ISOs and ESPPs – New Filing Requirements for Annual Notices

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Each January, companies that grant incentive stock options (ISOs) are required to provide notices to current and former employees who exercised ISOs during the preceding calendar year. A similar notice must be given to current and former employees who transferred title to stock acquired under an employee stock purchase plan (ESPP) – for example, into a brokerage account or to a purchaser. The notice deadline for 2010 reportable events is January 31, 2011.

Starting this year, companies also must report the same information to the IRS, on newly created Form 3921 (for ISOs) or Form 3922 (for ESPPs). The new filing deadline is February 28, 2011 for paper filers and March 31, 2011 for electronic filers. The IRS forms may also be used to provide the required notices to employees, so employers no longer have to create their own notices. The forms require the company to provide the items of information listed below.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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