To amend the Internal Revenue Code of 1986 to encourage the granting of employee stock options.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Workplace Employee Stock Option Act 
of 2002''.

SEC. 2. INCENTIVES TO GRANT EMPLOYEE STOCK OPTIONS.

    (a) In General.--Section 423 of the Internal Revenue Code of 1986 
(relating to employee stock purchase plans) is amended by adding at the 
end the following new subsection:
    ``(d) Special Incentives With Respect to Employee Stock Purchase 
Plans Which Meet Certain Additional Requirements.--
            ``(1) In general.--If--
                    ``(A) section 421(a) would (but for this 
                subsection) apply with respect to the transfer of stock 
                to an individual by reason of this section, and
                    ``(B) the requirements of paragraph (2) are met 
                with respect to such transfer,
        the rules of paragraph (3) shall apply in lieu of the rules of 
        section 421(a) and section 56(b)(3) shall not apply.
            ``(2) Requirements.--A transfer of stock to an individual 
        meets the requirements of this paragraph if--
                    ``(A) the price paid by the individual for the 
                stock under the option is paid only through payroll 
                deductions in substantially equal amounts over a period 
                of not less than 12 months and not more than 60 months,
                    ``(B) such payroll deductions are held in a trust 
                described in paragraph (5),
                    ``(C) the price of the stock acquired under the 
                option is not less than the fair market value of the 
                stock at the time the option is granted,
                    ``(D) ownership of the stock is transferred to the 
                individual at the end of the payroll deduction period 
                (or, if earlier, the date that the price of the stock 
                under the option is fully paid),
                    ``(E) the individual's election to commence 
                withholding to purchase such stock pursuant to the 
                option is made during the 30-day period beginning on 
                the earliest date that the individual could have made 
                the election to commence withholding to acquire stock 
                pursuant to such option, and
                    ``(F) the stock acquired by the individual pursuant 
                to the option--
                            ``(i) is held by the trust described in 
                        paragraph (5) until the individual elects to 
                        dispose of such stock, or
                            ``(ii) at the election of the individual, 
                        is transferred to the individual.
            ``(3) Special tax treatment.--
                    ``(A) Treatment of payroll deductions.--With 
                respect to the payroll deductions referred to in 
                paragraph (2)(A)--
                            ``(i) the gross income of the individual 
                        shall not include an amount equal to such 
                        deductions,
                            ``(ii) for purposes of subtitle C, the 
                        individual's remuneration for employment shall 
                        not include an amount equal to such deductions, 
                        and
                            ``(iii) the deduction otherwise allowable 
                        under section 162 for remuneration paid to such 
                        individual shall be reduced by an amount equal 
                        to such deductions.
                The aggregate amount to which the preceding sentence 
                applies for any taxable year of an individual shall not 
                exceed the limitation under section 402(g)(1) for such 
                taxable year.
                    ``(B) Treatment when share transferred to 
                individual.--
                            ``(i) Employee.--No amount shall be 
                        includible in the gross income of an individual 
                        (or treated as remuneration for purposes of 
                        subtitle C) by reason of the transfer of 
                        ownership of stock acquired pursuant to an 
                        option to which this subsection applies.
                            ``(ii) Employer.--There shall be allowed as 
                        a deduction under section 162 to the person 
                        whose deduction was reduced under subparagraph 
                        (A)(iii) (for the taxable year in which such 
                        transfer of ownership occurs) an amount equal 
                        to the fair market value of the stock at the 
                        time of such transfer.
                    ``(C) Treatment when share disposed of.--At the 
                time the stock is disposed of, so much of the gain as 
                does not exceed the deduction allowed under 
                subparagraph (B)(ii) shall be treated as ordinary 
                income.
                    ``(D) Failure to include proper amount of ordinary 
                income.--If--
                            ``(i) the gain on any disposition of stock 
                        acquired pursuant to an option to which this 
                        subsection applies exceeds the deduction 
                        allowed under subparagraph (B)(ii), and
                            ``(ii) the individual fails to include in 
                        gross income as ordinary income at least the 
                        amount of such deduction,
                then the entire amount of gain shall be included in 
                gross income as ordinary income.
            ``(4) Special rules.--
                    ``(A) Determination of option price.--For purposes 
                of paragraph (2), an option to acquire stock shall be 
                treated as being granted on the earliest date that the 
                individual could have made the election to acquire 
                stock pursuant to such option.
                    ``(B) Return of payroll deductions.--Nothing in 
                this subsection shall prevent the return of an 
                individual's payroll deductions to the individual if 
                the individuals elects not to use the deducted amounts 
                to acquire the stock. The amount so returned shall be 
                included in the gross income of such individual for the 
                taxable year in which paid to the individual and shall 
                be treated for purposes of subtitle C as remuneration 
                from employment.
                    ``(C) Termination of employment.--If an individual 
                terminates employment with the person who granted the 
                option to acquire stock, paragraph (2)(A) shall not 
                apply to amounts paid within 3 months after such 
                termination to the extent such amounts do not exceed 
                the amount payable under options granted before the 
                date of such termination. In the case of an individual 
                who is disabled or who dies before the close of such 3 
                months, the preceding sentence shall be applied by 
                substituting `1 year' for `3 months'.
                    ``(D) Treatment of nonresident aliens.--If an 
                individual is a nonresident alien individual for any 
                portion of the taxable year, this subsection shall 
                apply only if--
                            ``(i) such individual is treated as a 
                        resident alien of the United States for 
                        purposes of this chapter by reason of an 
                        election under subsection (g) or (h) of section 
                        6013, or
                            ``(ii) such individual has income from 
                        sources within the United States or which is 
                        effectively connected with the conduct of a 
                        trade or business in the United States.
                    ``(E) Certain employees may be excluded.--In 
                applying subsection (b)(4) for purposes of this 
                subsection, there may be excluded employees included in 
                a unit of employees covered by an agreement between 
                employee representatives and one or more employers 
                which the Secretary finds to be a collective bargaining 
                agreement, if the benefits provided under this 
                subsection were the subject of good faith bargaining 
                between such employee representatives and such employer 
                or employers.
            ``(5) Rate of cash compensation must be unaffected.--The 
        grant of any options under the arrangement may not be directly 
        linked with a systematic reduction in the annual rate at which 
        basic or regular cash compensation is paid to employees under 
        the arrangement, as determined under regulations prescribed by 
        the Secretary of the Treasury.
            ``(6) Trust holding payroll deductions.--A trust is 
        described in this paragraph if--
                    ``(A) the trust is created or organized in the 
                United States exclusively for the purposes of holding 
                payroll deductions pursuant to this subsection and 
                stock acquired with such payroll deductions,
                    ``(B) a separate account is maintained for each 
                individual, and
                    ``(C) any earnings on payroll deductions of an 
                individual are paid not less often than annually to 
                such individual.
        The Employee Retirement Income Security Act of 1974 shall not 
        apply to any trust described in this paragraph.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this 
        subsection.''
    (b) Exemption From Tax for Trust Holding Payroll Deductions, Etc.--
Subsection (a) of section 501 of such Code is amended by striking ``or 
section 401(a)'' and inserting ``, section 401(a), or section 
423(d)(5)''.
    (c) Information Reporting.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of such Code is amended by adding at the end the 
        following new section:

``SEC. 6050T. RETURNS RELATING TO TRANSFER OF OWNERSHIP OF STOCK 
              ACQUIRED PURSUANT TO CERTAIN STOCK OPTIONS.

    ``(a) In General.--Any person who is allowed a deduction for any 
taxable year under section 423(d)(3)(B)(ii) with respect to the 
transfer of ownership of stock to any individual shall make the return 
described in subsection (b) with respect to such transfer at such time 
as the Secretary may by regulations prescribe.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary may prescribe,
            ``(2) contains--
                    ``(A) the name, address, and TIN of the individual 
                to whom the stock ownership was so transferred,
                    ``(B) the amount of the deduction allowed under 
                section 423(d)(3)(B)(ii) with respect to such transfer, 
                and
                    ``(C) such other information as the Secretary may 
                prescribe.
    ``(c) Statements To Be Furnished To Persons With Respect To Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each individual whose name is required 
to be set forth in such return a written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such return, 
        and
            ``(2) the amount of the deduction described in subsection 
        (a) with respect to stock ownership transferred to such 
        individual.
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) was 
required to be made.''
            (2) Assessable penalties.--
                    (A) Subparagraph (B) of section 6724(d)(1) of such 
                Code (relating to definitions) is amended by 
                redesignating clauses (xi) through (xvii) as clauses 
                (xii) through (xviii), respectively, and by inserting 
                after clause (x) the following new clause:
                            ``(xi) section 6050T (relating to returns 
                        relating to transfers of ownership of stock 
                        acquired pursuant to certain stock options),''.
                    (B) Paragraph (2) of section 6724(d) of such Code 
                is amended by striking ``or'' at the end of the next to 
                last subparagraph, by striking the period at the end of 
                the last subparagraph and inserting ``, or'', and by 
                adding at the end the following new subparagraph:
                    ``(BB) section 6050T(c) (relating to returns 
                relating to transfers of ownership of stock acquired 
                pursuant to certain stock options).''.
            (3) Clerical amendment.--The table of sections for subpart 
        B of part III of subchapter A of chapter 61 of such Code is 
        amended by inserting after the item relating to section 6050S 
        the following new item:

                              ``Sec. 6050T. Returns relating to 
                                        transfers of ownership of stock 
                                        acquired pursuant to certain 
                                        stock options.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to options granted after the date of the enactment of this Act.

Summary: Workplace Employee Stock Option Act of 2002 - Amends the Internal Revenue Code to provide for the exclusion from gross income of certain stock purchased with payroll deductions through an employee stock purchase plan. Sets forth special rules with respect to the inclusion of nonresident aliens under the provisions of this Act. Allows certain employees to be excluded from purchasing stock options under this Act. Requires certain employers to submit information returns relating to the transfer of ownership of stock acquired by employees pursuant to certain stock options, and assesses penalties for failure to comply.