Dealing with employee stock option transactions

[FEDUKE404]

Never mind.

[Rapid Robert]

1 -- Are the 3921/3922 tax forms distributed along with the "regular" employer income tax forms, or on an "as needed basis" during the year?
2 -- Since all recently issued stock must now fall into the "covered security" realm, how complete is the Form 1099-B that will (eventually) be received for any sale? Stated differently, will it likely be necessary to enter some "adjustments" on the Form 8949 / Schedule D based upon what is shown on the (older) Forms 3921/3922 ?

There can be multiple forms 3921/22, one for each grant/exercise. I don't think there are any rules about whether they are all issued at year end or during the year, probably up to the employer.

Yes, you will sometimes need to enter adjustments. ISOs at minimum will require an adjustment on the AMT version of Schedule D when sold. I don't have all the details handy, but even under the new basis reporting rules since 2010, not all basis for employer stock options is reported correctly on 1099-B. And of course, often it will be reported on W-2 as well either at time of exercise or time of sale.

I used to use ProSeries and they have very detailed data entry worksheets for these options. Nowadays I just use a spreadsheet.

[Kram BergGold]

Basis

I believe by law or regulation, The 1099-B is not supposed to include the amount added to wages.

[Rapid Robert]

"This client will likely hold onto all shares for some time, making the paperwork trail / history even more perplexing. Shares already in place are from ESPP and ISO plans. "

I would argue the opposite -- the longer they are held, the easier it will be. Both ESPP and ISO are statutory stock options, meaning they are eligible for cap gains treatment instead of ordinary compensation, if they are held for certain minimum periods from grant and exercise dates. If held for the statutory minimum periods, ISOs never trigger wage income, and ESPPs may or may not (only if there is a "look back" discount available to the beginning of the grant period). Therefore your basis calculations will be easier.

So far, neither a Form 3921 nor 3922 has been produced."

In most cases I've encountered, you can get the equivalent information from the employer and/or the brokerage. After all, no one asks the employee to make exercise decisions without all the relevant information at hand. The 3921/22 is really only to keep the IRS in the loop, it's not meant to be the only source of info.