article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Workplace Employee Stock Option Act of 2002''. SEC. 2. INCENTIVES TO GRANT EMPLOYEE STOCK OPTIONS. (a) In General.--Section 423 of the Internal Revenue Code of 1986 (relating to employee stock purchase plans) is amended by adding at the end the following new subsection: ``(d) Special Incentives With Respect to Employee Stock Purchase Plans Which Meet Certain Additional Requirements.-- ``(1) In general.--If-- ``(A) section 421(a) would (but for this subsection) apply with respect to the transfer of stock to an individual by reason of this section, and ``(B) the requirements of paragraph (2) are met with respect to such transfer, the rules of paragraph (3) shall apply in lieu of the rules of section 421(a) and section 56(b)(3) shall not apply. ``(2) Requirements.--A transfer of stock to an individual meets the requirements of this paragraph if-- ``(A) the price paid by the individual for the stock under the option is paid only through payroll deductions in substantially equal amounts over a period of not less than 12 months and not more than 60 months, ``(B) such payroll deductions are held in a trust described in paragraph (5), ``(C) the price of the stock acquired under the option is not less than the fair market value of the stock at the time the option is granted, ``(D) ownership of the stock is transferred to the individual at the end of the payroll deduction period (or, if earlier, the date that the price of the stock under the option is fully paid), ``(E) the individual's election to commence withholding to purchase such stock pursuant to the option is made during the 30-day period beginning on the earliest date that the individual could have made the election to commence withholding to acquire stock pursuant to such option, and ``(F) the stock acquired by the individual pursuant to the option-- ``(i) is held by the trust described in paragraph (5) until the individual elects to dispose of such stock, or ``(ii) at the election of the individual, is transferred to the individual. ``(3) Special tax treatment.-- ``(A) Treatment of payroll deductions.--With respect to the payroll deductions referred to in paragraph (2)(A)-- ``(i) the gross income of the individual shall not include an amount equal to such deductions, ``(ii) for purposes of subtitle C, the individual's remuneration for employment shall not include an amount equal to such deductions, and ``(iii) the deduction otherwise allowable under section 162 for remuneration paid to such individual shall be reduced by an amount equal to such deductions. The aggregate amount to which the preceding sentence applies for any taxable year of an individual shall not exceed the limitation under section 402(g)(1) for such taxable year. ``(B) Treatment when share transferred to individual.-- ``(i) Employee.--No amount shall be includible in the gross income of an individual (or treated as remuneration for purposes of subtitle C) by reason of the transfer of ownership of stock acquired pursuant to an option to which this subsection applies. ``(ii) Employer.--There shall be allowed as a deduction under section 162 to the person whose deduction was reduced under subparagraph (A)(iii) (for the taxable year in which such transfer of ownership occurs) an amount equal to the fair market value of the stock at the time of such transfer. ``(C) Treatment when share disposed of.--At the time the stock is disposed of, so much of the gain as does not exceed the deduction allowed under subparagraph (B)(ii) shall be treated as ordinary income. ``(D) Failure to include proper amount of ordinary income.--If-- ``(i) the gain on any disposition of stock acquired pursuant to an option to which this subsection applies exceeds the deduction allowed under subparagraph (B)(ii), and ``(ii) the individual fails to include in gross income as ordinary income at least the amount of such deduction, then the entire amount of gain shall be included in gross income as ordinary income. ``(4) Special rules.-- ``(A) Determination of option price.--For purposes of paragraph (2), an option to acquire stock shall be treated as being granted on the earliest date that the individual could have made the election to acquire stock pursuant to such option. ``(B) Return of payroll deductions.--Nothing in this subsection shall prevent the return of an individual's payroll deductions to the individual if the individuals elects not to use the deducted amounts to acquire the stock. The amount so returned shall be included in the gross income of such individual for the taxable year in which paid to the individual and shall be treated for purposes of subtitle C as remuneration from employment. ``(C) Termination of employment.--If an individual terminates employment with the person who granted the option to acquire stock, paragraph (2)(A) shall not apply to amounts paid within 3 months after such termination to the extent such amounts do not exceed the amount payable under options granted before the date of such termination. In the case of an individual who is disabled or who dies before the close of such 3 months, the preceding sentence shall be applied by substituting `1 year' for `3 months'. ``(D) Treatment of nonresident aliens.--If an individual is a nonresident alien individual for any portion of the taxable year, this subsection shall apply only if-- ``(i) such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013, or ``(ii) such individual has income from sources within the United States or which is effectively connected with the conduct of a trade or business in the United States. ``(E) Certain employees may be excluded.--In applying subsection (b)(4) for purposes of this subsection, there may be excluded employees included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under this subsection were the subject of good faith bargaining between such employee representatives and such employer or employers. ``(5) Rate of cash compensation must be unaffected.--The grant of any options under the arrangement may not be directly linked with a systematic reduction in the annual rate at which basic or regular cash compensation is paid to employees under the arrangement, as determined under regulations prescribed by the Secretary of the Treasury. ``(6) Trust holding payroll deductions.--A trust is described in this paragraph if-- ``(A) the trust is created or organized in the United States exclusively for the purposes of holding payroll deductions pursuant to this subsection and stock acquired with such payroll deductions, ``(B) a separate account is maintained for each individual, and ``(C) any earnings on payroll deductions of an individual are paid not less often than annually to such individual. The Employee Retirement Income Security Act of 1974 shall not apply to any trust described in this paragraph. ``(7) Regulations.--The Secretary shall prescribe such regulations as may be appropriate to carry out this subsection.'' (b) Exemption From Tax for Trust Holding Payroll Deductions, Etc.-- Subsection (a) of section 501 of such Code is amended by striking ``or section 401(a)'' and inserting ``, section 401(a), or section 423(d)(5)''. (c) Information Reporting.-- (1) In general.--Subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new section: ``SEC. 6050T. RETURNS RELATING TO TRANSFER OF OWNERSHIP OF STOCK ACQUIRED PURSUANT TO CERTAIN STOCK OPTIONS. ``(a) In General.--Any person who is allowed a deduction for any taxable year under section 423(d)(3)(B)(ii) with respect to the transfer of ownership of stock to any individual shall make the return described in subsection (b) with respect to such transfer at such time as the Secretary may by regulations prescribe. ``(b) Form and Manner of Returns.--A return is described in this subsection if such return-- ``(1) is in such form as the Secretary may prescribe, ``(2) contains-- ``(A) the name, address, and TIN of the individual to whom the stock ownership was so transferred, ``(B) the amount of the deduction allowed under section 423(d)(3)(B)(ii) with respect to such transfer, and ``(C) such other information as the Secretary may prescribe. ``(c) Statements To Be Furnished To Persons With Respect To Whom Information Is Required.--Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing-- ``(1) the name, address, and phone number of the information contact of the person required to make such return, and ``(2) the amount of the deduction described in subsection (a) with respect to stock ownership transferred to such individual. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.'' (2) Assessable penalties.-- (A) Subparagraph (B) of section 6724(d)(1) of such Code (relating to definitions) is amended by redesignating clauses (xi) through (xvii) as clauses (xii) through (xviii), respectively, and by inserting after clause (x) the following new clause: ``(xi) section 6050T (relating to returns relating to transfers of ownership of stock acquired pursuant to certain stock options),''. (B) Paragraph (2) of section 6724(d) of such Code is amended by striking ``or'' at the end of the next to last subparagraph, by striking the period at the end of the last subparagraph and inserting ``, or'', and by adding at the end the following new subparagraph: ``(BB) section 6050T(c) (relating to returns relating to transfers of ownership of stock acquired pursuant to certain stock options).''. (3) Clerical amendment.--The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to section 6050S the following new item: ``Sec. 6050T. Returns relating to transfers of ownership of stock acquired pursuant to certain stock options.''. (d) Effective Date.--The amendments made by this section shall apply to options granted after the date of the enactment of this Act.
summary: Workplace Employee Stock Option Act of 2002 - Amends the Internal Revenue Code to provide for the exclusion from gross income of certain stock purchased with payroll deductions through an employee stock purchase plan.Sets forth special rules with respect to the inclusion of nonresident aliens under the provisions of this Act. Allows certain employees to be excluded from purchasing stock options under this Act.Requires certain employers to submit information returns relating to the transfer of ownership of stock acquired by employees pursuant to certain stock options, and assesses penalties for failure to comply.