Companies are required to make information filings with the IRS in early 2011 to report exercises of incentive stock options ("ISOs") and transfers of stock purchased pursuant to employee stock purchase plans ("ESPPs") occurring in 2010.  These information filings with the IRS are in addition to the information statements already required to be provided to employees and former employees with respect to ISO exercises and ESPP transfers, pursuant to Section 6039 of the Internal Revenue Code of 1986, as amended.  Goodwin Procter's January 13, 2009 Client Alert, "Information Statements and Tax Reporting for ISO and ESPP Transactions", and December 15, 2009 Client Alert, "IRS Issues Final ESPP Regulation and Reporting Requirements for ISOs and ESPPs", discuss these information reporting requirements in detail.

To satisfy the information return and statement requirements, companies will need to complete and file Form 3921 with respect to ISO exercises and Form 3922 with respect to ESPP transfers, as applicable.  The IRS instructions to Form 3921 and 3922 are available here.  These forms include the filings to be made with the IRS (Copy A of each form) as well as the information statements to be provided to employees and former employees (Copy B of each form).  A Form 3921 or 3922 must be filed for each transaction.  For example, if an employee exercised two ISOs in 2010, then two Form 3921s must be filed for that employee. 

If a company is required to file 250 or more of either form with the IRS, such filing with the IRS must be done electronically.  Otherwise, paper filing with the IRS is acceptable.  For example, if a company is required to file 300 Form 3921s and 100 Form 3922s, the Form 3921s will need to be filed with the IRS electronically but the Form 3922 may be filed with the IRS in paper form. 

The deadline for providing the information statements to employees relating to 2010 option exercises and ESPP transfers is January 31, 2011, and the deadline for filing the corresponding Forms 3921 and 3922 with the IRS is February 28, 2011, if filing on paper, or March 31, 2011, if filing electronically.  

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