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Form 3921 – Who Needs to File, When to Do it, and How to Do it

The IRS requires any company whose employees exercised incentive stock options (ISOs) in the previous tax year to file Form 3921.

If you fall into this category, you must file one form for each employee. The form comes with unique deadlines and consequences for failure to file.

In this blog, we’ll go over:

  • Exactly what Form 3921 is
  • Who needs to file
  • Due dates and deadlines
  • Filing fees and penalties
  • Your best options for getting the job done

Because the penalties for non-compliance are so steep, you should review this information carefully to make sure you file correctly and on time.

Let’s dig in.

What is Form 3921?

Form 3921 is a form that companies must file with the IRS when a shareholder exercises an incentive stock option (ISO).

This form must be filed for the calendar year in which the ISO is exercised by the deadlines listed below.

A copy of the form must also be distributed to each applicable shareholder.

It’s also worth noting that the IRS requires that you use their pre-printed forms on their own special paper.

Why does this matter?

If you file on regular printer paper, it could cause them to reject your filing.

Who needs to file Form 3921?

Companies with shareholders who have exercised incentive stock options (ISOs) in the previous calendar year need to file.

For example:

Let’s say that you issued ISOs to your employee Susan in 2015. Then Susan exercised some or all of her options in 2018.

You would need to file a 3921 in 2019 (by the deadlines outlined below) for the amount of stock that was transferred to Susan as a result of her exercise.

Due Dates and Deadlines for Form 3921

Provide Copy B to All Employees: 1/31 deadline

Your company needs to provide Copy B of the form to all applicable shareholder by the 31st of January.

Paper File Copy A with the IRS: 2/28 deadline  

Your company will need to paper file Copy A of the form with the IRS by the 28th of February. Copy A is the one in red and needs to be postmarked by the 28th.

Deadline to electronically file Copy A with the IRS: 3/31 deadline 

Alternatively, you can file Copy A electronically rather than by paper.

But filing electronically may be significantly more trouble than it’s worth.

First, you have to apply for a filer’s code from the IRS.

Once you have this you must use the government’s FIRE system, which has some fairly strict requirements.

It gets worse if someone electronically files on your behalf.

If you don’t file your taxes in-house and a non-employee electronically files on your behalf, they need an additional approval to do so.

But if you’re looking for an easy way to take care of filing you may want to consider using software like Shareworks Startup Edition to automate the process.

Late Filing Penalties and Late Fees

The penalties for non-compliance are surprisingly heavy.

Please note the following information may change but is up-to-date as of March 19, 2018.

If you successfully file 30 or fewer days late, the penalty per failure is $50 with an annual cap of $500,000.

So if you had 60 exercises for the previous year your penalty would be $3,000 ($50 x 60).

If it takes you longer but you correctly file by August 1, your penalty doubles to $100 per failure with an annual cap of $1,500,000.

If you wait until after August 1st to file (or never file at all) the penalty jumps to $250 per infraction with an annual cap of $3,000,000.

So yikes.

It gets worse:

If the IRS can prove that you intentionally ignored rules around Form 3921, the minimum penalty per failure jumps up to a minimum of $500 with no annual cap.

So if you had 60 ISO exercises last year and intentionally disregarded filing Form 3921, you would be hit with a minimum penalty of $30,000 each year.

Now here’s the crazy part:

The penalties apply separately to filing returns to the IRS and furnishing your employees with a copy.

If you ignore both your penalties double.

So please, file Form 3921 correctly and on time.

Form 3921 software

The easiest way to file Form 3921 and Form 3922 is with a cap table management platform like Shareworks Startup Edition.

Startup edition is an online cap table management platform that can help you with compliance in areas like Form 3921 (among many others including Form 3922, 409A valuations, stock option expensing under ASC 718, 83B, etc..)

As long as your cap table and shareholder info are up-to-date, the platform can generate everything necessary to correctly file.

Just let us know when you want to kick off the process and we’ll handle everything from filing to sending copies to your employees.

You can learn more about this particular feature here.



Shareworks by Morgan Stanley, Morgan Stanley Smith Barney LLC, and its affiliates and employees do not provide legal or tax advice. You should always consult with and rely on your own legal and/or tax advisors. CRC 3623946 (06/21)