What is IRC 6039 Reporting?
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.
What 6039 Reporting Involves
Companies must file an information return with the IRS and send copies to participants by January 31st for ISO and ESPP transactions that occurred the previous year. IRS forms 3921 and 3922 are used for IRC 6039 reporting.
- 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 if You Make a Mistake on One of Your Forms?
If you realize you've made a mistake on your 3921 or 3922, you'll need to take some steps to ensure the IRS receives the correct information. It is best to consult the IRS's General Instructions for Certain Information Returns, since the steps are different depending on which information you need to amend.
What Are The Penalties for Non-Compliance?
Penalties for non-compliance can be costly. Penalties apply to both information filings with the IRS as well as statements to employees. Companies will incur penalties for each late or unreported filing.
Penalties:
- $50 fine for each late filing up to 30 days late
- $100 fine for each late filing before August 1st
- $250 fine for each late filing after August 1st or never
