Heading into the 2012 filing season, you should be aware of some changes that could result in penalties if not properly observed. Also, be prepared to reveal even more financial details as the IRS continues to request more and more data through not only the tax return process, but also information reporting.
Jan. 31 due date for companies with employee stock options
Corporations have until Jan. 31 to meet the filing requirement surrounding employee stock options. All companies that transfer shares of stock under an incentive stock program are required to file Form 3921 for each transfer during the year. If an employee completes two incentive stock option (ISO) transactions during the calendar year, two separate Form 3921s are required to be filed; only one transaction per form is permitted.
Information required for disclosure on Form 3921 includes:
- Employee name, address, and identifying number
- Account number (if more than one Form 3921 is being prepared for a single individual)
- Dates of grant and exercise of the option
- Exercise price per share
- Fair market value per share
- Number of shares transferred
Companies also are required to file Form 3922 for any transfers of shares under an employee stock purchase plan (ESPP) where the exercise price is less than 100 percent of the value of the stock on the grant date. However, Form 3922 is not required where a company issues stock certificates directly to employees who purchase stock under an ESPP or when ESPP shares are registered in an employee’s name to be held in book-entry form.
In addition to the disclosure items for Form 3921, Form 3922 also requests the date legal title was transferred.
The new forms are intended to assist the IRS in identifying individuals who may owe alternative minimum tax due to their exercise of an ISO.
Filing deadline
Jan. 31 is the deadline to provide the forms to employees, but companies have until Feb. 28 to make paper filings and until April 2 to make electronic submissions to the IRS. Any company with more than 250 forms (all tax filings, including payroll, W-2s etc.) is required to file electronically. Companies can file for a 30-day extension.
To order the official IRS forms, clients will need to either call 800 TAX FORM (800 829 3676) or order online. The red version is the scannable version and is the only copy the IRS will consider to be timely filed. A penalty may be imposed for filing forms that cannot be scanned.
New disclosure questions on 2011 business returns
The IRS has included two new questions on Forms 1065, 1120, 1120-S, as well as for individuals filing a Schedule C, regarding the filing of Forms 1099 in 2011. The IRS requests taxpayers to answer whether they:
- made any payments that require a Form 1099 filing
- filed the appropriate Forms 1099
Tax returns are signed by both the taxpayer and the tax preparer under penalties of perjury. As a result, it is incumbent upon taxpayers to understand and work with their advisors regarding the information reporting requirements and how these disclosure questions impact their tax return filings.
As with so many of the changes it has made in the past few years, the IRS is trying to close the tax liability gap by increasing how much is disclosed in the income tax returns as well as in the additional required informational filings. It also continues to match more and more transactions between information reporting by third parties and the annual tax return filing. In an effort to enforce information reporting, there can be steep penalties for failure to file 1099 series and related forms. This should serve as a reminder of the importance of maintaining proper books and records and reviewing the tax returns prior to filing.
For more information or any questions you might have on this topic, we encourage you to contact your Baker Tilly tax advisor or send an e-mail to tax@bakertilly.com.
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