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.

Summary: Ending Excessive Corporate Deductions for Stock Options Act - Amends the Internal Revenue Code to: (1) limit the employer tax deduction for stock options granted to its employees to the value of such options as recorded on the employer's books at the time such options are granted; and (2) apply the $1 million limitation on the employer tax deduction for employee remuneration to stock option compensation.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Ending Excessive Corporate 
Deductions for Stock Options Act''.

SEC. 2. CONSISTENT TREATMENT OF STOCK OPTIONS BY CORPORATIONS.

    (a) Consistent Treatment for Wage Deduction.--
            (1) In general.--Section 83(h) of the Internal Revenue Code 
        of 1986 (relating to deduction of employer) is amended--
                    (A) by striking ``In the case of'' and inserting:
            ``(1) In general.--In the case of'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Stock options.--In the case of property transferred 
        to a person in connection with a stock option, any deduction 
        related to such stock option shall be allowed only under 
        section 162(q) and paragraph (1) shall not apply.''.
            (2) 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:
    ``(q) Treatment of Compensation Paid With Stock Options.--
            ``(1) 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 compensation cost 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 taken into 
        account in the same period that such compensation cost is 
        recognized for such purpose.
            ``(2) Special rules for controlled groups.--The Secretary 
        may prescribe rules for the application of paragraph (1) in 
        cases where the stock option is granted by--
                    ``(A) a parent or subsidiary corporation (within 
                the meaning of section 424) of the taxpayer, or
                    ``(B) another corporation.''.
    (b) 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:
                            ``(iv) 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.''.
    (c) 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--
            (1) 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,
            (2) 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,
            (3) 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
            (4) 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.

SEC. 3. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.

    (a) 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:
                    ``(D) 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).''.
    (b) 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.