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Armanino’s Financial Advisory blog is your source for thought leadership around cloud ERP and accounting solutions and integrations. Supported by the Cloud Accounting Institute and numerous experts in cloud, finance, reporting, integration, compliance, and technology, Armanino’s Financial Advisory blog features must-read content on what’s happening in the finance industry, case studies, white papers, and much more.

November 26, 2018

3921 and 3922 Statements

Posted by Hung Tran

It’s that time of year again to start thinking about tax reporting for CY 2018. If you have issued Incentive Stock Options (ISOs) to employees and/or have an Employee Stock Purchase Plan (ESPP), your company will need to prepare 3921 and 3922 statements and related filings under Section 6039.

6039 Statements

For ISOs, you need to file a 3921 for options exercised in the calendar year. For ESPPs, a 3922 form should be prepared for purchases made during the calendar year for any employees taxed in the United States.  (Since these transactions are only subject to AMT, the tax implications do not get captured elsewhere, except for employees subject to Pennsylvania taxes, but that’s another story…)

There are a few items to keep in mind before processing the statements and filing with the IRS.

  • It is very important to determine the correct fair market value on day of exercise.Many private companies go with the most recent 409A valuation as of the exercise date.
    • For public companies, it’s usually the closing value on the date of exercise but may depend on your specific plan.
  • Make sure to confirm that each ISO option holder or ESPP purchaser is subject to income taxes in the United States.
    • We often see companies inadvertently grant ISOs to foreign participants and many clients have ESPPs for international participants who are not subject to Section 6039.
  • With ISOs, confirm that ISO status is still valid as of the exercise date. (For example, ISO exercises that occur more than three months after termination are treated as a non-qualified stock option. For these, taxes should be withheld and ordinary income reported on the employees W-2.)
  • If your ESPP crosses multiple years, make sure you are only capturing purchases that occurred in the calendar year you are filing for.
  • Once you have your list ready, make sure all data points in the statements are updated. This includes making sure you have the correct mailing addresses for each employee.
  • With terminated employees, give yourself and the HR team some extra time to confirm demographic information.

Ideally, all your statements should go out before the January 31, 2019 deadline.  Statements to employees must be postmarked by January 31, 2019. Filing with the IRS must be completed by February 28, 2019 (paper) or April 1, 2019 (electronic).

Armanino currently offers 6039 services which include both the mailing of statements and e-filing with the IRS. We are very cost-efficient as we handle these as well as 1099s for hundreds of clients. Armanino also offers employee education surrounding stock-based compensation and the related income taxes implications. If you are interested, please reach out to Niki Rahimi at (925) 790-2848 or Niki.Rahimi@amllp.com or me at (925) 790-2689 or Hung.Tran@amllp.com 

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