new information return with the Internal Revenue Service.  The IRS recently released Form 3921 (with Instructions) to be used to comply with the new filing requirement.

The information return is required for each calendar year during which a corporation transfers to an employee a share of stock pursuant to that employee's exercise of an ISO.

Form 3921 must be filed with the Internal Revenue Service and a copy must be provided to the employee.  The first information return for calendar year 2010 is due to be filed with the IRS on or before February 28, 2011, or March 31, 2011, if filing electronically.  A copy of the Form 3921 must be provided to the employee by January 31, 2011.

Information required on Form 3921 includes:

 * Date the ISO was granted
 * Date the ISO was exercised
 * Exercise price per share
 * Fair market value per share on the exercise date
 * Number of shares transferred in the exercise

The new information return requirement only applies to stock options that are considered "incentive stock options" within the meaning of Section 422(b) of the Internal Revenue Code.  Form 3921 does not apply to nonqualified stock options (sometimes also called nonstatutory stock options).

A similar information return filing using Form 3922 is required to report a transfer of stock by an employee where the stock was acquired under a Code Section 423 employee stock purchase plan.

If you have questions regarding these new requirements, please contact Jim Griffin at 214.953.5827 or jgriffin@jw.com.