IB 
Union Calendar No. 581 
114TH CONGRESS 
2D SESSION 
H. R. 5719 
[Report No. 114–748] 
To amend the Internal Revenue Code of 1986 to modify the tax treatment 
of certain equity grants. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 11, 2016 
Mr. PAULSEN introduced the following bill; which was referred to the 
Committee on Ways and Means 
SEPTEMBER 16, 2016 
Additional sponsors: Mr. CROWLEY, Ms. ESHOO, and Mr. HULTGREN 
SEPTEMBER 16, 2016 
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on July 11, 2016] 
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A BILL 
To amend the Internal Revenue Code of 1986 to modify 
the tax treatment of certain equity grants. 
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Empowering Employees 
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 subtitle, 
if qualified stock is transferred to a qualified em-
ployee 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 substan-
tial risk of forfeiture, whichever is applicable, 
and 
‘‘(B) an amount equal to the amount which 
would be included in income of the employee 
under subsection (a) (determined without regard 
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to this subsection) shall be included in income 
for the taxable year of the employee which in-
cludes the earliest of— 
‘‘(i) the first date such qualified stock 
becomes transferable (including transferable 
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 qualified 
stock becomes readily tradable on an estab-
lished securities market (as determined by 
the Secretary, but not including any market 
unless such market is recognized as an es-
tablished securities market by the Secretary 
for purposes of a provision of this title other 
than this subsection), 
‘‘(iv) the date that is 7 years after the 
first date the rights of the employee in such 
stock are transferable or are not subject to 
a substantial risk of forfeiture, whichever 
occurs earlier, or 
‘‘(v) the date on which the employee re-
vokes (at such time and in such manner as 
the Secretary may provide) the election 
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under this subsection with respect to such 
stock. 
‘‘(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 em-
ployee, 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 employee 
may sell such stock to, or otherwise receive cash 
in lieu of stock from, the corporation at the time 
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that the rights of the employee in such stock first 
become transferable or not subject to a substan-
tial 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 cal-
endar 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 determined 
under paragraph (1)(B)(iii)) during 
any preceding calendar year, and 
‘‘(II) such corporation has a writ-
ten plan under which, in such calendar 
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 options, or restricted 
stock units, with the same rights and 
privileges to receive qualified stock. 
‘‘(ii) SAME RIGHTS AND PRIVILEGES.— 
For purposes of clause (i)(II)— 
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‘‘(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 sec-
tion 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 number of 
shares available to each employee 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 
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 
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calendar year beginning before January 1, 
2017, clause (i)(II) shall be applied without 
regard to whether the rights and privileges 
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 em-
ployee’ means any individual who— 
‘‘(i) is not an excluded employee, and 
‘‘(ii) agrees in the election made under 
this subsection to meet such requirements as 
determined by the Secretary to be necessary 
to ensure that the withholding requirements 
of the corporation under chapter 24 with re-
spect to the qualified stock are met. 
‘‘(B) EXCLUDED EMPLOYEE.—The term ‘ex-
cluded employee’ means, with respect to any cor-
poration, any individual— 
‘‘(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— 
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‘‘(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 highest 
compensated officers of such corporation de-
termined with respect to each such taxable 
year on the basis of the shareholder disclo-
sure rules for compensation under the Secu-
rities Exchange Act of 1934 (as if such rules 
applied to such corporation). 
‘‘(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, which-
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