Former Employer May Have Wrongly Reported Form 3921: Should I Keep Filing 1040-X?

Someone on Reddit found that the Form 3921 information the IRS has on file (from transcripts) is incorrect or inconsistent with the Form 3921 they received from their former employer. The employer says they don't know where the IRS got the other info and that the user's Form 3921 is correct. The user did not report the ISO exercise on prior-year returns and now needs to file Form 1040-X for those years. They asked whether they should continue to file the 1040-X. Yes. You should continue filing Form 1040-X for each prior year that needs to be corrected, using the Form 3921 you have from your former employer (the one they say is correct). You do not have to match incorrect IRS data; report the correct facts and document the discrepancy (your Form 3921, IRS transcript, short explanation) and attach or send it with the amendment.

Bottom line: Yes. You should continue to file Form 1040-X to amend your prior-year returns so your tax liability reflects the correct ISO exercise information, using the Form 3921 you have from your former employer (the one they say is correct). You do not have to match incorrect data the IRS has on file; you report the correct facts and attach support (e.g., your Form 3921 and a short explanation of the discrepancy). Document the discrepancy (your Form 3921, IRS transcript, note summarizing that you are amending based on the employer's Form 3921 and that IRS records show different information) and attach or send it with the 1040-X. File within the 1040-X deadline (generally 3 years from the original return's filing date). Interest and penalties may apply if the amendment increases tax; filing promptly limits them. For preparing the 1040-X and handling the Form 3921 discrepancy with the IRS, consult a tax professional.

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Question from Reddit

Former employer may have wrongly reported Form 3921, what should I do?

Unsolved

So I've realized that the information the IRS has about my previous ISO exercise via Form 3921 is incorrect and inconsistent with the Form 3921 I received from my previous employer. I found out when I downloaded transcripts from the IRS website.

I've reached out to my previous employer but they are stating they don't know where the IRS got the info and that the Form 3921 I have is correct.

I wasn't aware I needed to report my ISO exercise so now I need to file a 1040-X for previous years, should I continue to file?

Source: Reddit

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Analysis

The user has a discrepancy between (1) the Form 3921 information the IRS has on file (from transcripts) and (2) the Form 3921 they received from their former employer. The employer says the user's copy is correct and they don't know where the IRS got the other info. The user also did not report the ISO exercise on prior-year returns and now needs to amend those years with Form 1040-X. They are asking whether they should continue to file the 1040-X and how to handle the wrong or inconsistent Form 3921 data at the IRS.

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Answer

Yes. You should continue to file Form 1040-X to amend your prior-year returns so your tax liability reflects the correct ISO exercise information, using the Form 3921 you have from your former employer (the one they say is correct). You do not have to match incorrect data the IRS has on file; you report the correct facts and attach support (e.g., your Form 3921 and a short explanation of the discrepancy).

Why continue filing 1040-X

• Form 1040-X is used to correct a previously filed return. If you did not report the ISO exercise (and the AMT or other tax that goes with it), or if you reported it using wrong numbers, you need to amend so your tax is correct. Basing the amendment on the Form 3921 you have (and that the employer says is correct) is the right approach. If the correction increases tax, filing the 1040-X stops (or limits) further interest and penalties by showing the IRS you are fixing the issue. If the correction decreases tax, you may get a refund (subject to the amendment deadline).

Document the discrepancy

• Keep a clear record of the discrepancy:
  • A copy of the Form 3921 you received from your former employer (the one you are using for the amendment).
  • A copy of the IRS transcript (or other IRS document) showing the different Form 3921 information the IRS has.
  • A short note or letter summarizing: (1) you are amending based on the employer's Form 3921; (2) the IRS records show different or inconsistent information; (3) the employer has confirmed your Form 3921 is correct.
• You can attach this note (and a copy of your Form 3921) to the 1040-X or send it with the amendment so the IRS has context. That helps if they later question why your return doesn't match their records.

Contact the IRS if needed

• If the IRS questions the amendment or sends a notice about the Form 3921 discrepancy, respond in writing and refer to your Form 3921 and your explanation. You can also call the IRS (or have a tax professional contact them) to report that the employer's Form 3921 is correct and the IRS's information is wrong or inconsistent. The IRS may update their records or ask the employer to correct the filing; either way, having your amended return and documentation in place supports your position.

Deadline for filing 1040-X

• Generally, you must file Form 1040-X within 3 years of the original return's filing date (or within 2 years of paying the tax for that year, if that is later). If you are past the deadline for a year, you may not be able to amend for a refund for that year; you may still need to file or amend for that year if you owe additional tax (and to correct your record). A tax professional can confirm which years are still open for amendment.

Interest and penalties

• If the amendment increases your tax for a prior year, the IRS will generally charge interest (and possibly penalties) on the underpayment. Filing the 1040-X promptly limits how much interest and penalties accrue. If you have reasonable cause for not reporting the ISO exercise earlier (e.g., you didn't know it had to be reported), you can request that penalties be abated; the IRS doesn't have to grant it, but documenting your situation helps.

Summary

• Continue filing Form 1040-X for each prior year that needs to be corrected, using the correct Form 3921 from your employer.
• Document the discrepancy (your Form 3921, IRS transcript, short explanation) and attach or send it with the amendment.
• Contact the IRS if you get a notice or if you want to report the inconsistent Form 3921 data.
• File within the 1040-X deadline (generally 3 years from the original filing date); be aware of interest and penalties if you owe more tax.
• Margen can help you model the correct ISO/AMT impact for the years you are amending so your 1040-X numbers are right.
• Consult a tax professional to prepare the 1040-X, handle the Form 3921 discrepancy, and deal with the IRS if needed.

Related: What Do I Do with Form 3921? Where to Enter ISO Exercise in Tax Software · TurboTax ISO Disqualifying Disposition, W-2 Cost Basis · ISO Sell-to-Cover: Tax Implications · ISO Exercise, Reducing Tax via Trust

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Applicable Sections

Federal / IRS

• Form 1040-X: Amended U.S. Individual Income Tax Return; used to correct a previously filed Form 1040. File within 3 years of the original return's filing date (or 2 years from payment, if later) for refunds; different rules can apply when you owe additional tax. (IRS Form 1040-X)
• Form 3921: Transfer of Stock Acquired Through an Incentive Stock Option (ISO); employers (or others) file this with the IRS and furnish a copy to you. If the IRS copy is wrong, you report the correct information on your return and document the discrepancy. (IRS Form 3921)
• ISO and AMT: The spread at exercise is an AMT preference (IRC § 56(b)(3)); your amended return should reflect the correct exercise price, FMV at exercise, and number of shares so AMT (and any income tax on a later sale) is calculated correctly.

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Practical Notes

• Continue filing 1040-X using the employer's Form 3921 (the one they say is correct).
• Keep your Form 3921, IRS transcript, and a short explanation of the discrepancy; attach or send with the 1040-X.
• File 1040-X within the allowed period (generally 3 years from original filing date).
• Interest and penalties may apply if the amendment increases tax; filing soon limits them; you can request penalty abatement for reasonable cause.
• Margen can help you model the correct ISO/AMT for the years you are amending.
• Consult a tax professional for preparing the 1040-X and communicating with the IRS.

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Limitations

This answer does not cover disputes with the former employer over who filed the wrong Form 3921 or complex IRS examinations. For tailored advice (including which years to amend and how to respond to IRS notices), consult a tax professional. Margen can help you model the correct tax before or after you amend.