I 

113TH CONGRESS 

2D SESSION H. R. 4089 

To amend the Internal Revenue Code of 1986 to exclude from gross income 

compensation received by employees consisting of qualified distributions 

of employer stock. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 25, 2014 

Mr. ROHRABACHER (for himself, Mr. MCKINLEY, and Mr. JONES) 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 exclude 

from gross income compensation received by employees 

consisting of qualified distributions of employer stock. 

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

3 SECTION 1. QUALIFIED STOCK DISTRIBUTIONS TO EM4 PLOYEES. 

5 (a) IN GENERAL.—Part III of subchapter B of chap6 ter 1 of the Internal Revenue Code of 1986 is amended 

7 by inserting after section 83 the following new section: 


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1 ‘‘SEC. 83A. QUALIFIED STOCK DISTRIBUTIONS TO EMPLOY2 EES. 

3 ‘‘(a) IN GENERAL.—If an employee elects to have this 

4 section apply with respect to any qualified employee stock 

5 distribution, gross income shall not include— 

6 ‘‘(1) so many shares of employer securities re7 ceived by an individual in a qualified employee stock 

8 distribution of such individual’s employer as does 

9 not exceed the maximum stock amount, 

10 ‘‘(2) any gain on employer securities excluded 

11 from gross income under paragraph (1) if such em12 ployer security is held by such individual for not less 

13 than 10 years, and 

14 ‘‘(3) in the case of any qualified disposition of 

15 an employer security which is described in para16 graph (2) (and which meets the holding requirement 

17 of such paragraph), any gain on so much stock ac18 quired during the 60-day period beginning on the 

19 date of such disposition as does not exceed the fair 

20 market value of the employer security so disposed 

21 (determined as of the time of disposition). 

22 ‘‘(b) DEFINITIONS.—For purposes of this section— 

23 ‘‘(1) EMPLOYER SECURITIES.—The term ‘em24 ployer securities’ has the meaning given such term 

25 in section 409(l), except that paragraph (3) thereof 

26 shall be applied by substituting ‘the date of the 


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1 qualified employee stock distribution’ for ‘the date of 

2 the acquisition by the tax credit employee stock own3 ership plan’. 

4 ‘‘(2) QUALIFIED EMPLOYEE STOCK DISTRIBU5 TION.—The term ‘qualified employee stock distribu6 tion’ means a distribution by an employer of em7 ployer securities to employees (determined as of the 

8 date of the distribution) of such employer as com9 pensation for services, except that there may be dis10 regarded any employee who (as of the date of the 

11 distribution)— 

12 ‘‘(A) has not attained age 18, 

13 ‘‘(B) has not completed 12 months of serv14 ice with the employer, 

15 ‘‘(C) is a nonresident alien, 

16 ‘‘(D) is a citizen or resident of a foreign 

17 jurisdiction (including any individual who is 

18 also a citizen or resident of the United States) 

19 if the distribution to such individual is prohib20 ited under the laws of such foreign jurisdiction, 

21 ‘‘(E) holds 10 percent or more of the out22 standing stock of the employer, or 

23 ‘‘(F) is an employee whose compensation 

24 from the employer is subject to disclosure under 


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1 rules promulgated by the Securities and Ex2 change Commission. 

3 ‘‘(3) MAXIMUM STOCK AMOUNT.—The term 

4 ‘maximum stock amount’ means, with respect to any 

5 distribution, the lowest number of employer securi6 ties received by any employee of the employer in 

7 such distribution. 

8 ‘‘(4) QUALIFIED DISPOSITION.— 

9 ‘‘(A) IN GENERAL.—The term ‘qualified 

10 disposition’ means, with respect to the disposi11 tion of any employer security described in para12 graph (2) of subsection (a) (and which meets 

13 the holding requirement of such paragraph) 

14 during any calendar year, the disposition of a 

15 number of shares of such security not in excess 

16 of the excess of— 

17 ‘‘(i) the applicable percentage of the 

18 aggregate number of shares of such secu19 rity received during the calendar year that 

20 such security was received, over 

21 ‘‘(ii) the aggregate number of shares 

22 of such security taken into account under 

23 this subparagraph for all prior calendar 

24 years. 


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1 ‘‘(B) APPLICABLE PERCENTAGE.—For 

2 purposes of clause (i), the applicable percentage 

3 is, with respect to any calendar year following 

4 the calendar year in which such security was re5 ceived, the percentage determined in accordance 

6 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. 

7 ‘‘(c) EMPLOYMENT TAXES.—Amounts excluded from 

8 gross income under subsection (a)(1) shall not be taken 

9 into account as wages for purposes of chapters 21, 22, 

10 23, 23A, and 24. 

11 ‘‘(d) COORDINATION WITH SECTION 83.—In the case 

12 of a transfer of employer securities to which subsection 

13 (a)(1) applies— 

14 ‘‘(1) IN GENERAL.—Section 83 shall not apply. 

15 ‘‘(2) DEDUCTION BY EMPLOYER.—There shall 

16 be allowed as a deduction under section 162, to the 

17 person for whom were performed the services in con18 nection with which such securities were transferred, 

19 an amount equal to the fair market value of such seVerDate Mar 15 2010 05:26 Feb 26, 2014 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4089.IH H4089

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1 curities (determined as of the time of such transfer). 

2 Such deduction shall be allowed for the taxable year 

3 which includes the date of such transfer. 

4 ‘‘(e) RECAPTURE IF STOCK DISPOSED DURING RE5 QUIRED HOLDING PERIOD.—If an amount is excluded 

6 from gross income under subsection (a)(1) with respect 

7 to any employer security and the individual disposes of 

8 such security at any time during the 5-year period begin9 ning on the date that such individual received such secu10 rity— 

11 ‘‘(1) the gross income of such individual for the 

12 taxable year which includes the date of such disposi13 tion shall be increased by the amount so excluded, 

14 and 

15 ‘‘(2) the tax imposed by this chapter for such 

16 taxable year shall be increased by the sum of the 

17 amounts of tax which would have been imposed 

18 under subchapters A and B of chapters 21 and 22 

19 if subsection (c) had not applied with respect to such 

20 amount. 

21 For purposes of this title and the Social Security Act, any 

22 increase in tax under paragraph (2) shall be treated as 

23 imposed under the provision of chapter 21 or 22 with re24 spect to which such increase relates. 


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1 ‘‘(f) BASIS OF STOCK EQUAL TO FAIR MARKET

2 VALUE AT TIME OF TRANSFER.—Notwithstanding section 

3 1012, in the case of a transfer of employer securities to 

4 which subsection (a)(1) applies, the basis of such securi5 ties in the hands of the transferee immediately after such 

6 transfer shall be equal to the fair market value of such 

7 securities (determined as of the time of such transfer). 

8 ‘‘(g) AGGREGATION RULE.—Two or more persons 

9 who are treated as a single employer under subsection (b), 

10 (c), (m), or (o) of section 414 shall be treated as a single 

11 employer for purposes of this section. 

12 ‘‘(h) ELECTION.—The election under subsection (a) 

13 shall be made at such time and in such manner as the 

14 Secretary may prescribe. Once made, such election may 

15 be revoked only with the consent of the Secretary. 

16 ‘‘(i) REGULATIONS.—The Secretary shall issue such 

17 regulations or other guidance as may be necessary or ap18 propriate to carry out this section, including regulations 

19 or other guidance which— 

20 ‘‘(1) provide for the application of this section 

21 to stock options, 

22 ‘‘(2) provide mechanisms by which to satisfy 

23 the requirements of this section in the event that an 

24 employee is inadvertently excluded from a distribu25 tion of employer securities (including a case where 


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1 a service provider is treated as not an employee by 

2 the employer, but is determined to be an employee), 

3 and 

4 ‘‘(3) require such reporting under sections 6045 

5 and 6051 with respect to transfers of stock to which 

6 subsection (a) applies as the Secretary determines to 

7 be necessary or appropriate to carry out this sec8 tion.’’. 

9 (b) CLERICAL AMENDMENT.—The table of sections 

10 for such part is amended by inserting after the item relat11 ing to section 83 the following new item: 

‘‘Sec. 83A. Qualified stock distributions to employees.’’. 

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

13 this section shall apply to stock received by employees 

14 after the date of the enactment of this Act. 

Æ 


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