An employee leaves a startup in the spring and exercises their vested incentive stock options on the way out. The company takes the check, the cap table gets updated, and the exercise becomes one more line in the equity platform. Nobody thinks of it as a tax filing until the following February, when the former employee writes in asking where their Form 3921 is.
The company files Form 3921. Section 6039(a)(1) of the Internal Revenue Code puts it on every corporation that, in a calendar year, transfers stock to any person because that person exercised an incentive stock option. The company files it with the IRS and gives a copy to the person who exercised.
It is one of the shorter information returns the IRS has. The harder part sits upstream of the form: knowing every exercise happened, counting forms per exercise, and knowing which filing method the year's total of information returns requires.
Who files Form 3921
The corporation whose ISO was exercised files it. The Instructions for Forms 3921 and 3922, revision April 2025, say every corporation which in any calendar year transfers to any person a share of stock pursuant to that person's exercise of an incentive stock option must file Form 3921 for each transfer made during that year.
Two parts of that sentence carry weight.
Each transfer. Regulation 1.6039-1(a)(1) says the company must file a return with respect to each transfer made during the year. An employee who exercises in March, again in July and again in November gets three Forms 3921. The IRS table of information return requirements lists the reportable amount for Form 3921 as all amounts, so an exercise where the exercise price equals the value at exercise still gets a form.
Incentive stock option. Section 6039(c)(1) says any option the corporation treats as an incentive stock option is deemed to be one for this purpose. So the filing follows how the company itself treats the grant. One rule can change that treatment partway through a grant, section 422(d): to the extent the fair market value of stock under ISOs first exercisable by one person in one calendar year exceeds $100,000, those options are treated as options which are not incentive stock options. The value is measured at the grant date, and grants are counted in the order they were made. A large grant with a short vesting schedule can be split, with part of it inside Form 3921 and part of it outside.
There is one exception. Regulation 1.6039-1(e)(1) drops the requirement for an employee who is a nonresident alien and to whom the company was not required to provide a Form W-2 for any calendar year from the start of the year the option was granted through the end of the year it was exercised. If you issued that person a W-2 in any one of those years, the exception does not apply.
What goes in each box
The form has six numbered boxes, five about the exercise itself and one for a second corporation, plus identifying information. Regulation 1.6039-1(a)(1) lists the same fields the form carries.
| Box | What it asks for | Where to find it |
|---|---|---|
| Transferor | Company name, address and EIN | Company records |
| Employee | Name, address and taxpayer identification number of the person who received the shares | Payroll or equity platform |
| 1 | Date the option was granted | Board approval and the option agreement |
| 2 | Date the option was exercised | Exercise notice |
| 3 | Exercise price per share | Option agreement |
| 4 | Fair market value per share on the exercise date | The company's valuation in effect on that date |
| 5 | Number of shares transferred | Exercise notice and the updated cap table |
| 6 | Name, address and TIN of the corporation whose stock was transferred, only if it differs from the transferor | Records of the corporation whose stock it is |
Box 4 is the one that takes thought at a private company. It asks for the value on the exercise date, which is a different date from the grant and can fall under a different valuation. An employee who exercised a year after grant needs the value in force when they exercised.
The account number field is required if you keep more than one account for a person and file more than one Form 3921 for them. The instructions encourage an account number on every Form 3921 you file anyway, and it makes a later correction easier to match.
On the employee's copy you may truncate their taxpayer identification number to the last four digits under Regulation 301.6109-4. Truncation is not allowed on the copy filed with the IRS, and the company's own TIN may never be truncated.
Deadlines
There are two, and they come from different places.
The employee's copy is due by January 31 of the year after the exercise. That date is in the statute itself, at section 6039(b). The IRS copy is due by February 28 if filed on paper and March 31 if filed electronically, per the table in the General Instructions for Certain Information Returns. When a due date falls on a Saturday, Sunday or legal holiday, it moves to the next business day.
For exercises in 2025, the General Instructions give the actual dates: furnish the employee copies by February 2, 2026, and file with the IRS by March 2, 2026 on paper or March 31, 2026 electronically. Applying the same rules to exercises in 2026, January 31, 2027 and February 28, 2027 both fall on a Sunday, so the dates become February 1, March 1 and March 31, 2027.
Form 8809 gives an automatic 30-day extension of the IRS filing date, and it has to be filed by the original due date. It does nothing for the employee's copy, which is still due at the end of January. Our 2026 startup tax calendar puts these dates next to the payroll and 1099 deadlines that land in the same weeks.
Paper or electronic
This is where the rules catch small companies that assume a handful of forms can go by mail.
If you must file 10 or more information returns during the year, you must e-file. The General Instructions say the 10-or-more requirement does not apply separately to each type of form, and give the example of four Forms 1098 and six Forms 1099-A adding up to ten. A startup with seven contractors on Form 1099-NEC and three ISO exercises on Form 3921 has ten information returns and has to e-file all of them. The instructions for Form 3921 trace the threshold to T.D. 9972, which lowered it from 250 to 10 for returns required to be filed on or after January 1, 2024.
Two electronic routes exist. The FIRE System needs software that produces a file in the Publication 1220 format. IRIS, the Information Reporting Intake System, is the IRS's online portal for e-filing information returns.
Below the threshold, paper is allowed, with one trap. Paper Copy A is scanned by machine, and the General Instructions say you cannot file Copy A of Form 3921 printed from the IRS website. You need the official scannable form, sent with a Form 1096 transmittal. Form 3922 is an exception, and its Copy A can be printed and filed. The IRS did make Copies B and C of Form 3921 fillable online, so the employee's copy can come from IRS.gov.
Penalties
A missing or wrong Form 3921 falls under the same two penalties as a 1099: section 6721 for the return filed with the IRS and section 6722 for the statement furnished to the employee. The General Instructions for returns due in 2026 set the section 6721 amounts by when the correct return is filed.
| When the correct return is filed | Penalty per return | Annual maximum | Maximum for a small business |
|---|---|---|---|
| Within 30 days after the due date | $60 | $683,000 | $239,000 |
| More than 30 days late but by August 1 | $130 | $2,049,000 | $683,000 |
| After August 1, or never | $340 | $4,098,500 | $1,366,000 |
A small business for this purpose has average annual gross receipts of $5 million or less over the three most recent tax years. Intentional disregard of the filing requirement is at least $680 per return with no maximum, and the section 6722 penalty on the employee statement is a separate penalty applied the same way. The penalty also applies to filing on paper when you were required to e-file, and to a missing or incorrect TIN.
These amounts are adjusted for inflation, so check the General Instructions for the year you are filing rather than carrying these figures forward.
Keeping the year from producing a surprise
The inputs for Form 3921 all exist before the year ends, spread across the equity platform, the board minutes and the bank account. Two habits keep them from turning into a February scramble.
The first is to reconcile exercises to cash as they happen. When an employee pays the exercise price in cash, it arrives as a deposit. If every such deposit is matched to an exercise notice when the books are closed for the month, the January list of Forms 3921 is already built, and an exercise nobody told finance about shows up as an unexplained deposit in the month it happened.
The second is to count all information returns together before choosing how to file. The 10-return threshold spans every form type, so the Form 3921 decision cannot be made separately from the 1099 decision. If the count is anywhere near ten, plan to e-file everything.
Exercises by former employees deserve the same attention as current staff. The obligation attaches to the transfer, and a former employee still needs their copy at the address you have for them.