This Alert briefly highlights certain reporting requirements,
applicable to equity-based compensation as we begin 2021.

Reminder of Annual Reporting of ISO Exercises and ESPP Purchases by Employees

Employers must file information returns with the Internal Revenue Service and provide employees with information statements related to incentive stock option exercises that occurred during calendar year 2020. Similarly, employers (typically relevant only for public companies) must file information returns with the IRS and provide employees with information statements related to initial transfers of stock acquired during 2020 under an employee stock purchase plan that complies with Internal Revenue Code Section 423.

The information returns to be filed with the IRS are Form 3921 (for incentive stock option exercises) and Form 3922 (for transfers of shares acquired under an employee stock purchase plan). Employers may satisfy the requirement to provide employees with an information statement by delivering to the employee “Copy B” of the applicable Form 3921 or 3922 or they may use substitute forms for the employee information statements, provided that the substitute forms meet published IRS guidance as to form and content.

The delivery and filing deadlines are as follows:

• February 1, 2021 – Deadline to furnish an information statement (“Copy B”) to employees

• March 1, 2021 – Deadline to file return on appropriate form with IRS, if filing a paper copy
• March 31, 2021 – Deadline to file return on appropriate form with IRS, if filing electronically

Companies reporting 250 or more transactions (applied separately to transactions under each of Form 3921 and Form 3922) in a year are required to file electronically.  Note that each option exercise or stock transfer is a separate transaction, and therefore multiple transactions by a single individual trigger multiple filings.

The penalties for late and incorrect filings range from $50 to $250 per form, with a maximum penalty of $3 million. The increased penalty for intentional disregard of these requirements is $500 per form, with no maximum. The IRS will grant an automatic 30-day extension for the return filing deadline upon filing a Form 8809, which must be filed electronically or by paper by the applicable deadline. Companies may request an additional 30-day extension due to a claimed hardship, but such extension will not be automatically granted by the IRS and does not extend the due date for delivering “Copy B” of the applicable form to the employee.

Forms 3921 and 3922 are available through the IRS website; instructions for completing and filing the forms can be obtained through this link: https://www.irs.gov/pub/irs-pdf/i3921.pdf. Third-party vendors are available to assist companies with preparing and filing Forms 3921 and 3922. For a list of vendors, please contact the attorney with whom you regularly work at Gunderson Dettmer.

New Reporting Form for Non-Employee Stock Compensation Income

Previously, income from stock compensation for non-employees was generally reported on Form 1099-MISC.  Stock compensation income for non-employees is now generally required to be reported on new IRS Form 1099-NEC.  One exception is that income reported for an employee’s ex-spouse pursuant to a divorce transfer is still reported on Form 1099-MISC.  The filing due date for both Form 1099-NEC and Form 1099-MISC is February 1, 2021. 

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Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP provides these materials on its web pages for information purposes only and not as legal advice. The Firm does not intend to create an attorney-client relationship with you, and you should not assume such a relationship or act on any material from these pages without seeking professional counsel.

Gunderson Dettmer’s lawyers are available to assist in addressing questions you may have regarding the issues discussed in this Alert. Please contact the Gunderson Dettmer attorney with whom you regularly work. Contact information for our attorneys can be found at www.gunder.com.

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