,,ii #aaeth ,,congress #ast ,session ,s4 #addd ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,june #bg1 #bjag ,mr4 ,warner 7for himself and ,mr4 ,heller7 introduced the following bill2 which was read twice and referred to the ,committee on ,finance ,a ,,bill ,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 ,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 subtitle-- 7,a7 ,timing of inclusion ,if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection1 subsection 7a7 shall be applied by including the amount determined under such subsection with respect to such stock in income of the employee in the taxable year determined under subparagraph 7,b7 in lieu of the taxable year described in subsection 7a74 7,b7 ,taxable year determined ,the taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of-- 7i7 except as provided in subparagraph 7,c71 the first date such qualified stock becomes transferable 7including1 solely for purposes of this clause1 becoming transferable to the employer71 7ii7 the date the employee first becomes an excluded employee1 7iii7 except as provided in subparagraph 7,c71 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,c7 ,special rule for stock subject to lock-up periods 7i7 ,in general ,in the case of any qualified stock which is subject to a lock-up period-- 7,i7 such stock shall not be treated as transferable under subparagraph 7,b77i71 and 7,,ii7 such stock shall not be treated as readily tradable on an established securities market under subparagraph 7,b77iii71 before the end of the lock-up period4 7ii7 ,lock-up period ,for purposes of this subparagraph1 the term lock-up period means any period 7not to exceed #ahj days7-- 7,i7 which begins on the date of an initial public offering1 and 7,,ii7 during which the qualified employee agrees1 pursuant to an underwriting agreement entered into pursuant to such initial public offering1 not to sell1 otherwise dispose of1 or hedge any qualified 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 granted 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 for such calendar year which meets the requirements of clause 7ii74 7ii7 ,plan requirements ,a written plan meets the requirements of this clause with respect to any calendar year if-- 7,i7 not less than #hj percent of all employees who first become employees of such corporation during such calendar year are granted stock options1 or restricted stock units1 with the same rights and privileges to receive qualified stock1 and 7,,ii7 not less than #hj percent of all employees who were employees of such corporation during the preceding calendar year hold stock options1 or restricted stock units1 with the same rights and privileges to receive qualified stock4 7iii7 ,same rights and privileges ,for purposes of clause 7ii7-- 7,i7 except as provided in subclauses 7,,ii7 and 7,,iii71 the determination of rights and privileges with respect to stock shall be made in a similar manner as 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 7iv7 ,employee ,for purposes of clause 7ii71 the term employee shall not include-- 7,i7 any employee described in section #dihj;,e7d77#d71 7,,ii7 any excluded employee1 and 7,,iii7 with respect to any corporation for any calendar year1 any individual who provides services for such corporation in the ,united ,states 7or any possession of the ,united ,states7 for a period of less than #ij days during such calendar year4 7v7 ,special rule for calendar years before #bjbj ,in the case of any calendar year beginning before ,january #a1 #bjbj1 clause 7ii7 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 are 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 was for any of the #aj preceding taxable years one of the #d highest compensated officers of such corporation1 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 date 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 date 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 subparagraph 7,b77iii7 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 treated as a single employer under section #dad7;b7 shall be treated as one corporation4 7#f7 ,notice requirement ,any corporation which 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 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#b77 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 #dbc of such ,code is amended-- 7i7 by adding at the end of subsection 7a7 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 2 and 7ii7 in subsection 7b77#e71 by striking and before the plan and by inserting 1 and the rules of section #hc7;i7 shall apply in determining which employees have a right to make an election under such section before the semicolon at the end4 7,c7 ,conforming amendments 7i7 ,section #caba7;a77#bb77;,a7 of the ,internal ,revenue ,code of #aihf is amended by inserting 7other than qualified stock 7as defined in section #hc7;i77#b77 with respect to which an election is in effect under section #hc7;i77 after a share of stock4 7ii7 ,section #bji7;a77#ai77;,a7 of the ,social ,security ,act 7#db ,u4,s4,c4 #dji7 is amended by 7other than qualified stock 7as defined in section #hc7;i77#b7 of the ,internal ,revenue ,code of #aihf7 with respect to which an election is in effect under section #hc7;i7 of such ,code7 after a share of stock4 7iii7 ,section #cbca7;e77#ab77;,a7 of the ,internal ,revenue ,code of #aihf is amended by inserting 7other than qualified stock 7as defined in section #hc7;i77#b77 with respect to which an election is in effect under section #hc7;i77 after a share of stock4 7iv7 ,section #ccjf7;b77#ai77;,a7 of the ,internal ,revenue ,code of #aihf is amended by inserting 7other than qualified stock 7as defined in section #hc7;i77#b77 with respect to which an election is in effect under section #hc7;i77 after a share of stock4 7#b7 ,treatment under nonqualified deferred compensation plan ,subsection 7d7 of section #dji;,a of such ,code 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 plan1 or as failing to meet the requirements of this section1 solely because of an employee's election1 or ability to make an election1 to defer recognition of income 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#ad71 by striking the period at the end of paragraph 7#ae7 and inserting a comma1 and by inserting after paragraph 7#ae7 the following new paragraphs3 7#af7 the amount includible in gross income under subparagraph 7,a7 of section #hc7;i77#a7 with respect to an event described in subparagraph 7,b7 of such section 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 7p7 ,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 ,guidance ,not later than ,december #ca1 #bjah1 the ,secretary of the ,treasury 7or the ,secretary's delegate7 shall issue guidance with respect to section #hc7;i7 of the ,internal ,revenue ,code of #aihf 7as added by this section71 including guidance relating to-- 7#a7 the determination the time stock first becomes transferable under such section2 7#b7 the determination of rights and privileges with respect to stock under paragraph 7#b77;,c77iii7 of such section2 and 7#c7 the requirements of paragraphs 7#b77;,c77i77,,ii7 and 7#f7 of such section4 7g7 ,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 #bjai4 7#b7 ,requirement to provide notice ,the amendments made by subsection 7e7 shall apply to failures after ,december #ca1 #bjai4