‘‘(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 commence
withholding to purchase such stock pursuant to
the option is made during the 30-day period be-
ginning on the earliest date that the individual
could have made the election to commence with-
holding to acquire stock pursuant to such op-
tion, and
‘‘(F) the stock acquired by the individual
pursuant to the option—
‘‘(i) is held by the trust described in
paragraph (5) until the individual elects to
dispose of such stock, or
‘‘(ii) at the election of the individual,
is transferred to the individual.
‘‘(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 stock is disposed of, so
much of the gain as does not exceed the deduc-
tion allowed under subparagraph (B)(ii) shall
be treated as ordinary income.
‘‘(D) 
FAILURE
TO
INCLUDE
PROPER
AMOUNT OF ORDINARY INCOME.—If—
‘‘(i) the gain on any disposition of
stock acquired pursuant to an option to
which this subsection applies exceeds the
deduction allowed under subparagraph
(B)(ii), and
‘‘(ii) the individual fails to include in
gross income as ordinary income at least
the amount of such deduction,
then the entire amount of gain shall be included
in gross income as ordinary income.
‘‘(4) 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 or who dies before
the close of such 3 months, the preceding sen-
tence shall be applied by substituting ‘1 year’
for ‘3 months’.
‘‘(D) 
TREATMENT
OF
NONRESIDENT
ALIENS.—If an individual is a nonresident alien
individual for any portion of the taxable year,
this subsection shall apply only if—
‘‘(i) such individual is treated as a
resident alien of the United States for pur-
poses of this chapter by reason of an elec-
tion under subsection (g) or (h) of section
6013, or
‘‘(ii) such individual has income from
sources within the United States or which
is effectively connected with the conduct of
a trade or business in the United States.
‘‘(E) CERTAIN
EMPLOYEES
MAY
BE
EX-
CLUDED.—In applying subsection (b)(4) for
purposes of this subsection, there may be ex-
cluded employees included in a unit of employ-
ees covered by an agreement between employee
representatives and one or more employers
which the Secretary finds to be a collective bar-
gaining agreement, if the benefits provided
under this subsection were the subject of good
faith bargaining between such employee rep-
resentatives and such employer or employers.
‘‘(5) RATE OF CASH COMPENSATION MUST BE
UNAFFECTED.—The grant of any options under the
arrangement may not be directly linked with a sys-
tematic reduction in the annual rate at which basic
or regular cash compensation is paid to employees
under the arrangement, as determined under regula-
tions prescribed by the Secretary of the Treasury.
‘‘(6) 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 paid not less often than annu-
ally to such individual.
The Employee Retirement Income Security Act of
1974 shall not apply to any trust described in this
paragraph.
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out this subsection.’’
(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) INFORMATION REPORTING.—
(1) IN GENERAL.—Subpart B of part III of
subchapter A of chapter 61 of such Code is amended
by adding at the end the following new section:
‘‘SEC. 6050T. RETURNS RELATING TO TRANSFER OF OWN-
ERSHIP OF STOCK ACQUIRED PURSUANT TO
CERTAIN STOCK OPTIONS.
‘‘(a) IN GENERAL.—Any person who is allowed a de-
duction 
for 
any 
taxable 
year 
under 
section
423(d)(3)(B)(ii) with respect to the transfer of ownership
of stock to any individual shall make the return described
in subsection (b) with respect to such transfer at such
time as the Secretary may by regulations prescribe.
‘‘(b) FORM AND MANNER OF RETURNS.—A return
is described in this subsection if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe,
‘‘(2) contains—
‘‘(A) the name, address, and TIN of the
individual to whom the stock ownership was so
transferred,
‘‘(B) the amount of the deduction allowed
under section 423(d)(3)(B)(ii) with respect to
such transfer, and
‘‘(C) such other information as the Sec-
retary may prescribe.
‘‘(c) STATEMENTS TO BE FURNISHED TO PERSONS
WITH
RESPECT
TO
WHOM
INFORMATION
IS
RE-
QUIRED.—Every person required to make a return under
subsection (a) shall furnish to each individual whose name
is required to be set forth in such return a written state-
ment showing—
‘‘(1) the name, address, and phone number of
the information contact of the person required to
make such return, and
‘‘(2) the amount of the deduction described in
subsection (a) with respect to stock ownership trans-
ferred to such individual.
The written statement required under the preceding sen-
tence shall be furnished to the person on or before Janu-
ary 31 of the year following the calendar year for which
the return under subsection (a) was required to be made.’’
(2) ASSESSABLE PENALTIES.—
(A) 
Subparagraph 
(B) 
of 
section
6724(d)(1) of such Code (relating to defini-
tions) is amended by redesignating clauses (xi)
through (xvii) as clauses (xii) through (xviii),
respectively, and by inserting after clause (x)
the following new clause:
‘‘(xi) section 6050T (relating to re-
turns relating to transfers of ownership of
stock acquired pursuant to certain stock
options),’’.
(B) Paragraph (2) of section 6724(d) of
such Code is amended by striking ‘‘or’’ at the
end of the next to last subparagraph, by strik-
ing the period at the end of the last subpara-
graph and inserting ‘‘, or’’, and by adding at
the end the following new subparagraph:
‘‘(BB) section 6050T(c) (relating to re-
turns relating to transfers of ownership of stock
acquired pursuant to certain stock options).’’.
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of
chapter 61 of such Code is amended by inserting
after the item relating to section 6050S the fol-
lowing new item:
‘‘Sec. 6050T. Returns relating to transfers of ownership of stock
acquired pursuant to certain stock options.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to options granted after the date
of the enactment of this Act.
Æ