Qualified stock distributions to employees

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 83 the following new section:

83A.

Qualified stock distributions to employees

(a)

In general

If an employee elects to have this section apply with respect to any qualified employee stock distribution, gross income shall not include— (1)so many shares of employer securities received by an individual in a qualified employee stock distribution of such individual’s employer as does not exceed the maximum stock amount, (2)any gain on employer securities excluded from gross income under paragraph (1) if such employer security is held by such individual for not less than 10 years, and (3)in the case of any qualified disposition of an employer security which is described in paragraph (2) (and which meets the holding requirement of such paragraph), any gain on so much stock acquired during the 60-day period beginning on the date of such disposition as does not exceed the fair market value of the employer security so disposed (determined as of the time of disposition). (b)

Definitions

For purposes of this section— (1)

Employer securities

The term employer securities has the meaning given such term in section 409(l), except that paragraph (3) thereof shall be applied by substituting the date of the qualified employee stock distribution for the date of the acquisition by the tax credit employee stock ownership plan. (2)

Qualified employee stock distribution

The term qualified employee stock distribution means a distribution by an employer of employer securities to employees (determined as of the date of the distribution) of such employer as compensation for services, except that there may be disregarded any employee who (as of the date of the distribution)— (A)has not attained age 18, (B)has not completed 12 months of service with the employer, (C)is a nonresident alien, (D)is a citizen or resident of a foreign jurisdiction (including any individual who is also a citizen or resident of the United States) if the distribution to such individual is prohibited under the laws of such foreign jurisdiction, (E)holds 10 percent or more of the outstanding stock of the employer, or (F)is an employee whose compensation from the employer is subject to disclosure under rules promulgated by the Securities and Exchange Commission. (3)

Maximum stock amount

The term maximum stock amount means, with respect to any distribution, the lowest number of employer securities received by any employee of the employer in such distribution. (4)

Qualified disposition

(A)

In general

The term qualified disposition means, with respect to the disposition of any employer security described in paragraph (2) of subsection (a) (and which meets the holding requirement of such paragraph) during any calendar year, the disposition of a number of shares of such security not in excess of the excess of— (i)the applicable percentage of the aggregate number of shares of such security received during the calendar year that such security was received, over (ii)the aggregate number of shares of such security taken into account under this subparagraph for all prior calendar years. (B)

Applicable percentage

For purposes of clause (i), the applicable percentage is, with respect to any calendar year following the calendar year in which such security was received, the percentage determined in accordance with the following table: The applicableIn the case of:percentage is:The first through tenth such calendar years0 percentThe eleventh such calendar year10 percentThe twelfth such calendar year20 percentThe thirteenth such calendar year30 percentThe fourteenth such calendar year40 percentThe fifteenth such calendar year50 percentThe sixteenth such calendar year60 percentThe seventeenth such calendar year70 percentThe eighteenth such calendar year80 percentThe nineteenth such calendar year90 percentAny subsequent calendar year100 percent.

(c)

Employment taxes

Amounts excluded from gross income under subsection (a)(1) shall not be taken into account as wages for purposes of chapters 21, 22, 23, 23A, and 24. (d)

Coordination with section 83

In the case of a transfer of employer securities to which subsection (a)(1) applies— (1)

In general

Section 83 shall not apply. (2)

Deduction by employer

There shall be allowed as a deduction under section 162, to the person for whom were performed the services in connection with which such securities were transferred, an amount equal to the fair market value of such securities (determined as of the time of such transfer). Such deduction shall be allowed for the taxable year which includes the date of such transfer. (e)

Recapture if stock disposed during required holding period

If an amount is excluded from gross income under subsection (a)(1) with respect to any employer security and the individual disposes of such security at any time during the 5-year period beginning on the date that such individual received such security— (1)the gross income of such individual for the taxable year which includes the date of such disposition shall be increased by the amount so excluded, and (2)the tax imposed by this chapter for such taxable year shall be increased by the sum of the amounts of tax which would have been imposed under subchapters A and B of chapters 21 and 22 if subsection (c) had not applied with respect to such amount.

For purposes of this title and the Social Security Act, any increase in tax under paragraph (2) shall be treated as imposed under the provision of chapter 21 or 22 with respect to which such increase relates.

(f)

Basis of stock equal to fair market value at time of transfer

Notwithstanding section 1012, in the case of a transfer of employer securities to which subsection (a)(1) applies, the basis of such securities in the hands of the transferee immediately after such transfer shall be equal to the fair market value of such securities (determined as of the time of such transfer). (g)

Aggregation rule

Two or more persons who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer for purposes of this section. (h)

Election

The election under subsection (a) shall be made at such time and in such manner as the Secretary may prescribe. Once made, such election may be revoked only with the consent of the Secretary. (i)

Regulations

The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations or other guidance which— (1)provide for the application of this section to stock options, (2)provide mechanisms by which to satisfy the requirements of this section in the event that an employee is inadvertently excluded from a distribution of employer securities (including a case where a service provider is treated as not an employee by the employer, but is determined to be an employee), and (3)require such reporting under sections 6045 and 6051 with respect to transfers of stock to which subsection (a) applies as the Secretary determines to be necessary or appropriate to carry out this section.

(b)

Clerical amendment

The table of sections for such part is amended by inserting after the item relating to section 83 the following new item:

Sec. 83A. Qualified stock distributions to employees.

(c)

Effective date

The amendments made by this section shall apply to stock received by employees after the date of the enactment of this Act.