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About Forms 3921 and 3922

A corporation must file an IRS Tax Form 3921 each time it transfers stock to an employee who has exercised an incentive stock option, with an exception made for employees who are non-resident aliens. An incentive stock option is defined in section 422 b of the tax code as an option to purchase stock granted by a corporation to any individual in connection with her employment, with certain conditions having been met: The option must be granted under a plan that has been approved by the corporation’s shareholders and that specifies the total number of shares each employee is able to receive, and which classes of employees are eligible to receive options. The exercise price per share must not be less than the fair market value of stock at the time the option is granted and the employee cannot exercise the option more than ten years after that time.

Form 3921 includes such information as the date the option was granted, the date the employee exercised the option, the number of shares of stock transferred to the employee, the fair market value (FMV) of the stock when the option was exercised, and the exercise price of the stock. There is a space for the mailing address and federal identification number (FIN) of both the transferor and the employee, and for the name, address and FIN of the corporation issuing the stock, if other than the transferor.

Tax Form 3922 must be filed by a corporation that has during the previous calendar year transferred incentive stock to an employee under the particular conditions described by section 423c of the tax code. 423c involves a special rule that takes effect if the option is priced lower between 85% and 100% of the fair market value of the stock. It specifies that the employee (in the event of his timely disposition of the share, or death) is to have the amount by which the fair market value exceeded the price of the share remunerated to him as gross income. A return is required under these conditions laid out in 432c only for the first legal title for a share transferred.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

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