[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4972 Introduced in House (IH)]







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 Representatives 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 OPTIONS.

    (a) In General.--Section 423 of the Internal Revenue 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 Employee Stock Purchase 
Plans Which Meet Certain 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 paragraph 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 deduction 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 during the 30-day 
                period beginning on the earliest date that the 
                individual could have made the election to acquire 
                stock pursuant to such option, and
                    ``(F) the stock acquired by the individual pursuant 
                to the option is held by the trust described in 
                paragraph (5) until the individual elects to dispose of 
                such stock.
            ``(3) Special tax treatment.--
                    ``(A) Treatment of payroll deductions.--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 
                        individual's remuneration for employment shall 
                        not include an amount equal to such deductions, 
                        and
                            ``(iii) the deduction otherwise allowable 
                        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 individual shall not 
                exceed the limitation under section 402(g)(1) for such 
                taxable year.
                    ``(B) Treatment when share transferred to 
                individual.--
                            ``(i) Employee.--No amount shall be 
                        includible in the gross income of an individual 
                        (or treated as remuneration for purposes of 
                        subtitle C) by reason of the transfer of 
                        ownership of stock acquired pursuant to an 
                        option to which this subsection applies.
                            ``(ii) Employer.--There shall be allowed as 
                        a deduction under section 162 to the person 
                        whose deduction was reduced under subparagraph 
                        (A)(iii) (for the taxable year in which such 
                        transfer of ownership 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 option 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 deductions.--Nothing in 
                this subsection shall prevent the return of an 
                individual's payroll deductions 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 remuneration 
                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 sentence 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.
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