Stock & Option Solutions

Preparing for the Upcoming 6039 Season: Compliance and Considerations

As the year progresses, businesses and tax professionals are gearing up for another 6039 season.  

For those unfamiliar, Form 6039 is a critical document required for reporting incentive stock option (ISO) exercises and transfers of stock acquired under an employee stock purchase plan (ESPP). Compliance with these reporting requirements is essential, as the IRS uses this information to verify tax liability and track the use of these stock options. Companies must file Forms 3921 and 3922 for transactions that occurred in the previous tax year to the IRS by March 31st and provide copies of these forms to participants by January 31st. 

Here are the key considerations for the upcoming 6039 season and why it’s crucial to get it right.  

  1. Understanding Form 6039: Form 6039 is not a widely discussed tax document, but  plays a pivotal role in the financial ecosystem. Employers must report ISO exercises and ESPP transfers for their employees. Shareholders who benefit from these plans also have reporting obligations. It is important to understand who is required to report and what information is necessary for accurate reporting. 
  2. Compliance Deadlines: The deadline for filing Form 6039 is generally January 31st for the previous calendar year. Failure to meet these deadlines can result in penalties. Preparing early and having efficient systems in place is crucial to ensure compliance. 
  3. Data Accuracy: Inaccurate or incomplete information on Form 6039 can lead to problems for both employers and employees. It’s essential to validate the data being reported, ensuring that stock option exercises and ESPP transactions are accurately documented. 
  4. Efficient Reporting Tools: To streamline the reporting process, companies often invest in software solutions or work with third-party vendors to handle Form 6039 compliance. These tools can help gather, validate, and report the necessary data accurately. 
  5. Communication: Effective communication with employees and shareholders is vital. Notification of reporting responsibilities and providing accurate information in a timely manner can prevent misunderstandings and reduce the risk of errors in the reporting process. 
  6. Tax Consequences: Employees must understand the tax implications of ISO exercises and ESPP transactions. Accurate reporting on Form 6039 helps employees and the IRS determine tax liabilities.  We advise employees to consult tax professionals to ensure they are compliant with tax laws and maximize their benefits. 
  7. Record Keeping: Maintain comprehensive records of all ISO exercises and ESPP transactions. Records should include exercise prices, dates, and other relevant details. This documentation is essential in the event of an IRS audit. 
  8. Consultation: Tax laws and regulations change, and the reporting requirements for Form 6039 are no exception. Regularly consult tax experts and stay updated on the latest IRS guidelines to ensure ongoing compliance.

Some things to remember about what 6039 Reporting Involves 

  • IRS Form 3921, “Exercise of an Incentive Stock Option Under Section 422(b),” requires companies to report the dates the options were granted and exercised, as well as the number of shares, the exercise price, and the fair market value of shares exercised. 
  • IRS Form 3922, “Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c),” requires companies to report the dates the options were granted and exercised; the fair market values on the dates the options were granted and exercised; and the exercise price and number of shares transferred. 
  • Records and Statement to Participants – Companies who are required to file forms 3921 and 3922 must issue a copy to employees by January 31st for transactions that occurred the previous year. 

The 6039 season is an opportunity to demonstrate your commitment to regulatory compliance and responsible financial management. Employers and employees alike can benefit from meticulous attention to detail and accurate reporting, ultimately avoiding costly errors and penalties.  

Form 6039 is a crucial component of ISO and ESPP compliance that often goes unnoticed until tax season arrives. Stay ahead of the curve by understanding the reporting requirements, utilizing efficient tools, and maintaining open lines of communication to simplify the process and ensure that everyone involved is compliant with IRS regulations.  

 At Stock & Option Solutions, our teams will handle your 6039 reporting requirements. Contact us to see if our solution is right for you. 

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