[Congressional Record Volume 147, Number 111 (Thursday, August 2, 2001)]
[Extensions of Remarks]
[Page E1501]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO CLARIFY THE 
 TREATMENT OF INCENTIVE STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS

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                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                       Wednesday, August 1, 2001

  Mr. HOUGHTON. Mr. Speaker, today I am introducing a bill to solve a 
problem that has been facing a number of companies during the past year 
who grant stock options to their employees.
  Many companies use stock options as an incentive to attract and 
motivate employees. Companies give their workers the right to purchase 
company stock, at a small discount from the listed price, through 
Employee Stock Purchase Plans and Incentive Stock Options. Employee 
stock ownership motivates workers and can create a positive 
relationship between management and workers, where both reap rewards 
for successful company performance.
  For nearly 30 years the Internal Revenue Service (IRS) has taken the 
position that the income from these stock options is not subject to 
employment taxes. However, recent audits and rulings on specific 
companies have raised the troubling prospect that the IRS now believes 
that employment taxes should be withheld from the paychecks of 
individuals who exercise stock options under these plans.
  Employee Stock Purchase Plans and Incentive Stock Options were 
created by Congress to provide tools to build strong companies and 
encourage greater employee ownership of company stock. It was not the 
intent of Congress to dilute these incentives by requiring employment 
tax withholding when the stock is purchased.
  While I am pleased that the IRS currently has in place a moratorium 
so that no employment taxes will be assessed on stock options, I 
believe Congress needs to clarify existing law to prevent any future 
attempts to change past policy on stock options. The current moratorium 
extends until January 1, 2003, and unless Congress adopts the proposed 
legislation, companies and workers will face uncertainty as to whether 
options are subject to withholding taxes.
  The legislation I am introducing would clarify that the difference 
between the exercise price and the fair market value of stock offered 
by the Incentive Stock Option or Employee Stock Purchase Plan is 
excluded from employment taxes. In addition, wage withholding is not 
required on disqualifying dispositions of Incentive Stock Option stock 
or on the fifteen percent discount offered to employees by Employee 
Stock Purchase Plans.
  I urge my colleagues to join me in cosponsoring this legislation.

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