I

106TH CONGRESS

2D SESSION H. R. 4972

To amend the Internal Revenue Code of 1986 to encourage the granting

of employee stock options.

IN THE HOUSE OF REPRESENTATIVES

JULY 26, 2000

Mr. HOUGHTON (for himself and Mr. MATSUI) introduced the following bill;

which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to encourage

the granting of employee stock options.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Universal Employee

5 Stock Option Act of 2000’’.

6 SEC. 2. INCENTIVES TO GRANT EMPLOYEE STOCK OP7 TIONS.

8 (a) IN GENERAL.—Section 423 of the Internal Rev9 enue Code of 1986 (relating to employee stock purchase
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1 plans) is amended by adding at the end the following new

2 subsection:

3 ‘‘(d) SPECIAL INCENTIVES WITH RESPECT TO EM4 PLOYEE STOCK PURCHASE PLANS WHICH MEET CER5 TAIN ADDITIONAL REQUIREMENTS.—

6 ‘‘(1) IN GENERAL.—If—

7 ‘‘(A) section 421(a) would (but for this

8 subsection) apply with respect to the transfer of

9 stock to an individual by reason of this section,

10 and

11 ‘‘(B) the requirements of paragraph (2)

12 are met with respect to such transfer,

13 the rules of paragraph (3) shall apply in lieu of the

14 rules of section 421(a).

15 ‘‘(2) REQUIREMENTS.—A transfer of stock to

16 an individual meets the requirements of this para17 graph if—

18 ‘‘(A) the price paid by the individual for

19 the stock under the option is paid only through

20 payroll deductions in substantially equal

21 amounts over a period of not less than 12

22 months and not more than 60 months,

23 ‘‘(B) such payroll deductions are held in a

24 trust described in paragraph (6),
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1 ‘‘(C) the price of the stock acquired under

2 the option is not less than the fair market value

3 of the stock at the time the option is granted,

4 ‘‘(D) ownership of the stock is transferred

5 to the individual at the end of the payroll de6 duction period (or, if earlier, the date that the

7 price of the stock under the option is fully

8 paid),

9 ‘‘(E) the individual’s election to purchase

10 such stock pursuant to the option is made dur11 ing the 30-day period beginning on the earliest

12 date that the individual could have made the

13 election to acquire stock pursuant to such op14 tion, and

15 ‘‘(F) the stock acquired by the individual

16 pursuant to the option is held by the trust de17 scribed in paragraph (5) until the individual

18 elects to dispose of such stock.

19 ‘‘(3) SPECIAL TAX TREATMENT.—

20 ‘‘(A) TREATMENT OF PAYROLL DEDUC21 TIONS.—With respect to the payroll deductions

22 referred to in paragraph (2)(A)—

23 ‘‘(i) the gross income of the individual

24 shall not include an amount equal to such

25 deductions,
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1 ‘‘(ii) for purposes of subtitle C, the in2 dividual’s remuneration for employment

3 shall not include an amount equal to such

4 deductions, and

5 ‘‘(iii) the deduction otherwise allow6 able under section 162 for remuneration

7 paid to such individual shall be reduced by

8 an amount equal to such deductions.

9 The aggregate amount to which the preceding

10 sentence applies for any taxable year of an indi11 vidual shall not exceed the limitation under sec12 tion 402(g)(1) for such taxable year.

13 ‘‘(B) TREATMENT WHEN SHARE TRANS14 FERRED TO INDIVIDUAL.—

15 ‘‘(i) EMPLOYEE.—No amount shall be

16 includible in the gross income of an indi17 vidual (or treated as remuneration for pur18 poses of subtitle C) by reason of the trans19 fer of ownership of stock acquired pursu20 ant to an option to which this subsection

21 applies.

22 ‘‘(ii) EMPLOYER.—There shall be al23 lowed as a deduction under section 162 to

24 the person whose deduction was reduced

25 under subparagraph (A)(iii) (for the tax-
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1 able year in which such transfer of owner2 ship occurs) an amount equal to the fair

3 market value of the stock at the time of

4 such transfer.

5 ‘‘(C) TREATMENT WHEN SHARE DISPOSED

6 OF.—At the time the trust disposes of the

7 stock, so much of the gain as does not exceed

8 the deduction allowed under subparagraph

9 (B)(ii) shall be treated as ordinary income.

10 ‘‘(5) SPECIAL RULES.—

11 ‘‘(A) DETERMINATION OF OPTION

12 PRICE.—For purposes of paragraph (2), an op13 tion to acquire stock shall be treated as being

14 granted on the earliest date that the individual

15 could have made the election to acquire stock

16 pursuant to such option.

17 ‘‘(B) RETURN OF PAYROLL DEDUC18 TIONS.—Nothing in this subsection shall pre19 vent the return of an individual’s payroll deduc20 tions to the individual if the individuals elects

21 not to use the deducted amounts to acquire the

22 stock. The amount so returned shall be included

23 in the gross income of such individual for the

24 taxable year in which paid to the individual and
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1 shall be treated for purposes of subtitle C as re2 muneration from employment.

3 ‘‘(C) TERMINATION OF EMPLOYMENT.—If

4 an individual terminates employment with the

5 person who granted the option to acquire stock,

6 paragraph (2)(A) shall not apply to amounts

7 paid within 3 months after such termination to

8 the extent such amounts do not exceed the

9 amount payable under options granted before

10 the date of such termination. In the case of an

11 individual who is disabled, the preceding sen12 tence shall be applied by substituting ‘1 year’

13 for ‘3 months’.

14 ‘‘(5) TRUST HOLDING PAYROLL DEDUCTIONS.—

15 A trust is described in this paragraph if—

16 ‘‘(A) the trust is created or organized in

17 the United States exclusively for the purposes

18 of holding payroll deductions pursuant to this

19 subsection and stock acquired with such payroll

20 deductions,

21 ‘‘(B) a separate account is maintained for

22 each individual, and

23 ‘‘(C) any earnings on payroll deductions of

24 an individual are credited to the account of

25 such individual.’’
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1 (b) EXEMPTION FROM TAX FOR TRUST HOLDING

2 PAYROLL DEDUCTIONS, ETC.—Subsection (a) of section

3 501 of such Code is amended by striking ‘‘or section

4 401(a)’’ and inserting ‘‘, section 401(a), or section

5 423(d)(5)’’.

6 (c) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to options granted after the date

8 of the enactment of this Act.

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