[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2116 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 2116

 To amend the Internal Revenue Code of 1986 to provide that corporate 
     tax benefits based upon stock option compensation expenses be 
   consistent with accounting expenses shown in corporate financial 
                   statements for such compensation.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 28, 2007

   Mr. Levin introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide that corporate 
     tax benefits based upon stock option compensation expenses be 
   consistent with accounting expenses shown in corporate financial 
                   statements for such compensation.

    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 ``Ending Corporate Tax Favors for 
Stock Options Act''.

SEC. 2. CONSISTENT TREATMENT OF STOCK OPTIONS BY CORPORATIONS.

    (a) Consistent Treatment for Wage Deduction.--
            (1) In general.--Section 83(h) of the Internal Revenue Code 
        of 1986 (relating to deduction of employer) is amended--
                    (A) by striking ``In the case of'' and inserting:
            ``(1) In general.--In the case of'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Stock options.--In the case of property transferred 
        to a person in connection with the exercise of a stock option, 
        any deduction by the employer related to such stock option 
        shall be allowed only under section 162(q) and paragraph (1) 
        shall not apply.''.
            (2) Treatment of compensation paid with stock options.--
        Section 162 of such Code (relating to trade or business 
        expenses) is amended by redesignating subsection (q) as 
        subsection (r) and by inserting after subsection (p) the 
        following new subsection:
    ``(q) Treatment of Compensation Paid With Stock Options.--
            ``(1) In general.--In the case of compensation for personal 
        services that is paid with stock options, the deduction under 
        subsection (a)(1) shall not exceed the amount the taxpayer has 
        treated as an expense with respect to such stock options for 
        the purpose of ascertaining income, profit, or loss in a report 
        or statement to shareholders, partners, or other proprietors 
        (or to beneficiaries), and shall be allowed in the same period 
        that the accounting expense is recognized.
            ``(2) Special rules for controlled groups.--The Secretary 
        shall prescribe rules for the application of paragraph (1) in 
        cases where the stock option is granted by a parent or 
        subsidiary corporation (within the meaning of section 424) of 
        the employer corporation.''.
    (b) Consistent Treatment for Research Tax Credit.--Section 
41(b)(2)(D) of the Internal Revenue Code of 1986 (defining wages for 
purposes of credit for increasing research expenses) is amended by 
inserting at the end the following new clause:
                            ``(iv) Special rule for stock options.--The 
                        amount which may be treated as wages for any 
                        taxable year in connection with the issuance of 
                        a stock option shall not exceed the amount 
                        allowed for such taxable year as a compensation 
                        deduction under section 162(q) with respect to 
                        such stock option.''.
    (c) Application of Amendments.--The amendments made by this section 
shall apply to stock options exercised after the date of the enactment 
of this Act, except that--
            (1) such amendments shall not apply to stock options that 
        were granted before such date and that vested in taxable 
        periods beginning on or before June 15, 2005,
            (2) for stock options that were granted before such date of 
        enactment and vested during taxable periods beginning after 
        June 15, 2005, and ending before such date of enactment, a 
        deduction under section 162(q) of the Internal Revenue Code of 
        1986 (as added by subsection (a)(2)) shall be allowed in the 
        first taxable period of the taxpayer that ends after such date 
        of enactment,
            (3) for public entities reporting as small business issuers 
        and for non-public entities required to file public reports of 
        financial condition, paragraphs (1) and (2) shall be applied by 
        substituting ``December 15, 2005'' for ``June 15, 2005'', and
            (4) no deduction shall be allowed under section 83(h) or 
        section 162(q) of such Code with respect to any stock option 
        the vesting date of which is changed to accelerate the time at 
        which the option may be exercised in order to avoid the 
        applicability of such amendments.

SEC. 3. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.

    (a) In General.--Subparagraph (D) of section 162(m)(4) of the 
Internal Revenue Code of 1986 (defining applicable employee 
remuneration) is amended to read as follows:
                    ``(D) Stock option compensation.--The term 
                `applicable employee remuneration' shall include any 
                compensation deducted under subsection (q), and such 
                compensation shall not qualify as performance-based 
                compensation under subparagraph (C).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to stock options exercised or granted after the date of the enactment 
of this Act.
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