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 139A the following new section:

139B.

Qualified stock distributions to employees

(a)

In general

Gross income shall not include— (1)so many shares of any stock 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 stock excluded from gross income under paragraph (1) if such stock is held by such individual for not less than 10 years, and (3)in the case of any qualified disposition of stock 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 stock so disposed (determined as of the time of disposition). (b)

Definitions and special rules

For purposes of this section— (1)

Qualified employee stock distribution

The term qualified employee stock distribution means a distribution by an employer of stock of such employer to all employees (determined as of the date of the distribution) of such employer as compensation for services. (2)

Maximum stock amount

The term maximum stock amount means, with respect to any distribution, the lowest number of shares of stock of the employer received by any employee of the employer in such distribution. (3)

Qualified disposition

(A)

In general

The term qualified disposition means, with respect to the disposition of any stock described in paragraph (2) during any calendar year, the disposition of a number of shares of such stock not in excess of the excess of— (i)the applicable percentage of the aggregate number of shares of such stock received during the calendar year that such stock was received, over (ii)the aggregate number of shares of such stock 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 stock was received, the percentage determined in accordance with the following table: The applicable In the case of:percentage is: The first through tenth such calendar years0 percent The eleventh such calendar year10 percent The twelfth such calendar year20 percent The thirteenth such calendar year30 percent The fourteenth such calendar year40 percent The fifteenth such calendar year50 percent The sixteenth such calendar year60 percent The seventeenth such calendar year70 percent The eighteenth such calendar year80 percent The nineteenth such calendar year90 percent Any 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)

Recapture if stock disposed during required holding period

If an amount is excluded from gross income under subsection (a)(1) with respect to any stock and the individual disposes of such stock at any time during the 5-year period beginning on the date that such individual received such stock— (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.

(e)

Regulations

The Secretary shall issue such regulations as may be necessary or appropriate to carry out this section, including regulations which provide for the application of this section to stock options.

(b)

Clerical amendment

The table of section for such part is amended by inserting after the item relating to section 139A the following new item:

Sec. 139B. 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.