,,ii #aadth ,,congress #b;d ,session ,h4 ,r4 #egai ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,september #bf1 #bjaf,received ,,an ,,act ,to amend the ,internal ,revenue ,code of #aihf to modify the tax treatment of certain equity grants4 #a4 ,short title ,this ,act may be cited as the ,empowering ,employees through ,stock ,ownership ,act4 #b4 ,treatment of qualified equity grants 7a7 ,in general 7#a7 ,election to defer income ,section #hc of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7i7 ,qualified equity grants 7#a7 ,in general ,for purposes of this subtitle1 if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection-- 7,a7 except as provided in subparagraph 7,b71 no amount shall be included in income under subsection 7a7 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 forfeiture1 whichever is applicable1 and 7,b7 an amount equal to the amount which would be included in income of the employee under subsection 7a7 7determined without regard to this subsection7 shall be included in income for the taxable year of the employee which includes the earliest of-- 7i7 the first date such qualified stock becomes transferable 7including transferable to the employer71 7ii7 the date the employee first becomes an excluded employee1 7iii7 the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market 7as determined by the ,secretary1 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 subsection71 7iv7 the date that is #g years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture1 whichever occurs earlier1 or 7v7 the date on which the employee revokes 7at such time and in such manner as the ,secretary may provide7 the election under this subsection with respect to such stock4 7#b7 ,qualified stock 7,a7 ,in general ,for purposes of this subsection1 the term qualified stock means1 with respect to any qualified employee1 any stock in a corporation which is the employer of such employee1 if-- 7i7 such stock is received-- 7,i7 in connection with the exercise of an option1 or 7,,ii7 in settlement of a restricted stock unit1 and 7ii7 such option or restricted stock unit was provided by the corporation-- 7,i7 in connection with the performance of services as an employee1 and 7,,ii7 during a calendar year in which such corporation was an eligible corporation4 7,b7 ,limitation ,the term qualified stock shall not include any stock if the employee may sell such stock to1 or otherwise receive cash in lieu of stock from1 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 forfeiture4 7,c7 ,eligible corporation ,for purposes of subparagraph 7,a77ii77,,ii7-- 7i7 ,in general ,the term eligible corporation means1 with respect to any calendar year1 any corporation if-- 7,i7 no stock of such corporation 7or any predecessor of such corporation7 is readily tradable on an established securities market 7as determined under paragraph 7#a77;,b77iii77 during any preceding calendar year1 and 7,,ii7 such corporation has a written plan under which1 in such calendar year1 not less than #hj percent of all employees who provide services to such corporation in the ,united ,states 7or any possession of the ,united ,states7 are granted stock options1 or restricted stock units1 with the same rights and privileges to receive qualified stock4 7ii7 ,same rights and privileges ,for purposes of clause 7i77,,ii7-- 7,i7 except as provided in subclauses 7,,ii7 and 7,,iii71 the determination of rights and privileges with respect to stock shall be determined in a similar manner as provided under section #dbc7;b77#e71 7,,ii7 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 amount1 so long as the number of shares available to each employee is more than a de minimis amount1 and 7,,iii7 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 unit4 7iii7 ,employee ,for purposes of clause 7i77,,ii71 the term employee shall not include any employee described in section #dihj;,e7d77#d7 or any excluded employee4 7iv7 ,special rule for calendar years before #bjag ,in the case of any calendar year beginning before ,january #a1 #bjag1 clause 7i77,,ii7 shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same4 7#c7 ,qualified employee2 excluded employee ,for purposes of this subsection-- 7,a7 ,in general ,the term qualified employee means any individual who-- 7i7 is not an excluded employee1 and 7ii7 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 #bd with respect to the qualified stock are met4 7,b7 ,excluded employee ,the term excluded employee means1 with respect to any corporation1 any individual-- 7i7 who was a #a-percent owner 7within the meaning of section #daf7;i77#a77;,b77ii77 at any time during the #aj preceding calendar years1 7ii7 who is or has been at any prior time-- 7,i7 the chief executive officer of such corporation or an individual acting in such a capacity1 or 7,,ii7 the chief financial officer of such corporation or an individual acting in such a capacity1 7iii7 who bears a relationship described in section #cah7;a77#a7 to any individual described in subclause 7,i7 or 7,,ii7 of clause 7ii71 or 7iv7 who has been for any of the #aj preceding taxable years one of the #d 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 #aicd 7as if such rules applied to such corporation74 7#d7 ,election 7,a7 ,time for making election ,an election with respect to qualified stock shall be made under this subsection no later than #cj days after the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture1 whichever occurs earlier1 and shall be made in a manner similar to the manner in which an election is made under subsection 7b74 7,b7 ,limitations ,no election may be made under this section with respect to any qualified stock if-- 7i7 the qualified employee has made an election under subsection 7b7 with respect to such qualified stock1 7ii7 any stock of the corporation which issued the qualified stock is readily tradable on an established securities market 7as determined under paragraph 7#a77;,b77iii77 at any time before the election is made1 or 7iii7 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 forfeiture1 unless-- 7,i7 not less than #be percent of the total dollar amount of the stock so purchased is deferral stock1 and 7,,ii7 the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis4 7,c7 ,definitions and special rules related to limitation on stock redemptions 7i7 ,deferral stock ,for purposes of this paragraph1 the term deferral stock means stock with respect to which an election is in effect under this subsection4 7ii7 ,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 7iii7 if such individual 7immediately after such purchase7 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 purchased4 7iii7 ,purchase of all outstanding deferral stock ,the requirements of subclauses 7,i7 and 7,,ii7 of subparagraph 7,b77iii7 shall be treated as met if the stock so purchased includes all of the corporation's outstanding deferral stock4 7iv7 ,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 which1 or with which1 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 paragraph4 7#e7 ,controlled groups ,for purposes of this subsection1 all corporations which are members of the same controlled group of corporations 7as defined in section #aefc7;a77 shall be treated as one corporation4 7#f7 ,notice requirement ,any corporation that transfers qualified stock to a qualified employee shall1 at the time that 7or a reasonable period before7 an amount attributable to such stock would 7but for this subsection7 first be includible in the gross income of such employee-- 7,a7 certify to such employee that such stock is qualified stock1 and 7,b7 notify such employee-- 7i7 that the employee may elect to defer income on such stock under this subsection1 and 7ii7 that1 if the employee makes such an election-- 7,i7 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 forfeiture1 notwithstanding whether the value of the stock has declined during the deferral period1 7,,ii7 the amount of such income recognized at the end of the deferral period will be subject to withholding under section #cdja7;i7 at the rate determined under section #cdjb7t71 and 7,,iii7 the responsibilities of the employee 7as determined by the ,secretary under paragraph 7#c77;,a77ii77 with respect to such withholding4 4 7#b7 ,deduction by employer ,subsection 7h7 of section #hc of the ,internal ,revenue ,code of #aihf is amended by striking or 7d77#b7 and inserting 7d77#b71 or 7i74 7b7 ,withholding 7#a7 ,time of withholding ,section #cdja of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7i7 ,qualified stock for which an election is in effect under section #hc7;i7 ,for purposes of subsection 7a71 qualified stock 7as defined in section #hc7;i77 with respect to which an election is made under section #hc7;i7 shall be treated as wages-- 7#a7 received on the earliest date described in section #hc7;i77#a77;,b71 and 7#b7 in an amount equal to the amount included in income under section #hc for the taxable year which includes such date4 4 7#b7 ,amount of withholding ,section #cdjb of such ,code is amended by adding at the end the following new subsection3 7t7 ,rate of withholding for certain stock ,in the case of any qualified stock 7as defined in section #hc7;i77 with respect to which an election is made under section #hc7;i7-- 7#a7 the rate of tax under subsection 7a7 shall not be less than the maximum rate of tax in effect under section #a1 and 7#b7 such stock shall be treated for purposes of section #ceja7;b7 in the same manner as a non-cash fringe benefit4 4 7c7 ,coordination with other deferred compensation rules 7#a7 ,election to apply deferral to statutory options 7,a7 ,incentive stock options ,section #dbb7;b7 of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following3 ,such term shall not include any option if an election is made under section #hc7;i7 with respect to the stock received in connection with the exercise of such option44 7,b7 ,employee stock purchase plans ,section #dbc7;a7 of such ,code is amended by adding at the end the following flush sentence3 ,the preceding sentence shall not apply to any share of stock with respect to which an election is made under section #hc7;i74 4 7#b7 ,exclusion from definition of nonqualified deferred compensation plan ,subsection 7d7 of section #dji;,a of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new paragraph3 7#g7 ,treatment of qualified stock ,an arrangement under which an employee may receive qualified stock 7as defined in section #hc7;i77#b77 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 #hc7;i74 4 7d7 ,information reporting ,section #fjea7;a7 of the ,internal ,revenue ,code of #aihf is amended by striking and at the end of paragraph 7#ac71 by striking the period at the end of paragraph 7#ad7 and inserting a comma1 and by inserting after paragraph 7#ad7 the following new paragraphs3 7#ae7 the amount excludable from gross income under subparagraph 7,a7 of section #hc7;i77#a71 7#af7 the amount includible in gross income under subparagraph 7,b7 of section #hc7;i77#a7 with respect to an event described in such subparagraph which occurs in such calendar year1 and 7#ag7 the aggregate amount of income which is being deferred pursuant to elections under section #hc7;i71 determined as of the close of the calendar year4 4 7e7 ,penalty for failure of employer ,to provide notice of tax consequences ,section #ffeb of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7o7 ,failure to provide notice under section #hc7;i7 ,in the case of each failure to provide a notice as required by section #hc7;i77#f71 at the time prescribed therefor1 unless it is shown that such failure is due to reasonable cause and not to willful neglect1 there shall be paid1 on notice and demand of the ,secretary and in the same manner as tax1 by the person failing to provide such notice1 an amount equal to #ajj for each such failure1 but the total amount imposed on such person for all such failures during any calendar year shall not exceed #ej1jjj4 4 7f7 ,effective dates 7#a7 ,in general ,except as provided in paragraph 7#b71 the amendments made by this section shall apply to stock attributable to options exercised1 or restricted stock units settled1 after ,december #ca1 #bjaf4 7#b7 ,requirement to provide notice ,the amendments made by subsection 7e7 shall apply to failures after ,december #ca1 #bjaf4 7g7 ,transition rule ,until such time as the ,secretary 7or the ,secretary's delegate7 issue regulations or other guidance for purposes of implementing the requirements of paragraph 7#b77;,c77i77,,ii7 of section #hc7;i7 of the ,internal ,revenue ,code of #aihf 7as added by this section71 or the requirements of paragraph 7#f7 of such section1 a corporation shall be treated as being in compliance with such requirements 7respectively7 if such corporation complies with a reasonable good faith interpretation of such requirements4 ,passed the ,house of ,representatives ,september #bb1 #bjaf4,karen ,l4 ,haas1,clerk4