[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 3152 Introduced in Senate (IS)]

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114th CONGRESS
  2d Session
                                S. 3152

To amend the Internal Revenue Code of 1986 to modify the tax treatment 
                       of certain equity grants.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 11, 2016

Mr. Warner (for himself and Mr. Heller) 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 modify the tax treatment 
                       of certain equity grants.

    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 ``Empowering Employees through Stock 
Ownership Act''.

SEC. 2. TREATMENT OF QUALIFIED EQUITY GRANTS.

    (a) In General.--
            (1) Election to defer income.--Section 83 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new subsection:
    ``(i) Qualified Equity Grants.--
            ``(1) In general.--For purposes of this subtitle, if 
        qualified stock is transferred to a qualified employee who 
        makes an election under this subsection--
                    ``(A) no amount shall be included in income under 
                subsection (a) in the first taxable year in which the 
                rights of the employee in such stock are transferable 
                or are not subject to a substantial risk of forfeiture, 
                whichever is applicable, and
                    ``(B) an amount equal to the amount which would be 
                included in income of the employee under subsection (a) 
                (determined without regard to this subsection) shall be 
                included in income in the taxable year of the employee 
                which includes the earliest of--
                            ``(i) the date such qualified stock is 
                        sold, exchanged, or otherwise transferred,
                            ``(ii) the date the employee first becomes 
                        an excluded employee,
                            ``(iii) the first date on which any stock 
                        of the corporation which issued the qualified 
                        stock becomes readily tradable on an 
                        established securities market,
                            ``(iv) the date that is 7 years after the 
                        first date the rights of the employee in such 
                        stock are transferable or are not subject to a 
                        substantial risk of forfeiture, whichever 
                        occurs earlier, or
                            ``(v) the date on which the employee elects 
                        under this clause to include the amount in 
                        income.
            ``(2) Qualified stock.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified stock' means any stock in a 
                corporation if--
                            ``(i) the right to receive such stock was 
                        provided by the corporation--
                                    ``(I) in connection with the 
                                performance of services as an employee, 
                                and
                                    ``(II) such right was received in 
                                year in which such corporation was an 
                                eligible corporation, and
                            ``(ii) such stock is received--
                                    ``(I) in connection with the 
                                exercise of an option, or
                                    ``(II) in settlement of a 
                                restricted stock unit.
                    ``(B) Limitation.--The term `qualified stock' shall 
                not include any stock if the employee may sell to, or 
                otherwise receive cash in lieu of stock from, the 
                corporation at the time that the rights of the employee 
                are transferrable or are not subject to a substantial 
                risk of forfeiture.
                    ``(C) Eligible corporation.--For purposes of 
                subparagraph (A)(i)(II)--
                            ``(i) In general.--The term `eligible 
                        corporation' means, with respect to any 
                        calendar year, any corporation if--
                                    ``(I) no stock of such corporation 
                                is readily tradable on an established 
                                securities market during such calendar 
                                year or any preceding calendar year, 
                                and
                                    ``(II) such corporation has a 
                                written plan under which not less than 
                                80 percent of all employees have the 
                                same rights and privileges to receive 
                                qualified stock for such calendar year.
                            ``(ii) Same rights and privileges.--For 
                        purposes of clause (i)(II)--
                                    ``(I) except as provided in 
                                subclauses (II) and (III), the 
                                determination of rights and privileges 
                                with respect to stock shall be 
                                determined in a similar manner as 
                                provided under section 423(b)(5),
                                    ``(II) employees shall not fail to 
                                be treated as having the same rights 
                                and privileges to receive qualified 
                                stock solely because the number of 
                                shares available to all employees are 
                                not equal in amount, so long as the 
                                number of shares available to each 
                                employee is more than a de minimis 
                                amount, and
                                    ``(III) the right to receive 
                                qualified stock described subparagraph 
                                (A)(ii)(I) shall not be treated as the 
                                same right or privilege as the right to 
                                receive qualified stock described in 
                                subparagraph (A)(ii)(II).
                            ``(iii) Employee.--For purposes of clause 
                        (i)(II), the term `employee' shall not include 
                        any employee described in section 4980E(d)(4) 
                        or any excluded employee.
                            ``(iv) Special rule for calendar years 
                        before 2017.--In the case of any calendar year 
                        beginning before January 1, 2017, clause 
                        (i)(II) shall be applied without regard to 
                        whether the rights and privileges with respect 
                        to the qualified stock are the same.
            ``(3) Qualified employee; excluded employee.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `qualified employee' 
                means any individual who--
                            ``(i) is not an excluded employee, and
                            ``(ii) agrees to meet such requirements as 
                        determined by the Secretary to be necessary to 
                        ensure that the withholding requirements of the 
                        corporation under chapter 24 with respect to 
                        the qualified stock are met.
                    ``(B) Excluded employee.--The term `excluded 
                employee' means, with respect to any corporation, any 
                individual--
                            ``(i) who is or has been at any prior time 
                        a 1-percent owner (within the meaning of 
                        section 416(i)(1)(B)(ii)),
                            ``(ii) who is or has been at any prior 
                        time--
                                    ``(I) the chief executive officer 
                                of such corporation or an individual 
                                acting in such a capacity, or
                                    ``(II) the chief financial officer 
                                of such corporation or an individual 
                                acting in such a capacity,
                            ``(iii) who bears a relationship described 
                        in section 318(a)(1) to any individual 
                        described in subclause (I) or (II) of clause 
                        (ii), or
                            ``(iv) who is or has been for any prior 
                        taxable year one of the 4 highest compensated 
                        officers of such corporation determined on the 
                        basis of the shareholder disclosure rules for 
                        compensation under the Securities Exchange Act 
                        of 1934 (as if such rules applied to such 
                        corporation).
            ``(4) Election.--
                    ``(A) Time for making election.--An election with 
                respect to qualified stock shall be made under this 
                subsection no later than 30 days after the first time 
                the rights of the employee in such stock are 
                transferable or are not subject to a substantial risk 
                of forfeiture, whichever occurs earlier.
                    ``(B) Limitations.--No election may be made under 
                this section with respect to any qualified stock if--
                            ``(i) the qualified employee has made an 
                        election under subsection (b) with respect to 
                        such qualified stock, or
                            ``(ii) any stock of the corporation which 
                        issued the qualified stock is readily tradable 
                        on an established securities market at any time 
                        before the election is made.
            ``(5) Other rules.--
                    ``(A) Controlled groups.--For purposes of this 
                subsection, all corporations which are members of the 
                same controlled group of corporations (as defined in 
                section 1563(a)) shall be treated as one corporation.
                    ``(B) Notice requirement.--Any corporation that 
                transfers qualified stock to an employee shall notify 
                such employee that--
                            ``(i) the employee may elect to defer 
                        income on such stock under this subsection, and
                            ``(ii) if the employee makes such an 
                        election, the amount of income recognized at 
                        the end of the deferral period will be based on 
                        the value of the stock at the time at which the 
                        rights of the employee in such stock are 
                        transferable or are not subject to substantial 
                        risk of forfeiture, notwithstanding whether the 
                        value of the stock has declined during the 
                        deferral period.''.
            (2) Deduction by employer.--Subsection (h) of section 83 of 
        the Internal Revenue Code of 1986 is amended by striking ``or 
        (d)(2)'' and inserting ``(d)(2), or (i)''.
    (b) Withholding.--
            (1) Time of withholding.--Section 3401 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new subsection:
    ``(i) Qualified Stock for Which an Election Is in Effect Under 
Section 83(i).--For purposes of subsection (a), qualified stock (as 
defined in section 83(i)) with respect to which an election is made 
under section 83(i) shall be treated as wages--
            ``(1) received on the earliest date described in section 
        83(i)(1)(B), and
            ``(2) in an amount equal to the amount included in income 
        under section 83 for the taxable year which includes such 
        date.''.
            (2) Amount of withholding.--Section 3402 of such Code is 
        amended by adding at the end the following new subsection:
    ``(t) Rate of Withholding for Certain Stock.--In the case of any 
qualified stock (as defined in section 83(i)) with respect to which an 
election is made under section 83(i), the rate of tax under subsection 
(a) shall not be less than the maximum rate of tax in effect under 
section 1.''.
    (c) Coordination With Other Deferred Compensation Rules.--
            (1) Election to apply deferral to statutory options.--
                    (A) Incentive stock options.--Section 422(b) of the 
                Internal Revenue Code of 1986 is amended by inserting 
                ``or any option with respect to which an election is 
                made under section 83(i)'' after ``as an incentive 
                stock option''.
                    (B) Employee stock purchase plans.--Section 423(a) 
                of such Code is amended by adding at the end the 
                following flush sentence:
``The preceding sentence shall not apply to any share of stock or 
option with respect to which an election is made under section 
83(i).''.
            (2) Exclusion from definition of nonqualified deferred 
        compensation plan.--Subsection (d) of section 409A of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new paragraph:
            ``(7) Treatment of qualified stock.--Receipt of stock shall 
        not be treated as a nonqualified deferred compensation plan 
        solely because of an election under 83(i).''.
    (d) Information Reporting.--Section 6051 of the Internal Revenue 
Code of 1986 is amended by inserting after paragraph (6) the following 
new paragraph:
            ``(7) the amounts subject to subparagraphs (A) and (B) of 
        section 83(i)(1),''.
    (e) Penalty for Failure of Employer To Provide Notice of Tax 
Consequences.--Section 6652 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subsection:
    ``(o) Failure To Provide Notice Under Section 83(i).--In the case 
of each failure to provide a notice as required by section 83(i)(5)(B), 
at the time prescribed therefor, unless it is shown that such failure 
is due to reasonable cause and not to willful neglect, there shall be 
paid, on notice and demand of the Secretary and in the same manner as 
tax, by the person failing to provide such notice, an amount equal to 
$100 for each such failure, but the total amount imposed on such person 
for all such failures during any calendar year shall not exceed 
$50,000.''.
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to any property--
                    (A) in which the rights of the person who has the 
                beneficial interest in such property are not 
                transferable before January 1, 2017, and
                    (B) which is subject to a substantial risk of 
                forfeiture before such date.
            (2) Requirement to provide notice.--The amendments made by 
        subsection (e) shall apply to failures after December 31, 2016.
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