I 
107TH CONGRESS 
2D SESSION 
H. R. 5432
To amend the Internal Revenue Code of 1986 to require the same holding 
period for company stock acquired upon exercise of options as is applica-
ble to company stock in its 401(k) plan, to require disclosure to share-
holders of the amount of corporate perks provided to retired executives, 
and to provide parity for secured retirement benefits between the rank 
and file and executives. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 24, 2002
Mr. MATSUI (for himself, Mr. GEPHARDT, Mr. RANGEL, Mr. GEORGE MILLER 
of California, Mr. STARK, Mr. COYNE, Mr. MCDERMOTT, Mr. NEAL of 
Massachusetts, Mr. DOGGETT, Ms. LOFGREN, and Mr. JEFFERSON) in-
troduced the following bill; which was referred to the Committee on Ways 
and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to require 
the same holding period for company stock acquired upon 
exercise of options as is applicable to company stock 
in its 401(k) plan, to require disclosure to shareholders 
of the amount of corporate perks provided to retired 
executives, and to provide parity for secured retirement 
benefits between the rank and file and executives.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SPECIAL RULES FOR EXECUTIVE PERKS AND 
RETIREMENT BENEFITS. 
(a) IN GENERAL.—Part I of subchapter D of chapter 
1 of the Internal Revenue Code of 1986 (relating to pen-
sion, profit-sharing, stock bonus plans, etc.) is amended 
by adding at the end the following new subpart: 
‘‘SUBPART F—SPECIAL RULES FOR EXECUTIVE PERKS 
AND RETIREMENT BENEFITS
‘‘Sec. 420A. Holding period requirement for stock acquired 
through exercise of option. 
‘‘Sec. 420B. Additional tax on nondisclosed retirement perks. 
‘‘Sec. 420C. Inclusion in gross income of funded deferred com-
pensation of corporate insiders. 
‘‘Sec. 420D. Definitions and special rule.
‘‘SEC. 420A. HOLDING PERIOD REQUIREMENT FOR STOCK 
ACQUIRED THROUGH EXERCISE OF OPTION. 
‘‘(a) IN GENERAL.—In the case of a corporate insider 
with respect to a corporation, the tax imposed by this 
chapter on a corporate insider for any taxable year shall 
be increased by 50 percent of the amount realized by such 
insider from the disqualified disposition during such year 
of stock acquired by the corporate insider upon the exer-
cise of a stock option granted by the corporation with re-
spect to which such individual is a corporate insider. 
‘‘(b) DISQUALIFIED DISPOSITION OF STOCK.—
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the term ‘disqualified disposition of stock’ 
means any sale, exchange, or other disposition of
stock which, if such stock were employer securities 
held in a qualified cash or deferred arrangement (as 
defined in section 401(k)(2)), would violate any re-
striction imposed on the sale or other disposition of 
such securities by the plan of which such arrange-
ment is a part. 
‘‘(2) SPECIAL RULE FOR 2 OR MORE CASH OR 
DEFERRED ARRANGEMENTS.—If a corporation has 
more than 1 qualified cash or deferred arrangement 
(as so defined), the restrictions which apply for pur-
poses of paragraph (1) shall be the most restrictive 
provisions relating to the disposition of employer se-
curities held pursuant to any such arrangements. 
‘‘SEC. 420B. ADDITIONAL TAX ON NONDISCLOSED RETIRE-
MENT PERKS. 
‘‘(a) IN GENERAL.—In the case of a publicly traded 
corporation, the tax imposed by this chapter for the tax-
able year shall be increased by 50 percent of the net cost 
to the corporation for the taxable year of personal perks 
provided to a retired executive of the corporation. 
‘‘(b) WAIVER IF PERKS PROVIDED PURSUANT TO 
SHAREHOLDER
APPROVAL.—Subsection (a) shall not 
apply with respect to any personal perks provided pursu-
ant to a contract if—
‘‘(1) all of the material terms of such contract 
(including a description of the benefits to be pro-
vided to the executive and the extent of such bene-
fits) are disclosed to shareholders, and 
‘‘(2) such contract is approved by a majority of 
the vote in a separate shareholder vote before any 
benefits are provided under the contract. 
‘‘(c) NET COST OF PERSONAL PERKS.—
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the net cost of personal perks provided to a re-
tired executive is the excess of—
‘‘(A) the cost to the corporation of such 
perks, over 
‘‘(B) the amount paid in cash during the 
taxable year by the executive to reimburse the 
corporation for the cost of such perks. 
‘‘(2) PERSONAL PERKS.—For purposes of para-
graph (1), the term ‘personal perks’ means—
‘‘(A) the use of corporate-owned property, 
‘‘(B) travel expenses, including meals and 
lodging, unless such expenses are directly re-
lated to the performance of services by the exec-
utive for the corporation and the business rela-
tionship of such expenses is substantiated under 
the requirements of section 274,
‘‘(C) tickets to sporting or other entertain-
ment events, 
‘‘(D) amounts paid or incurred for mem-
bership in any club organized for business, 
pleasure, recreation, or other social purpose, 
and 
‘‘(E) other personal services, including 
services related to maintenance or protection of 
any personal residence of the executive. 
‘‘(3) COST RELATING TO USE OF CORPORATE-
OWNED
PROPERTY.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The cost taken into 
account with respect to the use of corporate-
owned property shall be the allocable portion of 
the total cost of operating such property. 
‘‘(B) ALLOCABLE PORTION.—For purposes 
of subparagraph (A), the allocable portion of 
total cost is—
‘‘(i) the portion of the total cost (in-
cluding depreciation) incurred by the cor-
poration for operating and maintaining 
such property during the corporation’s tax-
able year in which such use occurred,
‘‘(ii) which is allocable to the use (de-
termined on the basis of the relationship of 
such use to the total use of the property 
during the taxable year). 
‘‘SEC. 420C. INCLUSION IN GROSS INCOME OF FUNDED DE-
FERRED COMPENSATION OF CORPORATE IN-
SIDERS. 
‘‘(a) IN GENERAL.—If an employer maintains a fund-
ed deferred compensation plan—
‘‘(1) compensation of any corporate insider 
which is deferred under such funded deferred com-
pensation plan shall be included in the gross income 
of the corporate insider or beneficiary for the 1st 
taxable year in which there is no substantial risk of 
forfeiture of the rights to such compensation, and 
‘‘(2) the tax treatment of any amount made 
available under the plan to a corporate insider or 
beneficiary shall be determined under section 72 (re-
lating to annuities, etc.). 
‘‘(b) FUNDED DEFERRED COMPENSATION PLAN.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘funded deferred 
compensation plan’ means any plan providing for the 
deferral of compensation unless—
‘‘(A) the employee’s rights to the com-
pensation deferred under the plan are no great-
er than the rights of a general creditor of the 
employer, and 
‘‘(B) all amounts set aside (directly or in-
directly) for purposes of paying the deferred 
compensation, and all income attributable to 
such amounts, remain (until made available to 
the participant or other beneficiary) solely the 
property of the employer (without being re-
stricted to the provision of benefits under the 
plan), and 
‘‘(C) the amounts referred to in subpara-
graph (B) are available to satisfy the claims of 
the employer’s general creditors at all times 
(not merely after bankruptcy or insolvency). 
Such term shall not include a qualified employer 
plan. 
‘‘(2) SPECIAL RULES.—
‘‘(A) EMPLOYEE’S RIGHTS.—A plan shall 
be treated as failing to meet the requirements 
of paragraph (1)(A) unless—
‘‘(i) the compensation deferred under 
the plan is payable only upon separation 
from service, death, disability, or at a spec-
ified time (or pursuant to a fixed sched-
ule), and 
‘‘(ii) the plan does not permit the ac-
celeration of the time such deferred com-
pensation is payable by reason of any 
event. 
If the employer and employee agree to a modi-
fication of the plan that accelerates the time for 
payment of any deferred compensation, then all 
compensation previously deferred under the 
plan shall be includible in gross income for the 
taxable year during which such modification 
takes effect and the taxpayer shall pay interest 
at the underpayment rate on the underpay-
ments that would have occurred had the de-
ferred compensation been includible in gross in-
come on the earliest date that there is no sub-
stantial risk of forfeiture of the rights to such 
compensation. 
‘‘(B) CREDITOR’S RIGHTS.—A plan shall 
be treated as failing to meet the requirements 
of paragraph (1)(B) with respect to amounts 
set aside in a trust unless—
‘‘(i) the employee has no beneficial in-
terest in the trust,
‘‘(3) SUBSTANTIAL RISK OF FORFEITURE.—The 
rights of a person to compensation are subject to a 
substantial risk of forfeiture if such person’s rights 
to such compensation are conditioned upon the fu-
ture performance of substantial services by any indi-
vidual. 
‘‘(4) TREATMENT
OF
EARNINGS.—Except for 
purposes of subsection (a)(1) and the last sentence 
of (b)(2)(A), references to deferred compensation 
shall be treated as including references to income at-
tributable to such compensation or such income. 
‘‘SEC. 420D. DEFINITIONS AND SPECIAL RULE. 
‘‘(a) DEFINITIONS.—For purposes of this subpart—
‘‘(1) CORPORATE
INSIDER.—The term ‘cor-
porate insider’ means, with respect to a corporation, 
any individual—
‘‘(A) who is subject to the requirements of 
section 16(a) of the Securities Exchange Act of 
1934 with respect to such corporation, or 
‘‘(B) who would be subject to such require-
ments if such corporation were an issuer of eq-
uity securities referred to in such section. 
‘‘(2) RETIRED EXECUTIVE.—The term ‘retired 
executive’ means any corporate insider who is no 
longer performing services on a substantially full
time basis in the capacity that resulted in being sub-
ject to the requirements of section 16(a) of the Se-
curities Exchange Act of 1934. 
‘‘(3) PUBLICLY
TRADED
CORPORATION.—The 
term ‘publicly traded corporation’ means any cor-
poration issuing any class of securities required to 
be registered under section 12 of the Securities Ex-
change Act of 1934. 
‘‘(4) CORPORATE-OWNED PROPERTY.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘corporate-owned 
property’ means any of the following property 
owned by a corporation—
‘‘(i) planes, 
‘‘(ii) apartments or other residences, 
‘‘(iii) vacation, sports, and entertain-
ment facilities, and 
‘‘(iv) cars. 
Such term includes any such property which is 
leased or chartered by the corporation. 
‘‘(B) EXCEPTIONS.—Such term does not 
include any property used directly by the cor-
poration in providing transportation, lodging, or 
entertainment services to the general public.
‘‘(b) ADDITIONS TO TAX NOT TREATED AS TAX FOR 
CERTAIN PURPOSES.—The tax imposed by sections 420A 
and 420B shall not be treated as a tax imposed by this 
chapter for purposes of determining—
‘‘(1) the amount of any credit allowable under 
this chapter, or 
‘‘(2) the amount of the minimum tax imposed 
by section 55.’’. 
(b) CLERICAL AMENDMENT.—The table of subparts 
for part I of subchapter D of chapter 1 of such Code is 
amended by adding at the end the following new item:
‘‘Subpart F. Special Rules for Executive Perks and Retirement 
Benefits.’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect as follows: 
(1) Section 420A of the Internal Revenue Code 
of 1986 (as added by this section) shall apply to 
stock acquired pursuant to the exercise of an option 
after the date of the enactment of this Act. 
(2)(A) Except as provided by subparagraph 
(B), section 420B of such Code (as so added) shall 
apply to perks provided after the date of the enact-
ment of this Act. 
(B) In the case of perks provided pursuant to 
a contract in existence on the date of the enactment 
of this Act, such section 420B shall apply to such
perks after the date of the first annual shareholders 
meeting after the date of the enactment of this Act. 
(3) Section 420C of such Code (as so added) 
shall apply to amounts deferred after the date of the 
enactment of this Act.
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