II 
114TH CONGRESS 
2D SESSION 
H. R. 5719 
IN THE SENATE OF THE UNITED STATES 
SEPTEMBER 26, 2016 
Received 
AN ACT 
To amend the Internal Revenue Code of 1986 to modify 
the tax treatment of certain equity grants. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Empowering Employ-
ees through Stock Ownership Act’’. 
SEC. 2. TREATMENT OF QUALIFIED EQUITY GRANTS. 
(a) IN GENERAL.— 
(1) ELECTION TO DEFER INCOME.—Section 83 
of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new subsection: 
‘‘(i) QUALIFIED EQUITY GRANTS.— 
‘‘(1) IN GENERAL.—For purposes of this sub-
title, if qualified stock is transferred to a qualified 
employee who makes an election with respect to such 
stock under this subsection— 
‘‘(A) except as provided in subparagraph 
(B), no amount shall be included in income 
under subsection (a) for the first taxable year 
in which the rights of the employee in such 
stock are transferable or are not subject to a 
substantial risk of forfeiture, whichever is appli-
cable, and 
‘‘(B) an amount equal to the amount 
which would be included in income of the em-
ployee under subsection (a) (determined without 
regard to this subsection) shall be included in 
income for the taxable year of the employee 
which includes the earliest of— 
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‘‘(i) the first date such qualified stock 
becomes transferable (including transfer-
able to the employer), 
‘‘(ii) the date the employee first be-
comes an excluded employee, 
‘‘(iii) the first date on which any stock 
of the corporation which issued the quali-
fied stock becomes readily tradable on an 
established securities market (as deter-
mined by the Secretary, but not including 
any market unless such market is recog-
nized as an established securities market 
by the Secretary for purposes of a provi-
sion of this title other than this sub-
section), 
‘‘(iv) the date that is 7 years after the 
first date the rights of the employee in 
such stock are transferable or are not sub-
ject to a substantial risk of forfeiture, 
whichever occurs earlier, or 
‘‘(v) the date on which the employee 
revokes (at such time and in such manner 
as the Secretary may provide) the election 
under this subsection with respect to such 
stock. 
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‘‘(2) QUALIFIED STOCK.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘qualified stock’ means, 
with respect to any qualified employee, any 
stock in a corporation which is the employer of 
such employee, if— 
‘‘(i) such stock is received— 
‘‘(I) in connection with the exer-
cise of an option, or 
‘‘(II) in settlement of a restricted 
stock unit, and 
‘‘(ii) such option or restricted stock 
unit was provided by the corporation— 
‘‘(I) in connection with the per-
formance of services as an employee, 
and 
‘‘(II) during a calendar year in 
which such corporation was an eligible 
corporation. 
‘‘(B) LIMITATION.—The term ‘qualified 
stock’ shall not include any stock if the em-
ployee may sell such stock to, or otherwise re-
ceive cash in lieu of stock from, the corporation 
at the time that the rights of the employee in 
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such stock first become transferable or not sub-
ject to a substantial risk of forfeiture. 
‘‘(C) ELIGIBLE CORPORATION.—For pur-
poses of subparagraph (A)(ii)(II)— 
‘‘(i) IN GENERAL.—The term ‘eligible 
corporation’ means, with respect to any 
calendar year, any corporation if— 
‘‘(I) no stock of such corporation 
(or any predecessor of such corpora-
tion) is readily tradable on an estab-
lished securities market (as deter-
mined under paragraph (1)(B)(iii)) 
during any preceding calendar year, 
and 
‘‘(II) such corporation has a writ-
ten plan under which, in such cal-
endar year, not less than 80 percent 
of all employees who provide services 
to such corporation in the United 
States (or any possession of the 
United States) are granted stock op-
tions, or restricted stock units, with 
the same rights and privileges to re-
ceive qualified stock. 
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‘‘(ii) 
SAME
RIGHTS
AND
PRIVI-
LEGES.—For purposes of clause (i)(II)— 
‘‘(I) except as provided in sub-
clauses (II) and (III), the determina-
tion of rights and privileges with re-
spect to stock shall be determined in 
a similar manner as provided under 
section 423(b)(5), 
‘‘(II) employees shall not fail to 
be treated as having the same rights 
and privileges to receive qualified 
stock solely because the number of 
shares available to all employees is not 
equal in amount, so long as the num-
ber of shares available to each em-
ployee is more than a de minimis 
amount, and 
‘‘(III) rights and privileges with 
respect to the exercise of an option 
shall not be treated as the same as 
rights and privileges with respect to 
the settlement of a restricted stock 
unit. 
‘‘(iii) EMPLOYEE.—For purposes of 
clause (i)(II), the term ‘employee’ shall not 
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include any employee described in section 
4980E(d)(4) or any excluded employee. 
‘‘(iv) SPECIAL RULE FOR CALENDAR 
YEARS BEFORE 2017.—In the case of any 
calendar year beginning before January 1, 
2017, clause (i)(II) shall be applied with-
out regard to whether the rights and privi-
leges with respect to the qualified stock are 
the same. 
‘‘(3) QUALIFIED
EMPLOYEE; EXCLUDED
EM-
PLOYEE.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
employee’ means any individual who— 
‘‘(i) is not an excluded employee, and 
‘‘(ii) agrees in the election made 
under this subsection to meet such require-
ments as determined by the Secretary to 
be necessary to ensure that the with-
holding requirements of the corporation 
under chapter 24 with respect to the quali-
fied stock are met. 
‘‘(B) EXCLUDED
EMPLOYEE.—The term 
‘excluded employee’ means, with respect to any 
corporation, any individual— 
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‘‘(i) who was a 1-percent owner (with-
in the meaning of section 416(i)(1)(B)(ii)) 
at any time during the 10 preceding cal-
endar years, 
‘‘(ii) who is or has been at any prior 
time— 
‘‘(I) the chief executive officer of 
such corporation or an individual act-
ing in such a capacity, or 
‘‘(II) the chief financial officer of 
such corporation or an individual act-
ing in such a capacity, 
‘‘(iii) who bears a relationship de-
scribed in section 318(a)(1) to any indi-
vidual described in subclause (I) or (II) of 
clause (ii), or 
‘‘(iv) who has been for any of the 10 
preceding taxable years one of the 4 high-
est compensated officers of such corpora-
tion determined with respect to each such 
taxable year on the basis of the share-
holder disclosure rules for compensation 
under the Securities Exchange Act of 1934 
(as if such rules applied to such corpora-
tion). 
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‘‘(4) ELECTION.— 
‘‘(A) TIME FOR MAKING ELECTION.—An 
election with respect to qualified stock shall be 
made under this subsection no later than 30 
days after the first time the rights of the em-
ployee in such stock are transferable or are not 
subject to a substantial risk of forfeiture, 
whichever occurs earlier, and shall be made in 
a manner similar to the manner in which an 
election is made under subsection (b). 
‘‘(B) LIMITATIONS.—No election may be 
made under this section with respect to any 
qualified stock if— 
‘‘(i) the qualified employee has made 
an election under subsection (b) with re-
spect to such qualified stock, 
‘‘(ii) any stock of the corporation 
which issued the qualified stock is readily 
tradable on an established securities mar-
ket 
(as 
determined 
under 
paragraph 
(1)(B)(iii)) at any time before the election 
is made, or 
‘‘(iii) such corporation purchased any 
of its outstanding stock in the calendar 
year preceding the calendar year which in-
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cludes the first time the rights of the em-
ployee in such stock are transferable or are 
not subject to a substantial risk of for-
feiture, unless— 
‘‘(I) not less than 25 percent of 
the total dollar amount of the stock so 
purchased is deferral stock, and 
‘‘(II) the determination of which 
individuals from whom deferral stock 
is purchased is made on a reasonable 
basis. 
‘‘(C) DEFINITIONS
AND
SPECIAL
RULES 
RELATED TO LIMITATION ON STOCK REDEMP-
TIONS.— 
‘‘(i) DEFERRAL
STOCK.—For pur-
poses of this paragraph, the term ‘deferral 
stock’ means stock with respect to which 
an election is in effect under this sub-
section. 
‘‘(ii) DEFERRAL
STOCK
WITH
RE-
SPECT
TO
ANY
INDIVIDUAL
NOT
TAKEN 
INTO ACCOUNT IF INDIVIDUAL HOLDS DE-
FERRAL STOCK WITH LONGER DEFERRAL 
PERIOD.—Stock purchased by a corpora-
tion from any individual shall not be treat-
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ed as deferral stock for purposes of clause 
(iii) if such individual (immediately after 
such purchase) holds any deferral stock 
with respect to which an election has been 
in effect under this subsection for a longer 
period than the election with respect to the 
stock so purchased. 
‘‘(iii) 
PURCHASE
OF
ALL
OUT-
STANDING
DEFERRAL
STOCK.—The re-
quirements of subclauses (I) and (II) of 
subparagraph (B)(iii) shall be treated as 
met if the stock so purchased includes all 
of the corporation’s outstanding deferral 
stock. 
‘‘(iv) REPORTING.—Any corporation 
which has outstanding deferral stock as of 
the beginning of any calendar year and 
which purchases any of its outstanding 
stock during such calendar year shall in-
clude on its return of tax for the taxable 
year in which, or with which, such calendar 
year ends the total dollar amount of its 
outstanding stock so purchased during 
such calendar year and such other infor-
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mation as the Secretary may require for 
purposes of administering this paragraph. 
‘‘(5) CONTROLLED GROUPS.—For purposes of 
this subsection, all corporations which are members 
of the same controlled group of corporations (as de-
fined in section 1563(a)) shall be treated as one cor-
poration. 
‘‘(6) NOTICE REQUIREMENT.—Any corporation 
that transfers qualified stock to a qualified employee 
shall, at the time that (or a reasonable period be-
fore) an amount attributable to such stock would 
(but for this subsection) first be includible in the 
gross income of such employee— 
‘‘(A) certify to such employee that such 
stock is qualified stock, and 
‘‘(B) notify such employee— 
‘‘(i) that the employee may elect to 
defer income on such stock under this sub-
section, and 
‘‘(ii) that, if the employee makes such 
an election— 
‘‘(I) the amount of income recog-
nized at the end of the deferral period 
will be based on the value of the stock 
at the time at which the rights of the 
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employee in such stock first become 
transferable or not subject to substan-
tial risk of forfeiture, notwithstanding 
whether the value of the stock has de-
clined during the deferral period, 
‘‘(II) the amount of such income 
recognized at the end of the deferral 
period will be subject to withholding 
under section 3401(i) at the rate de-
termined under section 3402(t), and 
‘‘(III) the responsibilities of the 
employee (as determined by the Sec-
retary under paragraph (3)(A)(ii)) 
with respect to such withholding.’’. 
(2) DEDUCTION BY EMPLOYER.—Subsection (h) 
of section 83 of the Internal Revenue Code of 1986 
is amended by striking ‘‘or (d)(2)’’ and inserting 
‘‘(d)(2), or (i)’’. 
(b) WITHHOLDING.— 
(1) TIME OF WITHHOLDING.—Section 3401 of 
the Internal Revenue Code of 1986 is amended by 
adding at the end the following new subsection: 
‘‘(i) QUALIFIED STOCK FOR WHICH AN ELECTION IS 
IN EFFECT UNDER SECTION 83(i).—For purposes of sub-
section (a), qualified stock (as defined in section 83(i)) 
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with respect to which an election is made under section 
83(i) shall be treated as wages— 
‘‘(1) received on the earliest date described in 
section 83(i)(1)(B), and 
‘‘(2) in an amount equal to the amount in-
cluded in income under section 83 for the taxable 
year which includes such date.’’. 
(2) AMOUNT OF WITHHOLDING.—Section 3402 
of such Code is amended by adding at the end the 
following new subsection: 
‘‘(t) 
RATE
OF
WITHHOLDING
FOR
CERTAIN 
STOCK.—In the case of any qualified stock (as defined in 
section 83(i)) with respect to which an election is made 
under section 83(i)— 
‘‘(1) the rate of tax under subsection (a) shall 
not be less than the maximum rate of tax in effect 
under section 1, and 
‘‘(2) such stock shall be treated for purposes of 
section 3501(b) in the same manner as a non-cash 
fringe benefit.’’. 
(c) COORDINATION WITH OTHER DEFERRED COM-
PENSATION RULES.— 
(1) ELECTION TO APPLY DEFERRAL TO STATU-
TORY OPTIONS.— 
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(A) INCENTIVE STOCK OPTIONS.—Section 
422(b) of the Internal Revenue Code of 1986 is 
amended by adding at the end the following: 
‘‘Such term shall not include any option if an 
election is made under section 83(i) with re-
spect to the stock received in connection with 
the exercise of such option.’’. 
(B) 
EMPLOYEE
STOCK
PURCHASE 
PLANS.—Section 423(a) of such Code is amend-
ed by adding at the end the following flush sen-
tence: 
‘‘The preceding sentence shall not apply to any share of 
stock with respect to which an election is made under sec-
tion 83(i).’’. 
(2) EXCLUSION
FROM
DEFINITION
OF
NON-
QUALIFIED DEFERRED COMPENSATION PLAN.—Sub-
section (d) of section 409A of the Internal Revenue 
Code of 1986 is amended by adding at the end the 
following new paragraph: 
‘‘(7) TREATMENT OF QUALIFIED STOCK.—An 
arrangement under which an employee may receive 
qualified stock (as defined in section 83(i)(2)) shall 
not be treated as a nonqualified deferred compensa-
tion plan solely because of an employee’s ability to 
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defer recognition of income pursuant to an election 
under section 83(i).’’. 
(d) INFORMATION REPORTING.—Section 6051(a) of 
the Internal Revenue Code of 1986 is amended by striking 
‘‘and’’ at the end of paragraph (13), by striking the period 
at the end of paragraph (14) and inserting a comma, and 
by inserting after paragraph (14) the following new para-
graphs: 
‘‘(15) the amount excludable from gross income 
under subparagraph (A) of section 83(i)(1), 
‘‘(16) the amount includible in gross income 
under subparagraph (B) of section 83(i)(1) with re-
spect to an event described in such subparagraph 
which occurs in such calendar year, and 
‘‘(17) the aggregate amount of income which is 
being deferred pursuant to elections under section 
83(i), determined as of the close of the calendar 
year.’’. 
(e) PENALTY FOR FAILURE OF EMPLOYER TO PRO-
VIDE NOTICE OF TAX CONSEQUENCES.—Section 6652 of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new subsection: 
‘‘(o) FAILURE TO PROVIDE NOTICE UNDER SECTION 
83(i).—In the case of each failure to provide a notice as 
required by section 83(i)(6), at the time prescribed there-
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for, unless it is shown that such failure is due to reason-
able cause and not to willful neglect, there shall be paid, 
on notice and demand of the Secretary and in the same 
manner as tax, by the person failing to provide such no-
tice, an amount equal to $100 for each such failure, but 
the total amount imposed on such person for all such fail-
ures during any calendar year shall not exceed $50,000.’’. 
(f) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to stock attributable to options exercised, 
or restricted stock units settled, after December 31, 
2016. 
(2) REQUIREMENT TO PROVIDE NOTICE.—The 
amendments made by subsection (e) shall apply to 
failures after December 31, 2016. 
(g) TRANSITION RULE.—Until such time as the Sec-
retary (or the Secretary’s delegate) issue regulations or 
other guidance for purposes of implementing the require-
ments of paragraph (2)(C)(i)(II) of section 83(i) of the 
Internal Revenue Code of 1986 (as added by this section), 
or the requirements of paragraph (6) of such section, a 
corporation shall be treated as being in compliance with 
such requirements (respectively) if such corporation com-
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plies with a reasonable good faith interpretation of such 
requirements. 
Passed the House of Representatives September 22, 
2016. 
Attest: 
KAREN L. HAAS, 
Clerk. 
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