II 

111TH CONGRESS 

1ST SESSION S. 1491 

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 22, 2009 

Mr. LEVIN (for himself and Mr. MCCAIN) 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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•S 1491 IS

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 the exer15 cise of a stock option, any deduction by the employer 

16 related to such stock option shall be allowed only 

17 under section 162(q) and paragraph (1) shall not 

18 apply.’’. 

19 (2) TREATMENT OF COMPENSATION PAID WITH

20 STOCK OPTIONS.—Section 162 of such Code (relat21 ing to trade or business expenses) is amended by re22 designating subsection (q) as subsection (r) and by 

23 inserting after subsection (p) the following new sub24 section: 

25 ‘‘(q) TREATMENT OF COMPENSATION PAID WITH

26 STOCK OPTIONS.— 


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•S 1491 IS

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 an expense with respect to such stock options for the 

6 purpose of ascertaining income, profit, or loss in a 

7 report or statement to shareholders, partners, or 

8 other proprietors (or to beneficiaries), and shall be 

9 allowed in the same period that the accounting ex10 pense is recognized. 

11 ‘‘(2) SPECIAL RULES FOR CONTROLLED

12 GROUPS.—The Secretary shall prescribe rules for the 

13 application of paragraph (1) in cases where the 

14 stock option is granted by a parent or subsidiary 

15 corporation (within the meaning of section 424) of 

16 the employer corporation.’’. 

17 (b) CONSISTENT TREATMENT FOR RESEARCH TAX

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

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

20 increasing research expenses) is amended by inserting at 

21 the end the following new clause: 

22 ‘‘(iv) SPECIAL RULE FOR STOCK OP23 TIONS.—The amount which may be treated 

24 as wages for any taxable year in connec25 tion with the issuance of a stock option 


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•S 1491 IS

1 shall not exceed the amount allowed for 

2 such taxable year as a compensation de3 duction under section 162(q) with respect 

4 to such stock option.’’. 

5 (c) APPLICATION OF AMENDMENTS.—The amend6 ments made by this section shall apply to stock options 

7 exercised after the date of the enactment of this Act, ex8 cept that— 

9 (1) such amendments shall not apply to stock 

10 options that were granted before such date and that 

11 vested in taxable periods beginning on or before 

12 June 15, 2005, 

13 (2) for stock options that were granted before 

14 such date of enactment and vested during taxable 

15 periods beginning after June 15, 2005, and ending 

16 before such date of enactment, a deduction under 

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

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

19 the first taxable period of the taxpayer that ends 

20 after such date of enactment, 

21 (3) for public entities reporting as small busi22 ness issuers and for non-public entities required to 

23 file public reports of financial condition, paragraphs 

24 (1) and (2) shall be applied by substituting ‘‘Decem25 ber 15, 2005’’ for ‘‘June 15, 2005’’, and 


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•S 1491 IS

1 (4) no deduction shall be allowed under section 

2 83(h) or section 162(q) of such Code with respect to 

3 any stock option the vesting date of which is 

4 changed to accelerate the time at which the option 

5 may be exercised in order to avoid the applicability 

6 of such amendments. 

7 SEC. 3. APPLICATION OF EXECUTIVE PAY DEDUCTION 

8 LIMIT. 

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

10 162(m)(4) of the Internal Revenue Code of 1986 (defining 

11 applicable employee remuneration) is amended to read as 

12 follows: 

13 ‘‘(D) STOCK OPTION COMPENSATION.— 

14 The term ‘applicable employee remuneration’ 

15 shall include any compensation deducted under 

16 subsection (q), and such compensation shall not 

17 qualify as performance-based compensation 

18 under subparagraph (C).’’. 

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

20 this section shall apply to stock options exercised or grant21 ed after the date of the enactment of this Act. 

Æ 


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