As a reminder, annual deadlines are approaching for certain reporting and filing requirements in connection with incentive stock option (ISO) exercises and employee stock purchase plan (ESPP) transfers that occurred in 2014.
The IRS has issued two forms that employers should use to satisfy the applicable information statement and return requirements for ISOs and ESPPs under the Internal Revenue Code:

• Form 3921 is required when an employee exercises an ISO; and
• Form 3922 generally is required when an employer transfers shares under an ESPP.

Although the IRS first began requiring employers to report ISO exercises and ESPP transfers on Forms 3921 and 3922 in 2010, these annual reporting obligations still surprise many employers, particularly those who have recently adopted an ESPP or who have had option exercises following a period of inactivity.

For ISO exercises and ESPP transfers that occurred in calendar year 2014, employers generally must:

• Provide the employee an information statement (typically Copy B to the applicable Form 3921 or 3922) no later than February 2, 2015; and
• File completed Forms 3921 and 3922, as applicable, with the IRS no later than March 2, 2015 for paper filers, or March 31, 2015 for electronic filers.

A penalty may be imposed for each statement that is not timely filed with the IRS. Subject to certain maximum penalties, the penalty generally is $30 per form for filings late by 30 days or less; $60 per form for filings late by more than 30 days, but filed by August 1, 2015; and $100 per form for filings after August 1, 2015 (or a complete failure to file). There are also similar, but additional penalties for failures to provide timely statements to employees. Intentional failures to report or file may be subject to more significant penalties.

Exercises of nonqualified stock options–as distinguished from ISOs–are not required to be reported on Form 3921 (or Form 3922), but should have the taxable gain upon exercise reported on the participant’s Form W-2.