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Any time one of your employees (or former employees) exercises their incentive stock options (ISOs), you will have to prepare a Form 3921. Form 3921 is prepared in triplicate - one goes to your employee, the other goes to the IRS, and the company keeps the last one.
You can use the IRS Form 3921 workflow to issue IRS Form 3921 Notices to employees and generate your company's IRS filing, but you will need to separately file the form with the IRS. To learn more about what the Form 3921 is (and why you have to file it) check out our blog post: Are Your Employees Exercising ISOs? Then You Need to Know About Form 3921. You can also find more information about Form 3921 on the IRS website.
This article will walk you step-by-step through preparing your Form 3921 in Shoobx. Below, you can select the portion of the workflow you'd like more information about:
- Getting Started & Reviewing Fair Market Value
- Checkpoint
- Employee Notifications
- Filing With The IRS
- FAQ
Getting Started
Shoobx will begin by checking to see if any employees have exercised options in the past year (this workflow is only applicable if the answer for your company is yes). Assuming individuals exercised options last year in your company, the first page of the flow will ask you for detailed information for each employee who exercised the previous year. You will need to input the fair market value (FMV) per share of the stock on the date that the option was exercised by the employee. The Form 3921 also includes the number of shares exercised and the exercise price.
Shoobx provides these numbers for reference only. They are not determinative of the appropriate value to include on the Form 3921. If you are not sure of the appropriate FMV to include on the Form 3921, you should consult a tax attorney.
In order to edit the Fair Market Value of the option exercise at the time of exercise, select the paper and pen icon to the right of the listed exercise event.
Selecting this button will open up a pop up screen that will allow you to enter the Fair Market Value at the time the stock was exercised. If necessary you can also update the employee's social security number, or change the address that will appear on the Form 3921.
Checkpoint
After you have reviewed all of your listed employees' information, you can move forward to the "Checkpoint" step. Here, the system will generate a Form 3921 for each employee. You can view the PDF to see the copy the employee will receive on this page. Clicking "Continue" on this screen will send out emails to employees.
Employee Notifications
This is what the Form 3921 looks like when it is distributed to the employees. Shoobx will notify the employee that the Form 3921 is available in their Shoobx Data Room.
Filing With The IRS
During this subsequent section of the workflow, Shoobx will use the entered information to generate the Form 3921s to be filed with the IRS.
Shoobx will help you prepare the documents, but it is your responsibility to ensure the accuracy of the Form 3921s, and to file the documents with the IRS. Shoobx does not file your Form 3921s for you. Consult your tax attorney if you have questions about the forms or the information they contain.
File Form 3921s Electronically Using An IRS FIRE File
If you file electronically using FIRE (Filing Information Returns Electronically), the IRS has very specific requirements for documents being filing electronically. Using this method will generate documents that meet these requirements and then help you file them with the IRS.
In order to file electronically, you must have an IRS FIRE account (FIRE stands for Filing Information Returns Electronically). You can create an account and submit Form 4419 online. This will allow you to obtain a FIRE System Transmitter Control Code (TCC), which is required in order to submit your 3921 filing. This process can take up to 45 days to complete if you do not currently have a TCC. If you would like to preview the FIRE application process, you can visit the FIRE test account system. (If you already have a TCC you can skip the application step and simply enter your five alpha/numeric code into the workflow.)
If you plan to use FIRE to file your forms and do not already have a TCC (Transmitter Control Code), the IRS strongly recommends completing the application for a FIRE account 45 days before the March 31 deadline.
The next step of the flow will ask you for your name control and address for IRS communications. Your name control should be located at the bottom of page 2 of your EIN receipt. As an alternative, please see the IRS page about how to determine your name control.
The last page of this flow will present you with an e-file that you will be able to send to the IRS. This page will include the downloadable link and instructions on how to file. Please do not edit the downloadable document, and note that your tax filing is not complete until you complete the FIRE filing.
As stated on the IRS page, if the file that was uploaded is 'Good' by IRS standards then it will be released from receipt within 10 days. After this 10 day period, you will be able to see it by clicking the 'Check File Status' link located on the sidebar of the main menu in your FIRE account.
The uploaded FIRE filing will be available in your Data Room. The employee copies will be available on their My Documents page.
FAQ
What are the IRS Form 3921 deadlines?
The deadline to distribute Form 3921s to employees is January 31st. The deadline to submit the Form 3921 electronically to the IRS is March 31st.
Note: if you are using FIRE (Filing Information Returns Electronically) for the first time, you must create an account at least 45 days before the March 31 deadline.
Fidelity does not provide legal or tax advice.
Screenshots are for illustrative purposes only.
Third parties mentioned and Shoobx, Inc are not affiliated.
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