II
111th CONGRESS
1st Session
S. 1491
IN THE SENATE OF THE UNITED STATES
July 22, 2009
Mr. Levin (for himself and Mr. McCain) introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to provide that corporate tax benefits based upon stock option compensation expenses be consistent with accounting expenses shown in corporate financial statements for such compensation.
Short title
This Act may be cited as the
Ending Excessive Corporate Deductions
for Stock Options Act
.
Consistent treatment of stock options by corporations
Consistent treatment for wage deduction
In general
Section 83(h) of the Internal Revenue Code of 1986 (relating to deduction of employer) is amended—
by striking In the case of
and inserting:
In general
In the case of
, and
by adding at the end the following new paragraph:
Stock options
In the case of property transferred to a person in connection with the exercise of a stock option, any deduction by the employer related to such stock option shall be allowed only under section 162(q) and paragraph (1) shall not apply.
.
Treatment of compensation paid with stock options
Section 162 of such Code (relating to trade or business expenses) is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:
Treatment of compensation paid with stock options
In general
In the case of compensation for personal services that is paid with stock options, the deduction under subsection (a)(1) shall not exceed the amount the taxpayer has treated as an expense with respect to such stock options for the purpose of ascertaining income, profit, or loss in a report or statement to shareholders, partners, or other proprietors (or to beneficiaries), and shall be allowed in the same period that the accounting expense is recognized.
Special rules for controlled groups
The Secretary shall prescribe rules for the application of paragraph (1) in cases where the stock option is granted by a parent or subsidiary corporation (within the meaning of section 424) of the employer corporation.
.
Consistent treatment for research tax credit
Section 41(b)(2)(D) of the Internal Revenue Code of 1986 (defining wages for purposes of credit for increasing research expenses) is amended by inserting at the end the following new clause:
Special rule for stock options
The amount which may be treated as wages for any taxable year in connection with the issuance of a stock option shall not exceed the amount allowed for such taxable year as a compensation deduction under section 162(q) with respect to such stock option.
.
Application of amendments
The amendments made by this section shall apply to stock options exercised after the date of the enactment of this Act, except that—
such amendments shall not apply to stock options that were granted before such date and that vested in taxable periods beginning on or before June 15, 2005,
for stock options that were granted before such date of enactment and vested during taxable periods beginning after June 15, 2005, and ending before such date of enactment, a deduction under section 162(q) of the Internal Revenue Code of 1986 (as added by subsection (a)(2)) shall be allowed in the first taxable period of the taxpayer that ends after such date of enactment,
for public entities reporting as small
business issuers and for non-public entities required to file public reports of
financial condition, paragraphs (1) and (2) shall be applied by substituting
December 15, 2005
for June 15, 2005
, and
no deduction shall be allowed under section 83(h) or section 162(q) of such Code with respect to any stock option the vesting date of which is changed to accelerate the time at which the option may be exercised in order to avoid the applicability of such amendments.
Application of executive pay deduction limit
In general
Subparagraph (D) of section 162(m)(4) of the Internal Revenue Code of 1986 (defining applicable employee remuneration) is amended to read as follows:
Stock option compensation
The term applicable employee remuneration shall include any compensation deducted under subsection (q), and such compensation shall not qualify as performance-based compensation under subparagraph (C).
.
Effective date
The amendment made by this section shall apply to stock options exercised or granted after the date of the enactment of this Act.