Corporations often grant incentive stock options (ISOs) to employees as a bonus or reward. ISOs allow employees to purchase company stock at a discount, provided certain conditions are met. Once exercised, the employee may transfer the shares outside of the company and into a brokerage account. When this occurs, the corporation must file IRS Form 3922 (Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c)).
For background, see our article on Form 3921 reporting, which covers incentive stock option exercises.
Requirement to File
The corporation issuing the ISOs must report on Form 3922 when the transfer of stock results from the option exercise and the following conditions apply:
-
Section 423(c) of the tax regulations governs the ISOs.
-
The employee sells or transfers shares to an account outside the company.
-
The exercise price of the ISO is less than 100% of the stock’s fair market value on the grant date, or the price is indeterminate on that date.
-
The shares have unique serial numbers or physical certificates with distinct features.
-
The employee has filed a W-2 and is not a nonresident alien.
-
The issuer of the stock is the corporation, a related corporation, or an authorized agent handling distributions.
Employers must furnish a copy of Form 3922 to the employee by January 31. A copy must also be filed with the IRS by February 28 (paper filing) or March 31 (electronic filing).
Filling Out the Form
Form 3922 requires the following information:
-
Corporation identification
-
Employee identification
-
Account number
-
Date the option was granted
-
Date the option was exercised
-
Fair market value of the shares on the grant date and exercise date
-
Exercise price
-
Number of shares transferred
-
Date the shares were legally transferred
-
Exercise price as if exercised on the grant date
For more details on electronic filing, see our guide on IRS e-filing requirements.
Filing Form 3922
Companies that grant many ISOs face the challenge of issuing multiple copies of Form 3922. Businesses can ease this process by using our Form 3922 software, which simplifies reporting and helps ensure compliance.
Employers filing more than 250 forms must submit them electronically. Failure to file can result in steep IRS penalties. Fines start at $30 per form and can escalate to $100 per form, with a maximum annual penalty of $1.5 million.