A bill to amend the Internal Revenue Code of 1986 to ensure the proper tax treatment of executives compensation, and for other purposes.

Summary: Executive Compensation Tax Reform Act of 2002 - Repeals provision of the Revenue Act of 1978 which limits the Secretary of the Treasury's authority to determine the taxable year of inclusion in gross income of amounts under private deferred compensation plans.Amends the Internal Revenue Code to classify a loan by an employer to an employee as compensation unless it meets specified requirements, including that it is evidenced by a promissory note.Subjects the sale or exchange of stock in a corporation by a corporate insider to an excise tax on golden parachute payments if such sale or exchange occurs while the corporation or another entity consolidated with the corporation maintains a transfer-restricted 401(k) plan.Includes in gross income of a corporate insider of an expatriate corporation the net unrealized built-in gain on options held by such insider to acquire stock in the corporation or in any member of the expanded affiliated group which includes the corporation.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Executive Compensation Tax Reform 
Act of 2002''.

SEC. 2. REPEAL OF 1978 REVENUE ACT LIMITATION ON SECRETARY OF THE 
              TREASURY'S AUTHORITY TO DETERMINE YEAR OF INCLUSION OF 
              AMOUNTS UNDER PRIVATE DEFERRED COMPENSATION PLANS.

    (a) Repeal.--Section 132 of the Revenue Act of 1978 (Public Law 95-
600) is repealed.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 3. TREATMENT OF EMPLOYMENT LOANS MADE TO EXECUTIVES.

    (a) In General.--Subchapter C of chapter 80 of the Internal Revenue 
Code of 1986 (relating to provisions affecting more than one subtitle) 
is amended by adding after section 7872 the following new section:

``SEC. 7872A. TREATMENT OF EMPLOYMENT LOANS MADE TO EXECUTIVES.

    ``(a) General Rule.--If an employer directly or indirectly makes a 
loan to an applicable employee--
            ``(1) such loan shall be treated as compensation to the 
        employee for purposes of subtitles A and C if the requirements 
        of subsection (b) are not met with respect to such loan, and
            ``(2) if the principal amount of such loan, when added to 
        the aggregate outstanding balance (as of the date of such loan) 
        of all other loans made directly or indirectly by the employer 
        to such employee, exceeds $1,000,000, then the rules of 
        subsection (c) shall for purposes of applying section 7872 to 
        such loan.
    ``(b) Minimum Requirements To Be Treated As a Loan.--
            ``(1) In general.--A loan meets the requirements of this 
        subsection only if--
                    ``(A) the loan is evidenced by a promissory note or 
                other written evidence of indebtedness,
                    ``(B) there is adequate collateral or security for 
                the loan, and
                    ``(C) there is a fixed schedule (not greater than 
                10 years) for repayment of principal and interest on 
                the loan.
            ``(2) Collateral.--For purposes of paragraph (1)(B), there 
        shall not be taken into account as collateral or security any 
        assets acquired by the employee by reason of the employee's 
        employment with the employer, including any stock or capital or 
        profits interests in the employer, any option or other contract 
        to purchase such stock or interests, any restricted stock or 
        ownership interest, or any nonqualified deferred compensation.
            ``(3) Relocation loans.--Paragraph (1)(C) shall not apply 
        to a loan by an employer to an employee the proceeds of which 
        are used by the employee to purchase a principal residence if 
        the purchase is in connection with the commencement of work by 
        an employee or a change in the principal work of an employee to 
        which section 217 applies.
    ``(c) Application of Section 7872 to Excessive Loans.--If 
subsection (a)(2) applies to a loan, in determining whether such loan 
is a below-market loan to which section 7872 applies (and in applying 
such section to such loan if it is a below-market loan)--
            ``(1) such loan shall not be treated as a gift loan or 
        demand loan, and
            ``(2) the discount rate used in determining the present 
        value of any payment due under the loan shall be the applicable 
        Federal rate plus 3 percentage points.
    ``(d) Rules Applicable to Amounts Treated as Compensation.--
            ``(1) In general.--If subsection (a)(1) applies to a loan 
        made by an employer to an applicable employee, the employer 
        shall be treated as having made a supplemental wage payment to 
        the employee in an amount equal to the principal amount of the 
        loan. Such payment shall be treated as having been made on the 
        date the loan was made.
            ``(2) Subsequent repayments.--If an employee repays any 
        principal on a loan to which subsection (a)(1) applies--
                    ``(A) there shall be allowed as a deduction to the 
                employee for the taxable year of the repayment the 
                amount of such repayment, and
                    ``(B) the amount treated as compensation for 
                purposes of subtitle C for the calendar year of the 
                repayment shall be reduced by the amount of such 
                repayment.
        The amount of the reduction under subparagraph (B) shall not 
        exceed the amount treated as compensation for purposes of 
        subtitle C by reason of this section and shall be carried to 1 
        or more succeeding calendar years to the extent such amount 
        exceeds the aggregate amount of compensation for the year of 
        the repayment and succeeding years.
    ``(e) Other Definitions and Rules.--For purposes of this section--
            ``(1) Applicable employee.--
                    ``(A) In general.--The term `applicable employee' 
                means an employee who, at the time the loan is made--
                            ``(i) is an officer or director of the 
                        employer,
                            ``(ii) is a 5-percent owner (within the 
                        meaning of section 416(i)) of the employer, or
                            ``(iii) has an aggregate outstanding 
                        balance of loans (including such loan) made 
                        directly or indirectly to the employee by the 
                        employer in excess of $1,000,000.
                    ``(B) Applicable rules.--For purposes of 
                subparagraph (A)--
                            ``(i) the term `employee' includes a 
                        director and a self-employed individual (within 
                        the meaning of section 401(c)(1)), and
                            ``(ii) in the case of an employer which is 
                        not a corporation, an individual shall be 
                        treated as an officer or director if the 
                        individual holds any comparable position with 
                        the employer.
            ``(2) Aggregation.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 shall be 
        treated as a single person for purposes of this section.''
    (b) Conforming Amendment.--The table of sections for subchapter C 
of chapter 80 of the Internal Revenue Code of 1986 is amended by adding 
after the item relating to section 7872 the following new item:

``Sec. 7872A. Treatment of employment loans made to executives.''
    (c) Effective Date.--The amendments made by this section shall 
apply to--
            (1) loans made after the date of the enactment of this Act, 
        and
            (2) refinancings after such date of loans made before such 
        date.

SEC. 4. CERTAIN SALES OF COMPANY STOCK BY CORPORATE INSIDERS TO BE 
              SUBJECT TO EXCISE TAX ON GOLDEN PARACHUTE PAYMENTS.

    (a) In General.--Section 4999 of the Internal Revenue Code of 1986 
(relating to golden parachute payments) is amended by redesignating 
subsection (c) as subsection (d) and by inserting after subsection (b) 
the following new subsection:
    ``(c) Certain Sales of Company Stock by Corporate Insiders.--
            ``(1) In general.--For purposes of this section, the term 
        `excess parachute payment' includes any amount realized by a 
        corporate insider on the sale or exchange of stock in the 
        corporation with respect to which the individual is a corporate 
        insider if such sale or exchange occurs while such corporation 
        (or any other entity consolidated with such corporation for 
        purposes of reporting to the Securities and Exchange 
        Commission) maintains a transfer-restricted 401(k) plan.
            ``(2) Corporate insider.--For purposes of this subsection, 
        the term `corporate insider' means, with respect to a 
        corporation, any individual who is subject to the requirements 
        of section 16(a) of the Securities Exchange Act of 1934 with 
        respect to such corporation.
            ``(3) Transfer-restricted 401(k) plan.--For purposes of 
        this subsection, the term `transfer-restricted 401(k) plan' 
        means, with respect to any period, any qualified cash or 
        deferred arrangement (as defined in section 401(k)(2)) if, 
        during such period, any participant in such arrangement is not 
        able to freely sell employer stock--
                    ``(A) which is held in such participant's account 
                under such arrangement, and
                    ``(B) which is attributable to employee 
                contributions, employer contributions, or earnings 
                thereon.
            ``(4) Application of subsection.--This subsection shall 
        apply to sales and exchanges during the 6-month period 
        beginning on the date of the enactment of this subsection.''
    (b) Effective Date.--The amendment made by this section shall apply 
to sales and exchanges after the date of the enactment of this Act.

SEC. 5. INCLUSION IN INCOME OF CERTAIN DEFERRED AMOUNTS OF INSIDERS OF 
              CORPORATIONS WHICH EXPATRIATE TO AVOID UNITED STATES 
              INCOME TAX.

    (a) In General.--Part II of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically included 
in gross income) is amended by adding at the end the following new 
section:

``SEC. 91. UNREALIZED GAIN ON STOCK OPTIONS OF INSIDERS OF CORPORATIONS 
              WHICH EXPATRIATE TO AVOID UNITED STATES INCOME TAX.

    ``(a) In General.--In the case of a corporate insider of any 
expatriate corporation, the gross income of such insider (for the 
taxable year during which such corporation becomes an expatriate 
corporation) shall include as ordinary income the net unrealized built-
in gain on options held by such insider to acquire stock in such 
corporation or in any member of the expanded affiliated group which 
includes such corporation. Proper adjustments shall be made in the 
amount of any gain or loss subsequently realized with respect to such 
options for any amount included in gross income under the preceding 
sentence.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Corporate insider.--The term `corporate insider' 
        means, with respect to a corporation, any individual who is 
        subject to the requirements of section 16(a) of the Securities 
        Exchange Act of 1934 with respect to such corporation.
            ``(2) Expatriate corporation.--
                    ``(A) In general.--The term `expatriate 
                corporation' means the acquiring corporation in a 
                corporate expatriation transaction.
                    ``(B) Corporate expatriation transaction.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `corporate 
                        expatriation transaction' means any transaction 
                        if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly substantially all of the 
                                properties held directly or indirectly 
                                by a domestic corporation, and
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                shareholders of the domestic 
                                corporation by reason of holding stock 
                                in the domestic corporation.
                            ``(ii) Lower stock ownership requirement in 
                        certain cases.--Subclause (II) of clause (i) 
                        shall be applied by substituting `50 percent' 
                        for `80 percent' with respect to any nominally 
                        foreign corporation if--
                                    ``(I) such corporation does not 
                                have substantial business activities 
                                (when compared to the total business 
                                activities of the expanded affiliated 
                                group) in the foreign country in which 
                                or under the law of which the 
                                corporation is created or organized, 
                                and
                                    ``(II) the stock of the corporation 
                                is publicly traded and the principal 
                                market for the public trading of such 
                                stock is in the United States.
                            ``(iii) Partnership transactions.--The term 
                        `corporate expatriation transaction' includes 
                        any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                paragraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly properties constituting a 
                                trade or business of a domestic 
                                partnership,
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                partners of the domestic partnership or 
                                related foreign partnerships 
                                (determined without regard to stock of 
                                the acquiring corporation which is sold 
                                in a public offering related to the 
                                transaction), and
                                    ``(III) the acquiring corporation 
                                meets the requirements of subclauses 
                                (I) and (II) of clause (ii).
                            ``(iv) Special rules.--For purposes of this 
                        subparagraph--
                                    ``(I) a series of related 
                                transactions shall be treated as 1 
                                transaction, and
                                    ``(II) stock held by members of the 
                                expanded affiliated group which 
                                includes the acquiring corporation 
                                shall not be taken into account in 
                                determining ownership.
                            ``(v) Nominally foreign corporation.--The 
                        term `nominally foreign corporation' means any 
                        corporation which would (but for this 
                        subparagraph) be treated as a foreign 
                        corporation.
            ``(3) Net realized built-in gain.--The term `net unrealized 
        built-in gain' means, with respect to options to acquire stock 
        in any corporation, the amount which would be required to be 
        included in gross income were such options exercised.
            ``(4) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group (as defined in 
        section 1504(a) without regard to section 1504(b)).''
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by adding at the end the following new item:

                              ``Sec. 91. Certain deferred amounts of 
                                        insiders of corporations which 
                                        expatriate to avoid United 
                                        States income tax.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to corporate expatriation transactions completed 
after the date of the enactment of this Act, and to taxable years 
ending after such date.