I
106TH CONGRESS
2D SESSION
H. R. 4972
To amend the Internal Revenue Code of 1986 to encourage the granting
of employee stock options.
IN THE HOUSE OF REPRESENTATIVES
JULY 26, 2000
Mr. HOUGHTON (for himself and Mr. MATSUI) 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 encourage
the granting of employee stock options.
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 ‘‘Universal Employee
Stock Option Act of 2000’’.
SEC. 2. INCENTIVES TO GRANT EMPLOYEE STOCK OP-
TIONS.
(a) IN GENERAL.—Section 423 of the Internal Rev-
enue Code of 1986 (relating to employee stock purchase
plans) is amended by adding at the end the following new
subsection:
‘‘(d) SPECIAL INCENTIVES WITH RESPECT TO EM-
PLOYEE STOCK PURCHASE PLANS WHICH MEET CER-
TAIN ADDITIONAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) section 421(a) would (but for this
subsection) apply with respect to the transfer of
stock to an individual by reason of this section,
and
‘‘(B) the requirements of paragraph (2)
are met with respect to such transfer,
the rules of paragraph (3) shall apply in lieu of the
rules of section 421(a).
‘‘(2) REQUIREMENTS.—A transfer of stock to
an individual meets the requirements of this para-
graph if—
‘‘(A) the price paid by the individual for
the stock under the option is paid only through
payroll 
deductions 
in 
substantially 
equal
amounts over a period of not less than 12
months and not more than 60 months,
‘‘(B) such payroll deductions are held in a
trust described in paragraph (6),
‘‘(C) the price of the stock acquired under
the option is not less than the fair market value
of the stock at the time the option is granted,
‘‘(D) ownership of the stock is transferred
to the individual at the end of the payroll de-
duction period (or, if earlier, the date that the
price of the stock under the option is fully
paid),
‘‘(E) the individual’s election to purchase
such stock pursuant to the option is made dur-
ing the 30-day period beginning on the earliest
date that the individual could have made the
election to acquire stock pursuant to such op-
tion, and
‘‘(F) the stock acquired by the individual
pursuant to the option is held by the trust de-
scribed in paragraph (5) until the individual
elects to dispose of such stock.
‘‘(3) SPECIAL TAX TREATMENT.—
‘‘(A) TREATMENT
OF
PAYROLL
DEDUC-
TIONS.—With respect to the payroll deductions
referred to in paragraph (2)(A)—
‘‘(i) the gross income of the individual
shall not include an amount equal to such
deductions,
‘‘(ii) for purposes of subtitle C, the in-
dividual’s remuneration for employment
shall not include an amount equal to such
deductions, and
‘‘(iii) the deduction otherwise allow-
able under section 162 for remuneration
paid to such individual shall be reduced by
an amount equal to such deductions.
The aggregate amount to which the preceding
sentence applies for any taxable year of an indi-
vidual shall not exceed the limitation under sec-
tion 402(g)(1) for such taxable year.
‘‘(B) TREATMENT
WHEN
SHARE
TRANS-
FERRED TO INDIVIDUAL.—
‘‘(i) EMPLOYEE.—No amount shall be
includible in the gross income of an indi-
vidual (or treated as remuneration for pur-
poses of subtitle C) by reason of the trans-
fer of ownership of stock acquired pursu-
ant to an option to which this subsection
applies.
‘‘(ii) EMPLOYER.—There shall be al-
lowed as a deduction under section 162 to
the person whose deduction was reduced
under subparagraph (A)(iii) (for the tax-
able year in which such transfer of owner-
ship occurs) an amount equal to the fair
market value of the stock at the time of
such transfer.
‘‘(C) TREATMENT WHEN SHARE DISPOSED
OF.—At the time the trust disposes of the
stock, so much of the gain as does not exceed
the deduction allowed under subparagraph
(B)(ii) shall be treated as ordinary income.
‘‘(5) SPECIAL RULES.—
‘‘(A) 
DETERMINATION
OF
OPTION
PRICE.—For purposes of paragraph (2), an op-
tion to acquire stock shall be treated as being
granted on the earliest date that the individual
could have made the election to acquire stock
pursuant to such option.
‘‘(B) 
RETURN
OF
PAYROLL
DEDUC-
TIONS.—Nothing in this subsection shall pre-
vent the return of an individual’s payroll deduc-
tions to the individual if the individuals elects
not to use the deducted amounts to acquire the
stock. The amount so returned shall be included
in the gross income of such individual for the
taxable year in which paid to the individual and
shall be treated for purposes of subtitle C as re-
muneration from employment.
‘‘(C) TERMINATION OF EMPLOYMENT.—If
an individual terminates employment with the
person who granted the option to acquire stock,
paragraph (2)(A) shall not apply to amounts
paid within 3 months after such termination to
the extent such amounts do not exceed the
amount payable under options granted before
the date of such termination. In the case of an
individual who is disabled, the preceding sen-
tence shall be applied by substituting ‘1 year’
for ‘3 months’.
‘‘(5) TRUST HOLDING PAYROLL DEDUCTIONS.—
A trust is described in this paragraph if—
‘‘(A) the trust is created or organized in
the United States exclusively for the purposes
of holding payroll deductions pursuant to this
subsection and stock acquired with such payroll
deductions,
‘‘(B) a separate account is maintained for
each individual, and
‘‘(C) any earnings on payroll deductions of
an individual are credited to the account of
such individual.’’
(b) EXEMPTION FROM TAX FOR TRUST HOLDING
PAYROLL DEDUCTIONS, ETC.—Subsection (a) of section
501 of such Code is amended by striking ‘‘or section
401(a)’’ and inserting ‘‘, section 401(a), or section
423(d)(5)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to options granted after the date
of the enactment of this Act.
Æ