To amend the Internal Revenue Code of 1986 to exclude from gross income compensation received by employees consisting of qualified distributions of employer stock.

Summary: Amends the Internal Revenue Code to exclude from the gross income of an employee: (1) shares of employer securities received in a qualified employee stock distribution as compensation for services that do not exceed the lowest number of employer securities received by any employee in such distribution; (2) any gain on such securities if held by an employee for not less than 10 years; and (3) in the case of any qualified disposition of an employer security that meets such 10-year holding requirement, any gain on so much stock acquired during the 60-day period beginning on the date of such disposition as does not exceed the fair market value of the employer security so disposed.

Allows employers a tax deduction for the fair market value of securities transferred in a stock distribution. Requires an employee to recapture in gross income the amount of employer securities excluded from gross income if such securities are disposed of within five years after receipt.

SECTION 1. QUALIFIED STOCK DISTRIBUTIONS TO EMPLOYEES.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 83 
the following new section:

``SEC. 83A. QUALIFIED STOCK DISTRIBUTIONS TO EMPLOYEES.

    ``(a) In General.--If an employee elects to have this section apply 
with respect to any qualified employee stock distribution, gross income 
shall not include--
            ``(1) so many shares of employer securities received by an 
        individual in a qualified employee stock distribution of such 
        individual's employer as does not exceed the maximum stock 
        amount,
            ``(2) any gain on employer securities excluded from gross 
        income under paragraph (1) if such employer security is held by 
        such individual for not less than 10 years, and
            ``(3) in the case of any qualified disposition of an 
        employer security which is described in paragraph (2) (and 
        which meets the holding requirement of such paragraph), any 
        gain on so much stock acquired during the 60-day period 
        beginning on the date of such disposition as does not exceed 
        the fair market value of the employer security so disposed 
        (determined as of the time of disposition).
    ``(b) Definitions.--For purposes of this section--
            ``(1) Employer securities.--The term `employer securities' 
        has the meaning given such term in section 409(l), except that 
        paragraph (3) thereof shall be applied by substituting `the 
        date of the qualified employee stock distribution' for `the 
        date of the acquisition by the tax credit employee stock 
        ownership plan'.
            ``(2) Qualified employee stock distribution.--The term 
        `qualified employee stock distribution' means a distribution by 
        an employer of employer securities to employees (determined as 
        of the date of the distribution) of such employer as 
        compensation for services, except that there may be disregarded 
        any employee who (as of the date of the distribution)--
                    ``(A) has a not attained age 18,
                    ``(B) has not completed 12 months of service with 
                the employer,
                    ``(C) is a nonresident alien,
                    ``(D) is a citizen or resident of a foreign 
                jurisdiction (including any individual who is also a 
                citizen or resident of the United States) if the 
                distribution to such individual is prohibited under th 
                laws of such foreign jurisdiction,
                    ``(E) holds 10 percent or more of the outstanding 
                stock of the employer, or
                    ``(F) is an employee whose compensation from the 
                employer is subject to disclosure under rules 
                promulgated by the Securities and Exchange Commission.
            ``(3) Maximum stock amount.--The term `maximum stock 
        amount' means, with respect to any distribution, the lowest 
        number of employer securities received by any employee of the 
        employer in such distribution.
            ``(4) Qualified disposition.--
                    ``(A) In general.--The term `qualified disposition' 
                means, with respect to the disposition of any employer 
                security described in paragraph (2) of subsection (a) 
                (and which meets the holding requirement of such 
                paragraph) during any calendar year, the disposition of 
                a number of shares of such security not in excess of 
                the excess of--
                            ``(i) the applicable percentage of the 
                        aggregate number of shares of such security 
                        received during the calendar year that such 
                        security was received, over
                            ``(ii) the aggregate number of shares of 
                        such security taken into account under this 
                        subparagraph for all prior calendar years.
                    ``(B) Applicable percentage.--For purposes of 
                clause (i), the applicable percentage is, with respect 
                to any calendar year following the calendar year in 
                which such security was received, the percentage 
                determined in accordance with the following table:

                                                         The applicable
``In the case of:                                        percentage is:
        The first through tenth such calendar years..        0 percent 
        The eleventh such calendar year..............       10 percent 
        The twelfth such calendar year...............       20 percent 
        The thirteenth such calendar year............       30 percent 
        The fourteenth such calendar year............       40 percent 
        The fifteenth such calendar year.............       50 percent 
        The sixteenth such calendar year.............       60 percent 
        The seventeenth such calendar year...........       70 percent 
        The eighteenth such calendar year............       80 percent 
        The nineteenth such calendar year............       90 percent 
        Any subsequent calendar year.................      100 percent.
    ``(c) Employment Taxes.--Amounts excluded from gross income under 
subsection (a)(1) shall not be taken into account as wages for purposes 
of chapters 21, 22, 23, 23A, and 24.
    ``(d) Coordination With Section 83.--In the case of a transfer of 
employer securities to which subsection (a)(1) applies--
            ``(1) In general.--Section 83 shall not apply.
            ``(2) Deduction by employer.--There shall be allowed as a 
        deduction under section 162, to the person for whom were 
        performed the services in connection with which such securities 
        were transferred, an amount equal to the fair market value of 
        such securities (determined as of the time of such transfer). 
        Such deduction shall be allowed for the taxable year which 
        includes the date of such transfer.
    ``(e) Recapture if Stock Disposed During Required Holding Period.--
If an amount is excluded from gross income under subsection (a)(1) with 
respect to any employer security and the individual disposes of such 
security at any time during the 5-year period beginning on the date 
that such individual received such security--
            ``(1) the gross income of such individual for the taxable 
        year which includes the date of such disposition shall be 
        increased by the amount so excluded, and
            ``(2) the tax imposed by this chapter for such taxable year 
        shall be increased by the sum of the amounts of tax which would 
        have been imposed under subchapters A and B of chapters 21 and 
        22 if subsection (c) had not applied with respect to such 
        amount.
For purposes of this title and the Social Security Act, any increase in 
tax under paragraph (2) shall be treated as imposed under the provision 
of chapter 21 or 22 with respect to which such increase relates.
    ``(f) Basis of Stock Equal to Fair Market Value at Time of 
Transfer.--Notwithstanding section 1012, in the case of a transfer of 
employer securities to which subsection (a)(1) applies, the basis of 
such securities in the hands of the transferee immediately after such 
transfer shall be equal to the fair market value of such securities 
(determined as of the time of such transfer).
    ``(g) Aggregation Rule.--Two or more persons who are treated as a 
single employer under subsection (b), (c), (m), or (o) of section 414 
shall be treated as a single employer for purposes of this section.
    ``(h) Election.--The election under subsection (a) shall be made at 
such time and in such manner as the Secretary may prescribe. Once made, 
such election may be revoked only with the consent of the Secretary.
    ``(i) Regulations.--The Secretary shall issue such regulations or 
other guidance as may be necessary or appropriate to carry out this 
section, including regulations or other guidance which--
            ``(1) provide for the application of this section to stock 
        options,
            ``(2) provide mechanisms by which to satisfy the 
        requirements of this section in the event that an employee is 
        inadvertently excluded from a distribution of employer 
        securities (including a case where a service provider is 
        treated as not an employee by the employer, but is determined 
        to be an employee), and
            ``(3) require such reporting under sections 6045 and 6051 
        with respect to transfers of stock to which subsection (a) 
        applies as the Secretary determines to be necessary or 
        appropriate to carry out this section.''.
    (b) Clerical Amendment.--The table of section for such part is 
amended by inserting after the item relating to section 83 the 
following new item:

``Sec. 83A. Qualified stock distributions to employees.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to stock received by employees after the date of the enactment of 
this Act.