THIS SEARCH     THIS DOCUMENT     GO TO
Next Hit        Forward           New Bills Search
Prev Hit        Back              HomePage
Hit List        Best Sections     Help
                Contents Display   

S 2722 IS

To amend the Internal Revenue Code of 1986 to ensure the proper tax treatment of executive compensation, and for other purposes.

July 11 (legislative day, JULY 10), 2002

Mr. ROCKEFELLER introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to ensure the proper tax treatment of executive compensation, and for other purposes.

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 `Executive Compensation Tax Reform Act of 2002'.

SEC. 2. REPEAL OF 1978 REVENUE ACT LIMITATION ON SECRETARY OF THE TREASURY'S AUTHORITY TO DETERMINE YEAR OF INCLUSION OF AMOUNTS UNDER PRIVATE DEFERRED COMPENSATION PLANS.

(a) REPEAL- Section 132 of the Revenue Act of 1978 (Public Law 95-600) is repealed.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 3. TREATMENT OF EMPLOYMENT LOANS MADE TO EXECUTIVES.

(a) IN GENERAL- Subchapter C of chapter 80 of the Internal Revenue Code of 1986 (relating to provisions affecting more than one subtitle) is amended by adding after section 7872 the following new section:

`SEC. 7872A. TREATMENT OF EMPLOYMENT LOANS MADE TO EXECUTIVES.

`(a) GENERAL RULE- If an employer directly or indirectly makes a loan to an applicable employee--

`(1) such loan shall be treated as compensation to the employee for purposes of subtitles A and C if the requirements of subsection (b) are not met with respect to such loan, and

`(2) if the principal amount of such loan, when added to the aggregate outstanding balance (as of the date of such loan) of all other loans made directly or indirectly by the employer to such employee, exceeds $1,000,000, then the rules of subsection (c) shall for purposes of applying section 7872 to such loan.

`(b) MINIMUM REQUIREMENTS TO BE TREATED AS A LOAN-

`(1) IN GENERAL- A loan meets the requirements of this subsection only if--

`(A) the loan is evidenced by a promissory note or other written evidence of indebtedness,

`(B) there is adequate collateral or security for the loan, and

`(C) there is a fixed schedule (not greater than 10 years) for repayment of principal and interest on the loan.

`(2) COLLATERAL- For purposes of paragraph (1)(B), there shall not be taken into account as collateral or security any assets acquired by the employee by reason of the employee's employment with the employer, including any stock or capital or profits interests in the employer, any option or other contract to purchase such stock or interests, any restricted stock or ownership interest, or any nonqualified deferred compensation.

`(3) RELOCATION LOANS- Paragraph (1)(C) shall not apply to a loan by an employer to an employee the proceeds of which are used by the employee to purchase a principal residence if the purchase is in connection with the commencement of work by an employee or a change in the principal work of an employee to which section 217 applies.

`(c) Application of Section 7872 to Excessive Loans- If subsection (a)(2) applies to a loan, in determining whether such loan is a below-market loan to which section 7872 applies (and in applying such section to such loan if it is a below-market loan)--

`(1) such loan shall not be treated as a gift loan or demand loan, and

`(2) the discount rate used in determining the present value of any payment due under the loan shall be the applicable Federal rate plus 3 percentage points.

`(d) RULES APPLICABLE TO AMOUNTS TREATED AS COMPENSATION-

`(1) IN GENERAL- If subsection (a)(1) applies to a loan made by an employer to an applicable employee, the employer shall be treated as having made a supplemental wage payment to the employee in an amount equal to the principal amount of the loan. Such payment shall be treated as having been made on the date the loan was made.

`(2) SUBSEQUENT REPAYMENTS- If an employee repays any principal on a loan to which subsection (a)(1) applies--

`(A) there shall be allowed as a deduction to the employee for the taxable year of the repayment the amount of such repayment, and

`(B) the amount treated as compensation for purposes of subtitle C for the calendar year of the repayment shall be reduced by the amount of such repayment.

The amount of the reduction under subparagraph (B) shall not exceed the amount treated as compensation for purposes of subtitle C by reason of this section and shall be carried to 1 or more succeeding calendar years to the extent such amount exceeds the aggregate amount of compensation for the year of the repayment and succeeding years.

`(e) OTHER DEFINITIONS AND RULES- For purposes of this section--

`(1) APPLICABLE EMPLOYEE-

`(A) IN GENERAL- The term `applicable employee' means an employee who, at the time the loan is made--

`(i) is an officer or director of the employer,

`(ii) is a 5-percent owner (within the meaning of section 416(i)) of the employer, or

`(iii) has an aggregate outstanding balance of loans (including such loan) made directly or indirectly to the employee by the employer in excess of $1,000,000.

`(B) APPLICABLE RULES- For purposes of subparagraph (A)--

`(i) the term `employee' includes a director and a self-employed individual (within the meaning of section 401(c)(1)), and

`(ii) in the case of an employer which is not a corporation, an individual shall be treated as an officer or director if the individual holds any comparable position with the employer.

`(2) AGGREGATION- All persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as a single person for purposes of this section.'

(b) CONFORMING AMENDMENT- The table of sections for subchapter C of chapter 80 of the Internal Revenue Code of 1986 is amended by adding after the item relating to section 7872 the following new item:

`Sec. 7872A. Treatment of employment loans made to executives.'

(c) EFFECTIVE DATE- The amendments made by this section shall apply to--

(1) loans made after the date of the enactment of this Act, and

(2) refinancings after such date of loans made before such date.

SEC. 4. CERTAIN SALES OF COMPANY STOCK BY CORPORATE INSIDERS TO BE SUBJECT TO EXCISE TAX ON GOLDEN PARACHUTE PAYMENTS.

(a) IN GENERAL- Section 4999 of the Internal Revenue Code of 1986 (relating to golden parachute payments) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

`(c) CERTAIN SALES OF COMPANY STOCK BY CORPORATE INSIDERS-

`(1) IN GENERAL- For purposes of this section, the term `excess parachute payment' includes any amount realized by a corporate insider on the sale or exchange of stock in the corporation with respect to which the individual is a corporate insider if such sale or exchange occurs while such corporation (or any other entity consolidated with such corporation for purposes of reporting to the Securities and Exchange Commission) maintains a transfer-restricted 401(k) plan.

`(2) CORPORATE INSIDER- For purposes of this subsection, the term `corporate insider' means, with respect to a corporation, any individual who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to such corporation.

`(3) TRANSFER-RESTRICTED 401(k) PLAN- For purposes of this subsection, the term `transfer-restricted 401(k) plan' means, with respect to any period, any qualified cash or deferred arrangement (as defined in section 401(k)(2)) if, during such period, any participant in such arrangement is not able to freely sell employer stock--

`(A) which is held in such participant's account under such arrangement, and

`(B) which is attributable to employee contributions, employer contributions, or earnings thereon.

`(4) APPLICATION OF SUBSECTION- This subsection shall apply to sales and exchanges during the 6-month period beginning on the date of the enactment of this subsection.'

(b) EFFECTIVE DATE- The amendment made by this section shall apply to sales and exchanges after the date of the enactment of this Act.

SEC. 5. INCLUSION IN INCOME OF CERTAIN DEFERRED AMOUNTS OF INSIDERS OF CORPORATIONS WHICH EXPATRIATE TO AVOID UNITED STATES INCOME TAX.

(a) IN GENERAL- Part II of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically included in gross income) is amended by adding at the end the following new section:

`SEC. 91. UNREALIZED GAIN ON STOCK OPTIONS OF INSIDERS OF CORPORATIONS WHICH EXPATRIATE TO AVOID UNITED STATES INCOME TAX.

`(a) IN GENERAL- In the case of a corporate insider of any expatriate corporation, the gross income of such insider (for the taxable year during which such corporation becomes an expatriate corporation) shall include as ordinary income the net unrealized built-in gain on options held by such insider to acquire stock in such corporation or in any member of the expanded affiliated group which includes such corporation. Proper adjustments shall be made in the amount of any gain or loss subsequently realized with respect to such options for any amount included in gross income under the preceding sentence.

`(b) DEFINITIONS- For purposes of this section--

`(1) CORPORATE INSIDER- The term `corporate insider' means, with respect to a corporation, any individual who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to such corporation.

`(2) EXPATRIATE CORPORATION-

`(A) IN GENERAL- The term `expatriate corporation' means the acquiring corporation in a corporate expatriation transaction.

`(B) CORPORATE EXPATRIATION TRANSACTION- For purposes of this paragraph--

`(i) IN GENERAL- The term `corporate expatriation transaction' means any transaction if--

`(I) a nominally foreign corporation (referred to in this subparagraph as the `acquiring corporation') acquires, as a result of such transaction, directly or indirectly substantially all of the properties held directly or indirectly by a domestic corporation, and

`(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation.

`(ii) LOWER STOCK OWNERSHIP REQUIREMENT IN CERTAIN CASES- Subclause (II) of clause (i) shall be applied by substituting `50 percent' for `80 percent' with respect to any nominally foreign corporation if--

`(I) such corporation does not have substantial business activities (when compared to the total business activities of the expanded affiliated group) in the foreign country in which or under the law of which the corporation is created or organized, and

`(II) the stock of the corporation is publicly traded and the principal market for the public trading of such stock is in the United States.

`(iii) PARTNERSHIP TRANSACTIONS- The term `corporate expatriation transaction' includes any transaction if--

`(I) a nominally foreign corporation (referred to in this paragraph as the `acquiring corporation') acquires, as a result of such transaction, directly or indirectly properties constituting a trade or business of a domestic partnership,

`(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former partners of the domestic partnership or related foreign partnerships (determined without regard to stock of the acquiring corporation which is sold in a public offering related to the transaction), and

`(III) the acquiring corporation meets the requirements of subclauses (I) and (II) of clause (ii).

`(iv) SPECIAL RULES- For purposes of this subparagraph--

`(I) a series of related transactions shall be treated as 1 transaction, and

`(II) stock held by members of the expanded affiliated group which includes the acquiring corporation shall not be taken into account in determining ownership.

`(v) NOMINALLY FOREIGN CORPORATION- The term `nominally foreign corporation' means any corporation which would (but for this subparagraph) be treated as a foreign corporation.

`(3) NET REALIZED BUILT-IN GAIN- The term `net unrealized built-in gain' means, with respect to options to acquire stock in any corporation, the amount which would be required to be included in gross income were such options exercised.

`(4) EXPANDED AFFILIATED GROUP- The term `expanded affiliated group' means an affiliated group (as defined in section 1504(a) without regard to section 1504(b)).'

(b) CLERICAL AMENDMENT- The table of sections for such part II is amended by adding at the end the following new item:

`Sec. 91. Certain deferred amounts of insiders of corporations which expatriate to avoid United States income tax.'

(c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to corporate expatriation transactions completed after the date of the enactment of this Act, and to taxable years ending after such date.

THIS SEARCH     THIS DOCUMENT     GO TO
Next Hit        Forward           New Bills Search
Prev Hit        Back              HomePage
Hit List        Best Sections     Help
                Contents Display