Reminder – Incentive Stock Option Reporting Required on 2011 Taxes

January 4, 2011

By Mitchell Kopelman, partner-in-charge of Tax, and Jeff Weinkle, tax manager

Beginning last year, any corporation that transfers shares due to the exercise of an incentive stock option must report details of the transaction to the IRS on Form 3921. The information on this form will likely be matched to the tax returns of exercising shareholders to ensure that AMT is correctly computed.

The actual gain from exercising an incentive stock option is not taxed until the shares are sold. Although it has been mandatory to report this information to employees who exercise options in prior years, the current IRS requirements provide a check on whether the options are correctly included in employees’ AMT and impose stiff penalties on employers for late or missed filings. Corporations that issue incentive stock options should be aware of the new rules and track the appropriate detail for filing Form 3921 at the end of the year.

IRS Form 3921, “Exercise of an Incentive Stock Option Under Section 422(b),” requires the following information:

  • The name and identification number of the corporation transferring the stock;
  • The name and social security number of the employee who exercised the shares;
  • The date the option was granted to the person;
  • The date the option was exercised by the person;
  • The exercise price per share;
  • The fair market value of a share of stock on the date the option was exercised; and
  • The number of shares of stock transferred pursuant to the exercise of the option.

Separate forms are required for each exercise of options by an employee.

Questions? Contact Mitchell Kopelman at [email protected]

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About the Author

Mitchell Kopelman

Mitchell is the partner-in-charge of Aprio’s Tax practice as well as the Technology & Biosciences group. He has been a partner since 1990 with Aprio, which is the largest Georgia-based tax, accounting and consulting firm. Mitchell works with companies in the software, gaming, clean tech, financial technology (FinTech), health care IT, processing, biosciences (biotech and medical device) and manufacturing industries. Whether a company is pre-revenue, starting up, growing or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.

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