SEC. 2. MAXIMUM RATE OF INCOME TAX FOR C CORPORA-
TIONS WITH SUBSTANTIAL EMPLOYEE OWN-
ERSHIP.
(a) IN GENERAL.—Section 11 of the Internal Rev-
enue Code of 1986 (relating to tax on corporations) is
amended by redesignating subsections (c) and (d) as sub-
sections (d) and (e), respectively, and by inserting after
subsection (b) the following new subsection:
‘‘(c) MAXIMUM RATE OF 30 PERCENT FOR CORPORA-
TIONS WITH SUBSTANTIAL EMPLOYEE OWNERSHIP.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (b)(2), the maximum rate of tax under sub-
section (b) shall be 30 percent with respect to any
corporation if, with respect to such corporation—
‘‘(A) the employee voting percentage is at
least 20 percent, and
‘‘(B) the employee value percentage is at
least 20 percent.
‘‘(2) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) EMPLOYEE VOTING PERCENTAGE.—
The term ‘employee voting percentage’ means
the percentage of the total voting power of the
stock of such corporation which is held directly
by employees of such corporation.
‘‘(B) EMPLOYEE
VALUE
PERCENTAGE.—
The term ‘employee value percentage’ means
the percentage of the total value of the stock of
such corporation which is held directly by em-
ployees of such corporation.
‘‘(C) STOCK.—The term ‘stock’ has the
meaning given such term under section 1504.
‘‘(3) DETERMINATION
OF
OWNERSHIP
AVER-
AGES.—
‘‘(A) IN GENERAL.—The determination of
the employee voting percentage and the em-
ployee value percentage shall be made on the
last day of the taxable year of the corporation.
‘‘(B) HOLDINGS
OF
PERCENT-SHARE-
HOLDERS AND HIGHLY COMPENSATED EMPLOY-
EES
DISREGARDED.—Each such percentage
shall be determined without regard to the hold-
ings of any highly compensated employee (as
defined in section 414(q)). Notwithstanding the
preceding sentence, the holdings of 5-percent
owners (as defined in such section) shall be
taken into account if the corporation has 50 or
fewer employees.
‘‘(C) CONTROLLED GROUPS.—In the case
of corporations which are treated as a single
employer under section 52(a)—
‘‘(i) such corporations shall be treated
as 1 corporation for purposes of subpara-
graph (B), and
‘‘(ii) the Secretary shall prescribe
regulations—
‘‘(I) for the application of this
subsection in the case of corporations
filing a consolidated return, and
‘‘(II) to prevent the abuse of the
purposes of this subsection.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 3. EXCLUSION FROM GROSS INCOME FOR COMPENSA-
TION PAID IN STOCK BY CERTAIN CORPORA-
TIONS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by redesignating section 139 as section 140 and by insert-
ing after section 138 the following new section:
‘‘SEC. 139. COMPENSATION PAID IN STOCK BY CERTAIN
CORPORATIONS.
‘‘(a) IN GENERAL.—In the case of an employee of
an eligible corporation, gross income of such employee
does not include remuneration received in the form of
stock of such corporation or of any parent or subsidiary
(within the meaning of section 422(b)) of such corpora-
tion.
‘‘(b) LIMITATION.—The amount excluded under sub-
section (a) from the gross income of an employee for any
taxable year shall not exceed 20 percent of the wages (as
defined in section 3401(a) without regard to paragraph
(22)) which would (but for this section) be includible in
gross income for such year.
‘‘(c) ELIGIBLE CORPORATION.—For purposes of this
section, the term ‘eligible corporation’ means, with respect
to any taxable year of an employee, any corporation if—
‘‘(1) the corporation offers to pay remuneration
for services performed during the calendar year in
which or with which such taxable year ends in the
form of stock of such corporation to at least 95 per-
cent of such corporation’s full-time employees, and
‘‘(2) at least 95 percent of the value of the
stock which is so offered during such calendar year
is offered to employees whose wages (as defined in
section 3401(a)) are among the bottom 75 percent
of the employees when ranked on the basis of such
wages.
‘‘(d) BASIS.—The amount excluded from gross in-
come under this section shall not be taken into account
in determining the basis of the stock.’’
(b) EXCLUSION FROM WITHHOLDING.—Subsection
(a) of section 3401 of such Code is amended by striking
‘‘or’’ at the end of paragraph (20), by striking the period
at the end of paragraph (21) and inserting ‘‘; or’’, and
by adding at the end the following new paragraph:
‘‘(22) in the form of stock if at the time such
stock is paid it is reasonable to believe that the em-
ployee will be able to exclude such stock from income
under section 139.’’
(c) CLERICAL AMENDMENT.—The table of sections
for such part III is amended by striking the last item and
inserting the following new items:
‘‘Sec. 139. Compensation paid in stock by certain corporations.
‘‘Sec. 140. Cross references to other Acts.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 4. DEDUCTION ALLOWED TO ELIGIBLE CORPORA-
TIONS AT TIME QUALIFIED STOCK OPTION
GRANTED.
(a) IN GENERAL.—Subsection (a) of section 421 of
the Internal Revenue Code of 1986 (relating to general
rules for certain stock options) is amended by adding at
the end the following flush sentence:
‘‘Paragraph (2) shall not apply to options granted during
any calendar year for which the corporation is an eligible
corporation (as defined in section 139(c)).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to options granted after the date
of the enactment of this Act.
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