ever occurs earlier, and shall be made in a man-
ner 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 respect 
to such qualified stock, 
‘‘(ii) any stock of the corporation 
which issued the qualified stock is readily 
tradable on an established securities market 
(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 includes 
the first time the rights of the employee in 
such stock are transferable or are not subject 
to a substantial risk of forfeiture, unless— 
‘‘(I) not less than 25 percent of 
the total dollar amount of the stock so 
purchased is deferral stock, and 
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‘‘(II) the determination of which 
individuals from whom deferral stock 
is purchased is made on a reasonable 
basis. 
‘‘(C) DEFINITIONS AND SPECIAL RULES RE-
LATED
TO
LIMITATION
ON
STOCK
REDEMP-
TIONS.— 
‘‘(i) DEFERRAL STOCK.—For purposes 
of this paragraph, the term ‘deferral stock’ 
means stock with respect to which an elec-
tion is in effect under this subsection 
‘‘(ii) DEFERRAL STOCK WITH RESPECT 
TO ANY INDIVIDUAL NOT TAKEN INTO AC-
COUNT
IF
INDIVIDUAL
HOLDS
DEFERRAL 
STOCK WITH LONGER DEFERRAL PERIOD.— 
Stock purchased by a corporation from any 
individual shall not be treated as deferral 
stock for purposes of clause (iii) if such in-
dividual (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 pur-
chased. 
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‘‘(iii) PURCHASE OF ALL OUTSTANDING 
DEFERRAL
STOCK.—The requirements of 
subclauses (I) and (II) of subparagraph 
(B)(iii) shall be treated as met if the stock 
so purchased includes all of the corpora-
tion’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 out-
standing stock so purchased during such 
calendar year and such other information 
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 defined 
in section 1563(a)) shall be treated as one corpora-
tion. 
‘‘(6) NOTICE
REQUIREMENT.—Any corporation 
that transfers qualified stock to a qualified employee 
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shall, at the time that (or a reasonable period before) 
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 
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 pe-
riod will be subject to withholding 
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under section 3401(i) at the rate deter-
mined 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)) 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 included 
in income under section 83 for the taxable year which 
includes such date.’’. 
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(2) AMOUNT OF WITHHOLDING.—Section 3402 of 
such Code is amended by adding at the end the fol-
lowing 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 sec-
tion 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.— 
(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 respect 
to the stock received in connection with the exer-
cise of such option.’’. 
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