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 stock received from an employer in a qualified employee stock distribution not exceeding the lowest number of shares received by any employee in such distribution; (2) any gain on such stock if held by such employee for not less than 10 years, and (3) in the case of any qualified disposition of stock that meets such 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 stock so disposed.

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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 
139A the following new section:

``SEC. 139B. QUALIFIED STOCK DISTRIBUTIONS TO EMPLOYEES.

    ``(a) In General.--Gross income shall not include--
            ``(1) so many shares of any stock 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 stock excluded from gross income under 
        paragraph (1) if such stock is held by such individual for not 
        less than 10 years, and
            ``(3) in the case of any qualified disposition of stock 
        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 stock so disposed (determined as of the time of 
        disposition).
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified employee stock distribution.--The term 
        `qualified employee stock distribution' means a distribution by 
        an employer of stock of such employer to all employees 
        (determined as of the date of the distribution) of such 
        employer as compensation for services.
            ``(2) Maximum stock amount.--The term `maximum stock 
        amount' means, with respect to any distribution, the lowest 
        number of shares of stock of the employer received by any 
        employee of the employer in such distribution.
            ``(3) Qualified disposition.--
                    ``(A) In general.--The term `qualified disposition' 
                means, with respect to the disposition of any stock 
                described in paragraph (2) during any calendar year, 
                the disposition of a number of shares of such stock not 
                in excess of the excess of--
                            ``(i) the applicable percentage of the 
                        aggregate number of shares of such stock 
                        received during the calendar year that such 
                        stock was received, over
                            ``(ii) the aggregate number of shares of 
                        such stock 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 stock 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) Recapture if Stock Disposed During Required Holding Period.--
If an amount is excluded from gross income under subsection (a)(1) with 
respect to any stock and the individual disposes of such stock at any 
time during the 5-year period beginning on the date that such 
individual received such stock--
            ``(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.
    ``(e) Regulations.--The Secretary shall issue such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations which provide for the application of this section to stock 
options.''.
    (b) Clerical Amendment.--The table of section for such part is 
amended by inserting after the item relating to section 139A the 
following new item:

``Sec. 139B. 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.