Senators Introduce Bill to End Stock Option Tax Break

Senators Carl Levin (D-Michigan) and Sherrod Brown (D-Ohio) introduced legislation to end a corporate tax break allowing corporations to deduct stock option expenses on their tax returns in amounts greater than the expenses shown on their books.

The Ending Excessive Corporate Deductions for Stock Options Act, S. 1375, would end excessive corporate tax deductions for stock options by requiring such deductions not to exceed the expense shown on corporate financial reports filed with the Securities and Exchange Commission.  The Joint Committee on Taxation has estimated that ending this tax break would raise $24.6 billion in corporate tax revenues over ten years.  

The announcement explained that because current accounting rules value stock options on their grant date and the tax code values stock options on their exercise date, the two numbers do not match.  Stock option data over the past five years shows that the resulting corporate tax deductions, taken as a whole, far exceed the expenses shown on corporate books.  

Specifically, the Ending Excessive Corporate Deductions for Stock Options Act would: 

  • require the corporate tax deduction for stock option compensation not to exceed the stock option book expense shown on a corporation’s financial statement; 
  • allow corporations to deduct stock option compensation on their tax returns in the same year it is recorded on the corporate books, without waiting for the options to be exercised; 
  • ensure research tax credits use the same method for calculating stock option pay expenses when computing wages eligible for the tax credit; 
  • make no changes to stock option compensation rules for individuals, or for incentive stock options under Section 422 of the tax code which may be used by start-up companies and other small businesses; 
  • create a transition rule to ensure stock options granted before the enactment date are tax deductible; and 
  • make stock option deductions subject to the existing $1 million cap on corporate tax deductions for compensation paid to top executives of publicly held corporations. 
Text of S. 1375 is at