[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5719 Reported in House (RH)]
<DOC>
Union Calendar No. 581
114th CONGRESS
2d Session
H. R. 5719
[Report No. 114-748]
To amend the Internal Revenue Code of 1986 to modify the tax treatment
of certain equity grants.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 11, 2016
Mr. Paulsen introduced the following bill; which was referred to the
Committee on Ways and Means
September 16, 2016
Additional sponsors: Mr. Crowley, Ms. Eshoo, and Mr. Hultgren
September 16, 2016
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed
in italic]
[For text of introduced bill, see copy of bill as introduced on July
11, 2016]
_______________________________________________________________________
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 with respect to such stock under this
subsection--
``(A) except as provided in subparagraph (B), no
amount shall be included in income under subsection (a)
for 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 for the taxable year of the employee
which includes the earliest of--
``(i) the first date such qualified stock
becomes transferable (including transferable to
the employer),
``(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 (as determined by
the Secretary, but not including any market
unless such market is recognized as an
established securities market by the Secretary
for purposes of a provision of this title other
than this subsection),
``(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
revokes (at such time and in such manner as the
Secretary may provide) the election under this
subsection with respect to such stock.
``(2) Qualified stock.--
``(A) In general.--For purposes of this subsection,
the term `qualified stock' means, with respect to any
qualified employee, any stock in a corporation which is
the employer of such employee, if--
``(i) such stock is received--
``(I) in connection with the
exercise of an option, or
``(II) in settlement of a
restricted stock unit, and
``(ii) such option or restricted stock unit
was provided by the corporation--
``(I) in connection with the
performance of services as an employee,
and
``(II) during a calendar year in
which such corporation was an eligible
corporation.
``(B) Limitation.--The term `qualified stock' shall
not include any stock if the employee may sell such
stock to, or otherwise receive cash in lieu of stock
from, the corporation at the time that the rights of
the employee in such stock first become transferable or
not subject to a substantial risk of forfeiture.
``(C) Eligible corporation.--For purposes of
subparagraph (A)(ii)(II)--
``(i) In general.--The term `eligible
corporation' means, with respect to any
calendar year, any corporation if--
``(I) no stock of such corporation
(or any predecessor of such
corporation) is readily tradable on an
established securities market (as
determined under paragraph (1)(B)(iii))
during any preceding calendar year, and
``(II) such corporation has a
written plan under which, in such
calendar year, not less than 80 percent
of all employees who provide services
to such corporation in the United
States (or any possession of the United
States) are granted stock options, or
restricted stock units, with the same
rights and privileges to receive
qualified stock.
``(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 is
not equal in amount, so long as the
number of shares available to each
employee is more than a de minimis
amount, and
``(III) rights and privileges with
respect to the exercise of an option
shall not be treated as the same as
rights and privileges with respect to
the settlement of a restricted stock
unit.
``(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 in the election made under
this subsection 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 was a 1-percent owner (within the
meaning of section 416(i)(1)(B)(ii)) at any
time during the 10 preceding calendar years,
``(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 has been for any of the 10
preceding taxable years one of the 4 highest
compensated officers of such corporation
determined with respect to each such taxable
year 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, and shall be
made in a manner similar to the manner in which an
election is made under subsection (b).
``(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,
``(ii) any stock of the corporation which
issued the qualified stock is readily tradable
on an established securities market (as
determined under paragraph (1)(B)(iii)) at any
time before the election is made, or
``(iii) such corporation purchased any of
its outstanding stock in the calendar year
preceding the calendar year which includes the
first time the rights of the employee in such
stock are transferable or are not subject to a
substantial risk of forfeiture, unless--
``(I) not less than 25 percent of
the total dollar amount of the stock so
purchased is deferral stock, and
``(II) the determination of which
individuals from whom deferral stock is
purchased is made on a reasonable
basis.
``(C) Definitions and special rules related to
limitation on stock redemptions.--
``(i) Deferral stock.--For purposes of this
paragraph, the term `deferral stock' means
stock with respect to which an election is in
effect under this subsection
``(ii) Deferral stock with respect to any
individual not taken into account if individual
holds deferral stock with longer deferral
period.--Stock purchased by a corporation from
any individual shall not be treated as deferral
stock for purposes of clause (iii) if such
individual (immediately after such purchase)
holds any deferral stock with respect to which
an election has been in effect under this
subsection for a longer period than the
election with respect to the stock so
purchased.
``(iii) Purchase of all outstanding
deferral stock.--The requirements of subclauses
(I) and (II) of subparagraph (B)(iii) shall be
treated as met if the stock so purchased
includes all of the corporation's outstanding
deferral stock.
``(iv) Reporting.--Any corporation which
has outstanding deferral stock as of the
beginning of any calendar year and which
purchases any of its outstanding stock during
such calendar year shall include on its return
of tax for the taxable year in which, or with
which, such calendar year ends the total dollar
amount of its outstanding stock so purchased
during such calendar year and such other
information as the Secretary may require for
purposes of administering this paragraph.
``(5) 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.
``(6) Notice requirement.--Any corporation that transfers
qualified stock to a qualified employee shall, at the time that
(or a reasonable period before) an amount attributable to such
stock would (but for this subsection) first be includible in
the gross income of such employee--
``(A) certify to such employee that such stock is
qualified stock, and
``(B) notify such employee--
``(i) that the employee may elect to defer
income on such stock under this subsection, and
``(ii) that, if the employee makes such an
election--
``(I) 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
first become transferable or not
subject to substantial risk of
forfeiture, notwithstanding whether the
value of the stock has declined during
the deferral period,
``(II) the amount of such income
recognized at the end of the deferral
period will be subject to withholding
under section 3401(i) at the rate
determined under section 3402(t), and
``(III) the responsibilities of the
employee (as determined by the
Secretary under paragraph (3)(A)(ii))
with respect to such withholding.''.
(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)--
``(1) the rate of tax under subsection (a) shall not be
less than the maximum rate of tax in effect under section 1,
and
``(2) such stock shall be treated for purposes of section
3501(b) in the same manner as a non-cash fringe benefit.''.
(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 adding at
the end the following: ``Such term shall not include
any option if an election is made under section 83(i)
with respect to the stock received in connection with
the exercise of such 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 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.--An arrangement under
which an employee may receive qualified stock (as defined in
section 83(i)(2)) shall not be treated as a nonqualified
deferred compensation plan solely because of an employee's
ability to defer recognition of income pursuant to an election
under section 83(i).''.
(d) Information Reporting.--Section 6051(a) of the Internal Revenue
Code of 1986 is amended by striking ``and'' at the end of paragraph
(13), by striking the period at the end of paragraph (14) and inserting
a comma, and by inserting after paragraph (14) the following new
paragraphs:
``(15) the amount excludable from gross income under
subparagraph (A) of section 83(i)(1),
``(16) the amount includible in gross income under
subparagraph (B) of section 83(i)(1) with respect to an event
described in such subparagraph which occurs in such calendar
year, and
``(17) the aggregate amount of income which is being
deferred pursuant to elections under section 83(i), determined
as of the close of the calendar year.''.
(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)(6), 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 stock
attributable to options exercised, or restricted stock units
settled, after December 31, 2016.
(2) Requirement to provide notice.--The amendments made by
subsection (e) shall apply to failures after December 31, 2016.
(g) Transition Rule.--Until such time as the Secretary (or the
Secretary's delegate) issue regulations or other guidance for purposes
of implementing the requirements of paragraph (2)(C)(i)(II) of section
83(i) of the Internal Revenue Code of 1986 (as added by this section),
or the requirements of paragraph (6) of such section, a corporation
shall be treated as being in compliance with such requirements
(respectively) if such corporation complies with a reasonable good
faith interpretation of such requirements.
Union Calendar No. 581
114th CONGRESS
2d Session
H. R. 5719
[Report No. 114-748]
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to modify the tax treatment
of certain equity grants.
_______________________________________________________________________
September 16, 2016
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed