II 

112TH CONGRESS 

1ST SESSION S. 1375 

To amend the Internal Revenue Code of 1986 to provide that corporate 

tax benefits based upon stock option compensation expenses be consistent 

with accounting expenses shown in corporate financial statements for 

such compensation. 

IN THE SENATE OF THE UNITED STATES 

JULY 14, 2011 

Mr. LEVIN (for himself and Mr. BROWN of Ohio) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

that corporate tax benefits based upon stock option compensation expenses be consistent with accounting expenses shown in corporate financial statements for such 

compensation. 

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 ‘‘Ending Excessive Cor5 porate Deductions for Stock Options Act’’. 


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1 SEC. 2. CONSISTENT TREATMENT OF STOCK OPTIONS BY 

2 CORPORATIONS. 

3 (a) CONSISTENT TREATMENT FOR WAGE DEDUC4 TION.— 

5 (1) IN GENERAL.—Section 83(h) of the Internal 

6 Revenue Code of 1986 (relating to deduction of em7 ployer) is amended— 

8 (A) by striking ‘‘In the case of’’ and in9 serting: 

10 ‘‘(1) IN GENERAL.—In the case of’’, and 

11 (B) by adding at the end the following new 

12 paragraph: 

13 ‘‘(2) STOCK OPTIONS.—In the case of property 

14 transferred to a person in connection with a stock 

15 option, any deduction related to such stock option 

16 shall be allowed only under section 162(q) and para17 graph (1) shall not apply.’’. 

18 (2) TREATMENT OF COMPENSATION PAID WITH

19 STOCK OPTIONS.—Section 162 of such Code (relat20 ing to trade or business expenses) is amended by re21 designating subsection (q) as subsection (r) and by 

22 inserting after subsection (p) the following new sub23 section: 

24 ‘‘(q) TREATMENT OF COMPENSATION PAID WITH

25 STOCK OPTIONS.— 


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1 ‘‘(1) IN GENERAL.—In the case of compensa2 tion for personal services that is paid with stock op3 tions, the deduction under subsection (a)(1) shall 

4 not exceed the amount the taxpayer has treated as 

5 compensation cost with respect to such stock options 

6 for the purpose of ascertaining income, profit, or 

7 loss in a report or statement to shareholders, part8 ners, or other proprietors (or to beneficiaries), and 

9 shall be taken into account in the same period that 

10 such compensation cost is recognized for such pur11 pose. 

12 ‘‘(2) SPECIAL RULES FOR CONTROLLED

13 GROUPS.—The Secretary may prescribe rules for the 

14 application of paragraph (1) in cases where the 

15 stock option is granted by— 

16 ‘‘(A) a parent or subsidiary corporation 

17 (within the meaning of section 424) of the tax18 payer, or 

19 ‘‘(B) another corporation.’’. 

20 (b) CONSISTENT TREATMENT FOR RESEARCH TAX

21 CREDIT.—Section 41(b)(2)(D) of the Internal Revenue 

22 Code of 1986 (defining wages for purposes of credit for 

23 increasing research expenses) is amended by inserting at 

24 the end the following new clause: 


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1 ‘‘(iv) SPECIAL RULE FOR STOCK OP2 TIONS.—The amount which may be treated 

3 as wages for any taxable year in connec4 tion with the issuance of a stock option 

5 shall not exceed the amount allowed for 

6 such taxable year as a compensation de7 duction under section 162(q) with respect 

8 to such stock option.’’. 

9 (c) APPLICATION OF AMENDMENTS.—The amend10 ments made by this section shall apply to stock options 

11 exercised after the date of the enactment of this Act, ex12 cept that— 

13 (1) such amendments shall not apply to stock 

14 options that were granted before such date and that 

15 vested in taxable periods beginning on or before 

16 June 15, 2005, 

17 (2) for stock options that were granted before 

18 such date of enactment and vested during taxable 

19 periods beginning after June 15, 2005, and ending 

20 before such date of enactment, a deduction under 

21 section 162(q) of the Internal Revenue Code of 1986 

22 (as added by subsection (a)(2)) shall be allowed in 

23 the first taxable period of the taxpayer that ends 

24 after such date of enactment, 


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1 (3) for public entities reporting as small busi2 ness issuers and for non-public entities required to 

3 file public reports of financial condition, paragraphs 

4 (1) and (2) shall be applied by substituting ‘‘Decem5 ber 15, 2005’’ for ‘‘June 15, 2005’’, and 

6 (4) no deduction shall be allowed under section 

7 83(h) or section 162(q) of such Code with respect to 

8 any stock option the vesting date of which is 

9 changed to accelerate the time at which the option 

10 may be exercised in order to avoid the applicability 

11 of such amendments. 

12 SEC. 3. APPLICATION OF EXECUTIVE PAY DEDUCTION 

13 LIMIT. 

14 (a) IN GENERAL.—Subparagraph (D) of section 

15 162(m)(4) of the Internal Revenue Code of 1986 (defining 

16 applicable employee remuneration) is amended to read as 

17 follows: 

18 ‘‘(D) STOCK OPTION COMPENSATION.— 

19 The term ‘applicable employee remuneration’ 

20 shall include any compensation deducted under 

21 subsection (q), and such compensation shall not 

22 qualify as performance-based compensation 

23 under subparagraph (C).’’. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to stock options exercised or grant3 ed after the date of the enactment of this Act. 

Æ 


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