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114th Congress    }                                    {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                    {       114-748

======================================================================



 
            EMPOWERING EMPLOYEES THROUGH STOCK OWNERSHIP ACT

                                _______
                                

 September 16, 2016.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 5719]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 5719) to amend the Internal Revenue Code of 1986 to 
modify the tax treatment of certain equity grants, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................5
          A. Purpose and Summary.................................     5
          B. Background and Need for Legislation.................     6
          C. Legislative History.................................     6
 II. EXPLANATION OF THE BILL..........................................6
          A. Treatment of Qualified Equity Grants (sec. 2 of the 
              bill and secs. 83, 3401, 3402, and 6061 of the 
              Code)..............................................     6
III. VOTES OF THE COMMITTEE..........................................14
 IV. BUDGET EFFECTS OF THE BILL......................................15
          A. Committee Estimate of Budgetary Effects.............    15
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    15
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    15
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......17
          A. Committee Oversight Findings and Recommendations....    17
          B. Statement of General Performance Goals and 
              Objectives.........................................    17
          C. Information Relating to Unfunded Mandates...........    17
          D. Applicability of House Rule XXI 5(b)................    17
          E. Tax Complexity Analysis.............................    17
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    18
          G. Duplication of Federal Programs.....................    18
          H. Disclosure of Directed Rule Makings.................    18
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........18
          A. Text of Existing Law Amended or Repealed by the 
              Bill, as Reported..................................    18
          B. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    60

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Empowering Employees through Stock 
Ownership Act''.

SEC. 2. TREATMENT OF QUALIFIED EQUITY GRANTS.

  (a) In General.--
          (1) Election to defer income.--Section 83 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new subsection:
  ``(i) Qualified Equity Grants.--
          ``(1) In general.--For purposes of this subtitle, if 
        qualified stock is transferred to a qualified employee who 
        makes an election with respect to such stock under this 
        subsection--
                  ``(A) except as provided in subparagraph (B), no 
                amount shall be included in income under subsection (a) 
                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 forfeiture, whichever 
                is applicable, and
                  ``(B) an amount equal to the amount which would be 
                included in income of the employee under subsection (a) 
                (determined without regard to this subsection) shall be 
                included in income for the taxable year of the employee 
                which includes the earliest of--
                          ``(i) the first date such qualified stock 
                        becomes transferable (including transferable to 
                        the employer),
                          ``(ii) the date the employee first becomes an 
                        excluded employee,
                          ``(iii) the first date on which any stock of 
                        the corporation which issued the qualified 
                        stock becomes readily tradable on an 
                        established securities market (as determined by 
                        the Secretary, 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 subsection),
                          ``(iv) the date that is 7 years after the 
                        first date the rights of the employee in such 
                        stock are transferable or are not subject to a 
                        substantial risk of forfeiture, whichever 
                        occurs earlier, or
                          ``(v) the date on which the employee revokes 
                        (at such time and in such manner as the 
                        Secretary may provide) the election under this 
                        subsection with respect to such stock.
          ``(2) Qualified stock.--
                  ``(A) In general.--For purposes of this subsection, 
                the term `qualified stock' means, with respect to any 
                qualified employee, any stock in a corporation which is 
                the employer of such employee, if--
                          ``(i) such stock is received--
                                  ``(I) in connection with the exercise 
                                of an option, or
                                  ``(II) in settlement of a restricted 
                                stock unit, and
                          ``(ii) such option or restricted stock unit 
                        was provided by the corporation--
                                  ``(I) in connection with the 
                                performance of services as an employee, 
                                and
                                  ``(II) during a calendar year in 
                                which such corporation was an eligible 
                                corporation.
                  ``(B) Limitation.--The term `qualified stock' shall 
                not include any stock if the employee may sell such 
                stock to, or otherwise receive cash in lieu of stock 
                from, 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 forfeiture.
                  ``(C) Eligible corporation.--For purposes of 
                subparagraph (A)(ii)(II)--
                          ``(i) In general.--The term `eligible 
                        corporation' means, with respect to any 
                        calendar year, any corporation if--
                                  ``(I) no stock of such corporation 
                                (or any predecessor of such 
                                corporation) is readily tradable on an 
                                established securities market (as 
                                determined under paragraph (1)(B)(iii)) 
                                during any preceding calendar year, and
                                  ``(II) such corporation has a written 
                                plan under which, in such calendar 
                                year, not less than 80 percent of all 
                                employees who provide services to such 
                                corporation in the United States (or 
                                any possession of the United States) 
                                are granted stock options, or 
                                restricted stock units, with the same 
                                rights and privileges to receive 
                                qualified stock.
                          ``(ii) Same rights and privileges.--For 
                        purposes of clause (i)(II)--
                                  ``(I) except as provided in 
                                subclauses (II) and (III), the 
                                determination of rights and privileges 
                                with respect to stock shall be 
                                determined in a similar manner as 
                                provided under section 423(b)(5),
                                  ``(II) 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 amount, so long as the number of 
                                shares available to each employee is 
                                more than a de minimis amount, and
                                  ``(III) 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 
                                unit.
                          ``(iii) Employee.--For purposes of clause 
                        (i)(II), the term `employee' shall not include 
                        any employee described in section 4980E(d)(4) 
                        or any excluded employee.
                          ``(iv) Special rule for calendar years before 
                        2017.--In the case of any calendar year 
                        beginning before January 1, 2017, clause 
                        (i)(II) shall be applied without regard to 
                        whether the rights and privileges with respect 
                        to the qualified stock are the same.
          ``(3) Qualified employee; excluded employee.--For purposes of 
        this subsection--
                  ``(A) In general.--The term `qualified employee' 
                means any individual who--
                          ``(i) is not an excluded employee, and
                          ``(ii) 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 24 with respect to 
                        the qualified stock are met.
                  ``(B) Excluded employee.--The term `excluded 
                employee' means, with respect to any corporation, any 
                individual--
                          ``(i) who was a 1-percent owner (within the 
                        meaning of section 416(i)(1)(B)(ii)) at any 
                        time during the 10 preceding calendar years,
                          ``(ii) who is or has been at any prior time--
                                  ``(I) the chief executive officer of 
                                such corporation or an individual 
                                acting in such a capacity, or
                                  ``(II) the chief financial officer of 
                                such corporation or an individual 
                                acting in such a capacity,
                          ``(iii) who bears a relationship described in 
                        section 318(a)(1) to any individual described 
                        in subclause (I) or (II) of clause (ii), or
                          ``(iv) who has been for any of the 10 
                        preceding taxable years one of the 4 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 1934 (as if such rules applied 
                        to such corporation).
          ``(4) Election.--
                  ``(A) Time for making election.--An election with 
                respect to qualified stock shall be made under this 
                subsection no later than 30 days after the first time 
                the rights of the employee in such stock are 
                transferable or are not subject to a substantial risk 
                of forfeiture, whichever occurs earlier, and shall be 
                made in a manner similar to the manner in which an 
                election is made under subsection (b).
                  ``(B) Limitations.--No election may be made under 
                this section with respect to any qualified stock if--
                          ``(i) the qualified employee has made an 
                        election under subsection (b) with respect to 
                        such qualified stock,
                          ``(ii) any stock of the corporation which 
                        issued the qualified stock is readily tradable 
                        on an established securities market (as 
                        determined under paragraph (1)(B)(iii)) at any 
                        time before the election is made, or
                          ``(iii) 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 forfeiture, unless--
                                  ``(I) not less than 25 percent of the 
                                total dollar amount of the stock so 
                                purchased is deferral stock, and
                                  ``(II) the determination of which 
                                individuals from whom deferral stock is 
                                purchased is made on a reasonable 
                                basis.
                  ``(C) Definitions and special rules related to 
                limitation on stock redemptions.--
                          ``(i) Deferral stock.--For purposes of this 
                        paragraph, the term `deferral stock' means 
                        stock with respect to which an election is in 
                        effect under this subsection
                          ``(ii) 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 (iii) if such 
                        individual (immediately after such purchase) 
                        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 
                        purchased.
                          ``(iii) Purchase of all outstanding deferral 
                        stock.--The requirements of subclauses (I) and 
                        (II) of subparagraph (B)(iii) shall be treated 
                        as met if the stock so purchased includes all 
                        of the corporation's outstanding deferral 
                        stock.
                          ``(iv) 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 which, or with which, 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 paragraph.
          ``(5) Controlled groups.--For purposes of this subsection, 
        all corporations which are members of the same controlled group 
        of corporations (as defined in section 1563(a)) shall be 
        treated as one corporation.
          ``(6) Notice requirement.--Any corporation that transfers 
        qualified stock to a qualified employee shall, at the time that 
        (or a reasonable period before) an amount attributable to such 
        stock would (but for this subsection) first be includible in 
        the gross income of such employee--
                  ``(A) certify to such employee that such stock is 
                qualified stock, and
                  ``(B) notify such employee--
                          ``(i) that the employee may elect to defer 
                        income on such stock under this subsection, and
                          ``(ii) that, if the employee makes such an 
                        election--
                                  ``(I) 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 forfeiture, 
                                notwithstanding whether the value of 
                                the stock has declined during the 
                                deferral period,
                                  ``(II) the amount of such income 
                                recognized at the end of the deferral 
                                period will be subject to withholding 
                                under section 3401(i) at the rate 
                                determined under section 3402(t), and
                                  ``(III) the responsibilities of the 
                                employee (as determined by the 
                                Secretary under paragraph (3)(A)(ii)) 
                                with respect to such withholding.''.
          (2) Deduction by employer.--Subsection (h) of section 83 of 
        the Internal Revenue Code of 1986 is amended by striking ``or 
        (d)(2)'' and inserting ``(d)(2), or (i)''.
  (b) Withholding.--
          (1) Time of withholding.--Section 3401 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new subsection:
  ``(i) Qualified Stock for Which an Election Is in Effect Under 
Section 83(i).--For purposes of subsection (a), qualified stock (as 
defined in section 83(i)) with respect to which an election is made 
under section 83(i) shall be treated as wages--
          ``(1) received on the earliest date described in section 
        83(i)(1)(B), and
          ``(2) in an amount equal to the amount included in income 
        under section 83 for the taxable year which includes such 
        date.''.
          (2) Amount of withholding.--Section 3402 of such Code is 
        amended by adding at the end the following new subsection:
  ``(t) Rate of Withholding for Certain Stock.--In the case of any 
qualified stock (as defined in section 83(i)) with respect to which an 
election is made under section 83(i)--
          ``(1) the rate of tax under subsection (a) shall not be less 
        than the maximum rate of tax in effect under section 1, and
          ``(2) such stock shall be treated for purposes of section 
        3501(b) in the same manner as a non-cash fringe benefit.''.
  (c) Coordination With Other Deferred Compensation Rules.--
          (1) Election to apply deferral to statutory options.--
                  (A) Incentive stock options.--Section 422(b) of the 
                Internal Revenue Code of 1986 is amended by adding at 
                the end the following: ``Such term shall not include 
                any option if an election is made under section 83(i) 
                with respect to the stock received in connection with 
                the exercise of such option.''.
                  (B) Employee stock purchase plans.--Section 423(a) of 
                such Code is amended by adding at the end the following 
                flush sentence:
``The preceding sentence shall not apply to any share of stock with 
respect to which an election is made under section 83(i).''.
          (2) Exclusion from definition of nonqualified deferred 
        compensation plan.--Subsection (d) of section 409A of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new paragraph:
          ``(7) Treatment of qualified stock.--An arrangement under 
        which an employee may receive qualified stock (as defined in 
        section 83(i)(2)) 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 83(i).''.
  (d) Information Reporting.--Section 6051(a) of the Internal Revenue 
Code of 1986 is amended by striking ``and'' at the end of paragraph 
(13), by striking the period at the end of paragraph (14) and inserting 
a comma, and by inserting after paragraph (14) the following new 
paragraphs:
          ``(15) the amount excludable from gross income under 
        subparagraph (A) of section 83(i)(1),
          ``(16) the amount includible in gross income under 
        subparagraph (B) of section 83(i)(1) with respect to an event 
        described in such subparagraph which occurs in such calendar 
        year, and
          ``(17) the aggregate amount of income which is being deferred 
        pursuant to elections under section 83(i), determined as of the 
        close of the calendar year.''.
  (e) Penalty for Failure of Employer To Provide Notice of Tax 
Consequences.--Section 6652 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subsection:
  ``(o) Failure to Provide Notice Under Section 83(i).--In the case of 
each failure to provide a notice as required by section 83(i)(6), at 
the time prescribed therefor, unless it is shown that such failure is 
due to reasonable cause and not to willful neglect, there shall be 
paid, on notice and demand of the Secretary and in the same manner as 
tax, by the person failing to provide such notice, an amount equal to 
$100 for each such failure, but the total amount imposed on such person 
for all such failures during any calendar year shall not exceed 
$50,000.''.
  (f) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to stock 
        attributable to options exercised, or restricted stock units 
        settled, after December 31, 2016.
          (2) Requirement to provide notice.--The amendments made by 
        subsection (e) shall apply to failures after December 31, 2016.
  (g) Transition Rule.--Until such time as the Secretary (or the 
Secretary's delegate) issue regulations or other guidance for purposes 
of implementing the requirements of paragraph (2)(C)(i)(II) of section 
83(i) of the Internal Revenue Code of 1986 (as added by this section), 
or the requirements of paragraph (6) of such section, a corporation 
shall be treated as being in compliance with such requirements 
(respectively) if such corporation complies with a reasonable good 
faith interpretation of such requirements.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 5719, as reported by the Committee on Ways 
and Means, allows qualifying employees to elect to defer the 
tax on certain restricted stock attributable to stock options 
or restricted stock units until there is an opportunity for the 
employee to liquidate the stock and pay the tax on such 
compensation, but no longer than seven years.

                 B. Background and Need for Legislation

    Employees of companies that are not publicly traded may be 
required to include the value of stock-based compensation in 
income for tax purposes well before they generally have the 
ability to sell shares to pay the tax on such compensation. As 
a result, such employees may have significant taxable income 
upon receipt of such stock, but without sufficient cash to pay 
the taxes due. As a practical matter there is no formal market 
for stock of privately held companies, and there are limited 
opportunities for employees to liquidate their restricted 
stock. H.R. 5719 would make it easier for start-up companies to 
allow employees to share in the company's upside by including 
equity grants as part of their compensation while ensuring that 
income is deferred only until there is an opportunity for the 
employee to liquidate shares, which could provide cash 
sufficient to pay the tax on the stock-based compensation.

                         C. Legislative History


Background

    H.R. 5719 was introduced on July 11, 2016, and was referred 
to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 5719, the 
Empowering Employees through Stock Ownership Act, on September 
14, 2016, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The Committee discussed issues relating to employee stock 
ownership at the Committee Hearing on Tax Reform and Tax-
Favored Retirement Accounts (April 17, 2012), the Select 
Revenue Measures Subcommittee Hearing on Small Business and 
Pass-through Entity Tax Reform Discussion Draft (May 15, 2013), 
and as part of the Committee's tax reform working groups in 
2013.\1\
---------------------------------------------------------------------------
    \1\See Joint Committee on Taxation, Report to the House Committee 
on Ways and Means on Present Law and Suggestions for Reform Submitted 
to the Tax Reform Working Groups (JCS-3-13), May 6, 2013.
---------------------------------------------------------------------------

                      II. EXPLANATION OF THE BILL


 A. Treatment of Qualified Equity Grants (sec. 2 of the Bill and secs. 
                 83, 3401, 3402, and 6061 of the Code)


                              PRESENT LAW

Income tax treatment of employer stock transferred to an employee

    Specific rules apply to property, including employer stock, 
transferred to an employee in connection with the performance 
of services.\2\ These rules govern the amount and timing of 
income inclusion by the employee and the amount and timing of 
the employer's compensation deduction.
---------------------------------------------------------------------------
    \2\Sec. 83. Section 83 applies generally to transfers of any 
property, not just employer stock, in connection with the performance 
of services by any service provider, not just an employee. However, the 
provision described herein applies only with respect to certain 
employer stock transferred to employees.
---------------------------------------------------------------------------
    Under these rules, an employee generally must recognize 
income for the taxable year in which the employee's right to 
the stock is transferable or is not subject to a substantial 
risk of forfeiture (referred to herein as ``substantially 
vested''). Thus, if the employee's right to the stock is 
substantially vested when the employee receives the stock, 
income is recognized for the taxable year in which received. If 
the employee's right to the stock is not substantially vested 
at the time of receipt, in general, income is recognized for 
the taxable year in which the employee's right becomes 
substantially vested.\3\ The amount includible in the 
employee's income is the excess of the fair market value of the 
stock (at the time of receipt if substantially vested at that 
time or, if not, at the time of substantial vesting) over the 
amount, if any, paid by the employee for the stock.
---------------------------------------------------------------------------
    \3\Under section 83(b), if an employee's right to the stock is not 
substantially vested at the time of receipt (nonvested stock), the 
employee may nevertheless elect within 30 days of receipt to recognize 
income for the taxable year of receipt, referred to as a ``section 
83(b)'' election. Under Treas. Reg. sec. 1.83-2, the employee makes an 
election by filing with the Internal Revenue Service a written 
statement that includes the fair market value of the property at the 
time of receipt and the amount (if any) paid for the property. The 
employee must also provide a copy of the statement to the employer.
---------------------------------------------------------------------------
    In general, an employee's right to stock or other property 
is subject to a substantial risk of forfeiture if the 
employee's right to full enjoyment of the property is subject 
to a condition, such as the future performance of substantial 
services.\4\ An employee's right to stock or other property is 
transferable if the employee can transfer an interest in the 
property to any person other than the transferor of the 
property.\5\ Thus, generally, employer stock transferred to an 
employee by an employer is not transferable merely because the 
employee can sell it back to the employer.
---------------------------------------------------------------------------
    \4\See section 83(c)(1) and Treas. Reg. sec. 1.83-3(c) for the 
definition of substantial risk of forfeiture.
    \5\Treas. Reg. sec. 1.83-3(d). In addition, under section 83(c)(2), 
the right to stock is transferable only if any transferee's right to 
the stock would not be subject to a substantial risk of forfeiture.
---------------------------------------------------------------------------
    In the case of stock transferred to an employee, the 
employer is allowed a deduction (to the extent a deduction for 
a business expense is otherwise allowable) equal to the amount 
included in the employee's income as a result of receipt of the 
stock.\6\ The deduction is allowed for the employer's taxable 
year in which or with which ends the taxable year for which the 
amount is included in the employee's income.
---------------------------------------------------------------------------
    \6\Sec. 83(h).
---------------------------------------------------------------------------
    These rules do not apply to the grant to an employee of a 
nonqualified option on employer stock unless the option has a 
readily ascertainable fair market value.\7\ Instead, these 
rules apply to the receipt of employer stock by the employee on 
exercise of the option. That is, if the right to the stock is 
substantially vested on receipt, income recognition applies for 
the taxable year of receipt. If the right to the stock is not 
substantially vested on receipt, the timing of income inclusion 
is determined under the rules applicable to the receipt of 
nonvested stock. In either case, the amount includible in 
income by the employee is the excess of the fair market value 
of the stock as of the time of income inclusion, less the 
exercise price paid by the employee and the amount, if any, 
paid by the employee for the option. The employer's deduction 
is also determined under these rules.
---------------------------------------------------------------------------
    \7\See section 83(e)(3) and Treas. Reg. sec. 1.83-7. A nonqualified 
option is an option on employer stock that is not a statutory option, 
discussed below.
---------------------------------------------------------------------------
    In some cases, the transfer of employer stock to an 
employee may be in settlement of restricted stock units. 
Restricted stock unit (``RSU'') is a term used for an 
arrangement under which an employee has the right to receive at 
a specified time in the future an amount determined by 
reference to the value of one or more shares of employer stock. 
An employee's right to receive the future amount may be subject 
to a condition, such as continued employment for a certain 
period or the attainment of certain performance goals. The 
payment to the employee of the amount due under the arrangement 
is referred to as settlement of the RSU. The arrangement may 
provide for the settlement amount to be paid in cash or in 
employer stock (or either). The receipt of employer stock in 
settlement of an RSU is subject to the same rules as other 
receipts of employer stock with respect to the timing and 
amount of income inclusion by the employee and the employer's 
deduction.

Employment taxes and reporting

    Employment taxes generally consist of taxes under the 
Federal Insurance Contributions Act (``FICA''), tax under the 
Federal Unemployment Tax Act (``FUTA''), and income taxes 
required to be withheld by employers from wages paid to 
employees (``income tax withholding'').\8\ Unless an exception 
applies under the applicable rules, compensation provided to an 
employee constitutes wages subject to these taxes.
---------------------------------------------------------------------------
    \8\Secs. 3101-3128 (FICA), 3301-3311 (FUTA), and 3401-3404 (income 
tax withholding). Instead of FICA taxes, railroad employers and 
employees are subject, under the Railroad Retirement Tax Act 
(``RRTA''), sections 3201-3241, to taxes equivalent to FICA taxes with 
respect to compensation as defined for RRTA purposes. Sections 3501-
3510 provide additional rules relating to all these taxes.
---------------------------------------------------------------------------
    FICA imposes tax on employers and employees, generally 
based on the amount of wages paid to an employee during the 
year. The tax imposed on the employer and on the employee is 
each composed of two parts: (1) the Social Security or old age, 
survivors, and disability insurance (``OASDI'') tax equal to 
6.2 percent of covered wages up to the OASDI wage base 
($118,500 for 2016); and (2) the Medicare or hospital insurance 
(``HI'') tax equal to 1.45 percent of all covered wages.\9\ The 
employee portion of FICA tax generally must be withheld and 
remitted to the Federal government by the employer. FICA tax 
withholding applies regardless of whether compensation is 
provided in the form of cash or a noncash form, such as a 
transfer of property (including employer stock) or in-kind 
benefits.\10\
---------------------------------------------------------------------------
    \9\The employee portion of the HI tax under FICA (not the employer 
portion) is increased by an additional tax of 0.9 percent on wages 
received in excess of a threshold amount. The threshold amount is 
$250,000 in the case of a joint return, $125,000 in the case of a 
married individual filing a separate return, and $200,000 in any other 
case.
    \10\Under section 3501(b), employment taxes with respect to noncash 
fringe benefits are to be collected (or paid) by the employer at the 
time and in the manner prescribed by the Secretary of the Treasury 
(``Treasury''). Announcement 85-113, 1985-31 I.R.B. 31, provides 
guidance on the application of employment taxes with respect to noncash 
fringe benefits.
---------------------------------------------------------------------------
    FUTA imposes a tax on employers of six percent of wages up 
to the FUTA wage base of $7,000.
    Income tax withholding generally applies when wages are 
paid by an employer to an employee, based on graduated 
withholding rates set out in tables published by the Internal 
Revenue Service (``IRS'').\11\ Like FICA tax withholding, 
income tax withholding applies regardless of whether 
compensation is provided in the form of cash or a noncash form, 
such as a transfer of property (including employer stock) or 
in-kind benefits.
---------------------------------------------------------------------------
    \11\Sec. 3402. Specific withholding rates apply in the case of 
supplemental wages.
---------------------------------------------------------------------------
    An employer is required to furnish each employee with a 
statement of compensation information for a calendar year, 
including taxable compensation, FICA wages, and withheld income 
and FICA taxes.\12\ In addition, information relating to 
certain nontaxable items must be reported, such as certain 
retirement and health plan contributions. The statement, made 
on Form W-2, Wage and Tax Statement, must be provided to each 
employee by January 31 of the succeeding year.\13\
---------------------------------------------------------------------------
    \12\Secs. 6041 and 6051.
    \13\Employers send Form W-2 information to the Social Security 
Administration, which records information relating to Social Security 
and Medicare and forwards the Form W-2 information to the IRS. 
Employees include a copy of Form W-2 with their income tax returns.
---------------------------------------------------------------------------

Statutory options

    Two types of statutory options apply with respect to 
employer stock: incentive stock options (``ISOs'') and options 
provided under an employee stock purchase plan (``ESPP'').\14\ 
Stock received pursuant to a statutory option is subject to 
special rules, rather than the rules for nonqualified options, 
discussed above. No amount is includible in an employee's 
income on the grant or exercise of a statutory option.\15\ In 
addition, no deduction is allowed to the employer with respect 
to the option or the stock transferred to an employee on 
exercise.
---------------------------------------------------------------------------
    \14\Sections 421-424 govern statutory options.
    \15\Under section 56(b)(3), this income tax treatment with respect 
to stock received on exercise of an ISO does not apply for purposes of 
the alternative minimum tax under section 55.
---------------------------------------------------------------------------
    If a holding requirement is met with respect to the stock 
received on exercise of a statutory option and the employee 
later disposes of the stock, the employee's gain generally is 
treated as capital gain rather than ordinary income. Under the 
holding requirement, the employee must not dispose of the stock 
within two years after the date the option is granted or one 
year after the date the option is exercised. If a disposition 
occurs before the end of the required holding periods (a 
``disqualifying disposition''), statutory option treatment no 
longer applies. Instead, the income realized on the 
disqualifying disposition, up to the amount of income that 
would have applied if the option had been a nonqualified 
option, is includible in income by the employee as compensation 
received in the taxable year in which the disposition occurs 
and a corresponding deduction is allowable to the employer for 
the taxable year in which the disposition occurs.
    Employment taxes do not apply with respect to the grant of 
a statutory option, the receipt of stock pursuant to the 
option, or a disqualifying disposition of the stock.\16\
---------------------------------------------------------------------------
    \16\Secs. 3121(a)(22), 3306(b)(19), and the last sentence of 
section 421(b).
---------------------------------------------------------------------------

Nonqualified deferred compensation

    Compensation is generally includible in an employee's 
income when paid to the employee. However, in the case of a 
nonqualified deferred compensation plan,\17\ unless the 
arrangement meets certain requirements, the amount of deferred 
compensation is includible in income for the taxable year when 
earned (or, if later, when not subject to a substantial risk of 
forfeiture) even if payment will not occur until a later 
year.\18\ In general, under these requirements, the time when 
nonqualified deferred compensation will be paid must be 
specified at the time of deferral with limits on further 
deferral after the time for payment.
---------------------------------------------------------------------------
    \17\Compensation earned by an employee is generally paid to the 
employee shortly after being earned. However, in some cases, payment is 
deferred to a later period, referred to as ``deferred compensation.'' 
Deferred compensation may be provided through a plan that receives tax-
favored treatment, such as a qualified retirement plan under section 
401(a). Deferred compensation provided through a plan that is not 
eligible for tax-favored treatment is referred to as ``nonqualified'' 
deferred compensation.
    \18\Section 409A and the regulations thereunder provide rules for 
nonqualified deferred compensation.
---------------------------------------------------------------------------
    Nonqualified options on employer stock may be structured so 
as not to be considered nonqualified deferred compensation and 
thus not subject to these rules.\19\ An arrangement providing 
RSUs is considered a nonqualified deferred compensation plan 
and is subject to these rules, including the limits on further 
deferral of the amount due in settlement of an RSU.
---------------------------------------------------------------------------
    \19\Treas. Reg. sec. 1.409A-1(b)(5). In addition, statutory option 
arrangements are not nonqualified deferred compensation arrangements.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Employer stock may provide a valuable form of employee 
compensation. In some cases, the receipt of employer stock with 
a high fairmarket value may result in compensation income, and 
a related tax liability, disproportionately large in comparison 
to an employee's regular salary or wages. In the case of 
publicly traded employer stock, an employee may sell some of 
the stock to provide funds to cover that tax liability. 
However, that approach often is not available in the case of a 
closely held company that restricts the transferability of its 
stock. This may make employer stock a less attractive form of 
compensation. In the case of stock options, the inability to 
pay the tax liability that would result from the stock received 
on exercise of the option may mean employees let options lapse, 
thus losing compensation they have already earned. The bill 
addresses these situations by allowing employees to elect to 
defer recognition of income attributable to stock received on 
exercise of an option or settlement of an RSU until an 
opportunity to sell some of the stock arises, but in no event 
longer than seven years from the date that the employee's right 
to the stock becomes substantially vested.

                        EXPLANATION OF PROVISION

In general

    The provision allows a qualified employee to elect to 
defer, for income tax purposes, the inclusion in income of the 
amount of income attributable to qualified stock transferred to 
the employee by the employer.\20\ An election to defer income 
inclusion (``inclusion deferral election'') with respect to 
qualified stock must be made no later than 30 days after the 
first time the employee's right to the stock is substantially 
vested.\21\ Absent an inclusion deferral election under the 
provision, the income is includable for the taxable year in 
which the qualified employee's right to the qualified stock is 
substantially vested under present law.
---------------------------------------------------------------------------
    \20\The provision does not apply to income with respect to 
nonvested stock that is includible as a result of a section 83(b) 
election.
    \21\An inclusion deferral election is made in a manner similar to 
the manner in which a section 83(b) election is made. Thus, as in the 
case of a section 83(b) election under present law, the employee must 
provide a copy of the inclusion deferral election to the employer.
---------------------------------------------------------------------------
    If an employee elects to defer income inclusion, the income 
must be included in the employee's income for the taxable year 
that includes the earliest of (1) the first date the qualified 
stock becomes transferable, including transferable to the 
employer;\22\ (2) the date the employee first becomes an 
excluded employee (as described below); (3) the first date on 
which any stock of the employer becomes readily tradable on an 
established securities market;\23\ (4) the date seven years 
after the date the employee's right to the stock becomes 
substantially vested; and (5) the date on which the employee 
revokes his or her inclusion deferral election.\24\
---------------------------------------------------------------------------
    \22\Thus, for this purpose, the qualified stock is considered 
transferable if the employee has the ability to sell the stock to the 
employer (or any other person).
    \23\An established securities market is determined for this purpose 
by the Secretary, but does not include any market unless the market is 
recognized as an established securities market for purposes of another 
Code provision.
    \24\An inclusion deferral election is revoked at the time and in 
the manner as the Secretary provides.
---------------------------------------------------------------------------
    An employee may not make an inclusion deferral election for 
a year with respect to qualified stock if, in the preceding 
calendar year, the corporation purchased any of its outstanding 
stock unless at least 25 percent of the total dollar amount of 
the stock so purchased is stock with respect to which an 
inclusion deferral election is in effect (``deferral stock'') 
and the determination of which individuals from whom deferral 
stock is purchased is made on a reasonable basis.\25\ For 
purposes of this requirement, stock purchased from an 
individual is not treated as deferral stock (and the purchase 
is not treated as a purchase of deferral stock) if, immediately 
after the purchase, the individual holds any deferral stock 
with respect to which an inclusion deferral election has been 
in effect for a longer period than the election with respect to 
the purchased stock. Thus, in general, in applying the purchase 
requirement, an individual's deferral stock with respect to 
which an inclusion deferral election has been in effect for the 
longest periods must be purchased first. A corporation that has 
deferral stock outstanding as of the beginning of any calendar 
year and that purchases any of its outstanding stock during the 
calendar year must report on its income tax return for the 
taxable year in which, or with which, the calendar year ends 
the total dollar amount of the outstanding stock purchased 
during the calendar year and such other information as the 
Secretary may require for purposes of administering this 
requirement.
---------------------------------------------------------------------------
    \25\This requirement is met if the stock purchased by the 
corporation includes all the corporation's outstanding deferral stock.
---------------------------------------------------------------------------
    A qualified employee may make an inclusion deferral 
election with respect to qualified stock attributable to a 
statutory option. In that case, the option is not treated as a 
statutory option and the rules relating to statutory options 
and related stock do not apply. In addition, an arrangement 
under which an employee may receive qualified stock is not 
treated as a nonqualified deferred compensation plan solely 
because of an employee's ability to make an inclusion deferral 
election.
    Deferred income inclusion applies also for purposes of the 
employer's deduction of the amount of income attributable to 
the qualified stock. That is, if an employee makes an inclusion 
deferral election, the employer's deduction is deferred until 
the employer's taxable year in which or with which ends the 
taxable year of the employee for which the amount is included 
in the employee's income as described in (1)-(5) above.

Qualified employee and qualified stock

    Under the provision, a qualified employee means an 
individual who is not an excluded employee and who agrees, in 
the inclusion deferral election, to meet the requirements 
necessary (as determined by the Secretary) to ensure the income 
tax withholding requirements of the employer corporation with 
respect to the qualified stock (as described below) are met. 
For this purpose, an excluded employee with respect to a 
corporation is any individual (1) who is, or has been at any 
time during the 10 preceding calendar years, a one-percent 
owner of the corporation,\26\ (2) who is, or has been at any 
prior time, the chief executive officer or chief financial 
officer of the corporation or an individual acting in either 
capacity, (3) who is a family member of an individual described 
in (1) or (2),\27\ or (4) who is, or has been for any of the 10 
preceding taxable years, one of the four highest compensated 
officers of the corporation.\28\
---------------------------------------------------------------------------
    \26\One-percent owner status is determined under the top-heavy 
rules for qualified retirement plans, that is, section 
416(i)(1)(B)(ii).
    \27\In the case of one-percent owners, this results from 
application of the attribution rules of section 318 under section 
416(i)(1)(B)(i)(II). Family members are determined under section 
318(a)(1) and generally include an individual's spouse, children, 
grandchildren and parents.
    \28\Highest paid employee status is determined at the close of the 
corporation's taxable year.
---------------------------------------------------------------------------
    Qualified stock is any stock of a corporation if--
           an employee receives the stock in connection 
        with the exercise of an option or in settlement of an 
        RSU, and
           the option or RSU was provided by the 
        corporation to the employee in connection with the 
        performance of services and in a year in which the 
        corporation was an eligible corporation (as described 
        below).
    However, qualified stock does not include any stock if, at 
the time the employee's right to the stock becomes 
substantially vested, the employee may sell the stock to, or 
otherwise receive cash in lieu of stock from, the corporation.
    A corporation is an eligible corporation with respect to a 
calendar year if (1) no stock of the employer corporation (or 
any predecessor) is readily tradable on an established 
securities market during any preceding calendar year,\29\ and 
(2) the corporation has a written plan under which, in the 
calendar year, not less than 80 percent of all employees who 
provide services to the corporation in the United States (or 
any U.S. possession) are granted stock options, or RSUs, with 
the same rights and privileges to receive qualified stock 
(``80-percent requirement'').\30\ For this purpose, in general, 
the determination of rights and privileges with respect to 
stock is determined in a similar manner as provided under the 
present-law ESPP rules.\31\ However, employees will 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 amount, provided that the 
number of shares available to each employee is more than a de 
minimis amount. In addition, rights and privileges with respect 
to the exercise of a stock option are not treated for this 
purpose as the same as rights and privileges with respect to 
the settlement of an RSU.\32\
---------------------------------------------------------------------------
    \29\This requirement continues to apply up to the time an inclusion 
deferral election is made. That is, under the provision, no inclusion 
deferral election may be made with respect to qualified stock if any 
stock of the corporation is readily tradable on an established 
securities market at any time before the election is made.
    \30\In applying the requirement that 80 percent of employees 
receive stock options or RSUs, excluded employees and part-time 
employees are not taken into account. For this purpose, part-time 
employee is defined as under section 4980E(d)(4), that is, an employee 
customarily employed for fewer than 30 hours per week.
    \31\Sec. 423(b)(5).
    \32\Under a transition rule, in the case of a calendar year 
beginning before January 1, 2017, the 80-percent requirement is applied 
without regard to whether the rights and privileges with respect to the 
qualified stock are the same.
---------------------------------------------------------------------------
    For purposes of the provision, corporations that are 
members of the same controlled group are treated as one 
corporation.

Notice, withholding and reporting requirements

    Under the provision, a corporation that transfers qualified 
stock to a qualified employee must provide a notice to the 
qualified employee at the time (or a reasonable period before) 
the employee's right to the qualified stock is substantially 
vested (and income attributable to the stock would be 
includible absent an inclusion deferral election). The notice 
must (1) certify to the employee that the stock is qualified 
stock, and (2) notify the employee (a) that the employee may 
elect to defer income inclusion with respect to the stock and 
(b) that, if the employee makes an inclusion deferral election, 
the amount of income required to be included at the end of the 
deferral period will be based on the value of the stock at the 
time the employee's right to the stock is substantially vested, 
notwithstanding whether the value of the stock has declined 
during the deferral period, and the amount of income to be 
included at the end of the deferral period will be subject to 
withholding as provided under the provision, as well as of the 
employee's responsibilities with respect to required 
withholding. Failure to provide the notice may result in the 
imposition of a penalty of $100 for each failure, subject to a 
maximum penalty of $50,000 for all failures during any calendar 
year.
    An inclusion deferral election applies only for income tax 
purposes. The application of FICA and FUTA are not affected. 
The provision includes specific income tax withholding and 
reporting requirements with respect to income subject to an 
inclusion deferral election.
    For the taxable year for which income subject to an 
inclusion deferral election is required to be included in 
income by the employee (as described above), the amount 
required to be included in income is treated as wages with 
respect to which the employer is required to withhold income 
tax at a rate not less than the highest income tax rate 
applicable to individual taxpayers.\33\ The employer must 
report on Form W-2 the amount of income covered by an inclusion 
deferral election (1) for the year of deferral and (2) for the 
year the income is required to be included in income by the 
employee. In addition, for any calendar year, the employer must 
report on Form W-2 the aggregate amount of income covered by 
inclusion deferral elections, determined as of the close of the 
calendar year.
---------------------------------------------------------------------------
    \33\That is, the maximum rate of tax in effect for the year under 
section 1. The provision specifies that qualified stock is treated as a 
noncash fringe benefit for income tax withholding purposes.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision generally applies with respect to stock 
attributable to options exercised or RSUs settled after 
December 31, 2016. Under a transition rule, until the Secretary 
(or the Secretary's delegate) issues regulations or other 
guidance implementing the 80-percent and employer notice 
requirements under the provision, a corporation will be treated 
as complying with those requirements (respectively) if it 
complies with a reasonable good faith interpretation of the 
requirements. The penalty for a failure to provide the notice 
required under the provision applies to failures after December 
31, 2016.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 5719, the ``Empowering Employees through 
Stock Ownership Act,'' on September 14, 2016.
    The vote on the motion by Mr. Reichert to table Mr. 
Crowley's motion to appeal the ruling of the Chair that the 
amendment offered by Mr. Crowley was not germane was agreed to 
by a roll call vote of 21 yeas to 12 nays (with a quorum bring 
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Johnson....................  ........  ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Nunes......................  ........  ........  .........  Mr. McDermott....  ........        X   .........
Mr. Tiberi.....................        X   ........  .........  Mr. Lewis........  ........  ........  .........
Mr. Reichert...................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Boustany...................  ........  ........  .........  Mr. Becerra......  ........  ........  .........
Mr. Roskam.....................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Mr. Price......................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Smith (NE).................        X   ........  .........  Mr. Blumenauer...  ........        X   .........
Ms. Jenkins....................        X   ........  .........  Mr. Kind.........  ........        X   .........
Mr. Paulsen....................        X   ........  .........  Mr. Pascrell.....  ........        X   .........
Mr. Marchant...................        X   ........  .........  Mr. Crowley......  ........        X   .........
Ms. Black......................        X   ........  .........  Mr. Davis........  ........        X   .........
Mr. Reed.......................        X   ........  .........  Ms. Sanchez......  ........        X   .........
Mr. Young......................        X   ........  .........
Mr. Kelly......................        X   ........  .........
Mr. Renacci....................        X   ........  .........
Mr. Meehan.....................        X   ........  .........
Ms. Noem.......................        X   ........  .........
Mr. Holding....................        X   ........  .........
Mr. Smith (MO).................        X   ........  .........
Mr. Dold.......................        X   ........  .........
Mr. Rice.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    The Chairman's amendment in the nature of a substitute was 
adopted by a voice vote (with a quorum being present).
    The bill, H.R. 5719, as amended, was ordered favorably 
reported to the House of Representatives by a voice vote (with 
a quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 5719, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal fiscal year budget receipts for the period 
2017-2026:

----------------------------------------------------------------------------------------------------------------
                                       Fiscal years [millions of dollars]
-----------------------------------------------------------------------------------------------------------------
  2017      2018      2019     2020     2021     2022     2023     2024     2025     2026    2017-21    2017-26
----------------------------------------------------------------------------------------------------------------
   -116      -160     -166     -159     -142     -115      -81      -48      -32      -13       -744     -1,031
----------------------------------------------------------------------------------------------------------------
Note: Details do not add to totals due to rounding.

    Pursuant to clause 8 of rule XIII of the Rules of the House 
of Representatives, the following statement is made by the 
Joint Committee on Taxation with respect to the provisions of 
the bill amending the Internal Revenue Code of 1986: The gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing provisions 
of the bill involve increased tax expenditures. See amounts 
shown in the table in Part IV.A. above.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 16, 2016.
Hon. Kevin Brady,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5719, the 
Empowering Employees through Stock Ownership Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Peter 
Huether.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 5719--Empowering Employees through Stock Ownership Act

    H.R. 5719 would amend the Internal Revenue Code to allow 
certain employees to defer for up to seven years the 
recognition of income on compensation paid to them in the form 
of certain company restricted stock units or stock options. 
Under current law, employees must generally include such 
compensation in taxable income for both income and payroll tax 
purposes, in the case of stock grants, when they become 
substantially vested or, in the case of nonqualified stock 
options, when they exercise the option. At the same time, the 
business can take an equal deduction for compensation paid.
    Under H.R. 5719, a company's employees would be eligible 
for the deferral, for income tax purposes only, if the company 
provides the stock compensation to at least 80 percent of its 
workforce and the stock of the company has not been traded on a 
securities market in any preceding year. The income deferral 
period would end upon any of several events, such as the sale 
of the stock or the stock becoming tradable on securities 
markets, and the period would be limited to seven years after 
the employee exercises an option and is vested in the stock, or 
becomes vested in the restricted unit. The income deferral 
would not be available to certain individuals, including 
highly-paid employees and top management. In addition, as under 
current law, businesses would take a deduction at the same time 
as the employee would recognize the income. The changes under 
HR. 5719 would be effective for options exercised and 
restricted stock units settled after December 31, 2016.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that the legislation would reduce revenues by about 
$1.0 billion over the 2016-2026 period.
    The Statutory Pay-As-You Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
revenues and direct spending. The net changes in revenues that 
are subject to those pay-as-you-go procedures are shown in the 
following table. Enacting the bill would not affect direct 
spending.

         CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R 5719, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 14, 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                             2016    2017    2018    2019    2020    2021    2022    2023    2024    2025    2026   2016-2021  2016-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go Effects...........       0     116     160     166     159     142     115      81      48      32      13       744      1,031
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components do not add to totals due to rounding.

    JCT and CBO estimate that enacting the bill would not 
increase net direct spending in any of the four consecutive 10-
year periods beginning in 2027 and would not increase on-budget 
deficits by more than $5 billion in any of those periods.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act
    The CBO staff contact for this estimate is Peter Huether. 
The estimate was approved by John McClelland, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 5719 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Internal Revenue 
Code of 1986 and that have ``widespread applicability'' to 
individuals or small businesses, within the meaning of the 
rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(g)(2) of H. Res. 5 (114th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 83. PROPERTY TRANSFERRED IN CONNECTION WITH PERFORMANCE OF 
                    SERVICES.

  (a) General Rule.--If, in connection with the performance of 
services, property is transferred to any person other than the 
person for whom such services are performed, the excess of--
          (1) the fair market value of such property 
        (determined without regard to any restriction other 
        than a restriction which by its terms will never lapse) 
        at the first time the rights of the person having the 
        beneficial interest in such property are transferable 
        or are not subject to a substantial risk of forfeiture, 
        whichever occurs earlier, over
          (2) the amount (if any) paid for such property, shall 
        be included in the gross income of the person who 
        performed such services in the first taxable year in 
        which the rights of the person having the beneficial 
        interest in such property are transferable or are not 
        subject to a substantial risk of forfeiture, whichever 
        is applicable. The preceding sentence shall not apply 
        if such person sells or otherwise disposes of such 
        property in an arm's length transaction before his 
        rights in such property become transferable or not 
        subject to a substantial risk of forfeiture.
  (b) Election to Include in Gross Income in Year of 
Transfer.--
          (1) In general.-- Any person who performs services in 
        connection with which property is transferred to any 
        person may elect to include in his gross income for the 
        taxable year in which such property is transferred, the 
        excess of--
                  (A) the fair market value of such property at 
                the time of transfer (determined without regard 
                to any restriction other than a restriction 
                which by its terms will never lapse), over
                  (B) the amount (if any) paid for such 
                property.
        If such election is made, subsection (a) shall not 
        apply with respect to the transfer of such property, 
        and if such property is subsequently forfeited, no 
        deduction shall be allowed in respect of such 
        forfeiture.
          (2) Election.-- An election under paragraph (1) with 
        respect to any transfer of property shall be made in 
        such manner as the Secretary prescribes and shall be 
        made not later than 30 days after the date of such 
        transfer. Such election may not be revoked except with 
        the consent of the Secretary.
  (c) Special Rules.--For purposes of this section--
          (1) Substantial risk of forfeiture.-- The rights of a 
        person in property are subject to a substantial risk of 
        forfeiture if such person's rights to full enjoyment of 
        such property are conditioned upon the future 
        performance of substantial services by any individual.
          (2) Transferability of property.-- The rights of a 
        person in property are transferable only if the rights 
        in such property of any transferee are not subject to a 
        substantial risk of forfeiture.
          (3) Sales which may give rise to suit under section 
        16(b) of the Securities Exchange Act of 1934.-- So long 
        as the sale of property at a profit could subject a 
        person to suit under section 16(b) of the Securities 
        Exchange Act of 1934, such person's rights in such 
        property are--
                  (A) subject to a substantial risk of 
                forfeiture, and
                  (B) not transferable.
          (4) For purposes of determining an individual's basis 
        in property transferred in connection with the 
        performance of services, rules similar to the rules of 
        section 72(w) shall apply.
  (d) Certain Restrictions Which Will Never Lapse.--
          (1) Valuation.-- In the case of property subject to a 
        restriction which by its terms will never lapse, and 
        which allows the transferee to sell such property only 
        at a price determined under a formula, the price so 
        determined shall be deemed to be the fair market value 
        of the property unless established to the contrary by 
        the Secretary, and the burden of proof shall be on the 
        Secretary with respect to such value.
          (2) Cancellation.-- If, in the case of property 
        subject to a restriction which by its terms will never 
        lapse, the restriction is canceled, then, unless the 
        taxpayer establishes--
                  (A) that such cancellation was not 
                compensatory, and
                  (B) that the person, if any, who would be 
                allowed a deduction if the cancellation were 
                treated as compensatory, will treat the 
                transaction as not compensatory, as evidenced 
                in such manner as the Secretary shall prescribe 
                by regulations,
        the excess of the fair market value of the property 
        (computed without regard to the restrictions) at the 
        time of cancellation over the sum of--
                  (C) the fair market value of such property 
                (computed by taking the restriction into 
                account) immediately before the cancellation, 
                and
                  (D) the amount, if any, paid for the 
                cancellation, shall be treated as compensation 
                for the taxable year in which such cancellation 
                occurs.
  (e) Applicability of Section.--This section shall not apply 
to--
          (1) a transaction to which section 421 applies,
          (2) a transfer to or from a trust described in 
        section 401(a) or a transfer under an annuity plan 
        which meets the requirements of section 404(a)(2),
          (3) the transfer of an option without a readily 
        ascertainable fair market value,
          (4) the transfer of property pursuant to the exercise 
        of an option with a readily ascertainable fair market 
        value at the date of grant, or
          (5) group-term life insurance to which section 79 
        applies.
  (f) Holding Period.--In determining the period for which the 
taxpayer has held property to which subsection (a) applies, 
there shall be included only the period beginning at the first 
time his rights in such property are transferable or are not 
subject to a substantial risk of forfeiture, whichever occurs 
earlier.
  (g) Certain Exchanges.--If property to which subsection (a) 
applies is exchanged for property subject to restrictions and 
conditions substantially similar to those to which the property 
given in such exchange was subject, and if section 354, 355, 
356, or 1036 (or so much of section 1031 as relates to section 
1036) applied to such exchange, or if such exchange was 
pursuant to the exercise of a conversion privilege--
          (1) such exchange shall be disregarded for purposes 
        of subsection (a), and
          (2) the property received shall be treated as 
        property to which subsection (a) applies.
  (h) Deduction by Employer.--In the case of a transfer of 
property to which this section applies or a cancellation of a 
restriction described in subsection (d), there shall be allowed 
as a deduction under section 162, to the person for whom were 
performed the services in connection with which such property 
was transferred, an amount equal to the amount included under 
subsection (a), (b), or (d)(2) in the gross income of the 
person who performed such services. Such deduction shall be 
allowed for the taxable year of such person in which or with 
which ends the taxable year in which such amount is included in 
the gross income of the person who performed such services.

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Subchapter D--Deferred Compensation, Etc

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PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC

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Subpart A--General Rule

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SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER 
                    NONQUALIFIED DEFERRED COMPENSATION PLANS.

  (a) Rules Relating to Constructive Receipt.--
          (1) Plan failures.--
                  (A) Gross income inclusion.--
                          (i) In general.-- If at any time 
                        during a taxable year a nonqualified 
                        deferred compensation plan--
                                  (I) fails to meet the 
                                requirements of paragraphs (2), 
                                (3), and (4), or
                                  (II) is not operated in 
                                accordance with such 
                                requirements, all compensation 
                                deferred under the plan for the 
                                taxable year and all preceding 
                                taxable years shall be 
                                includible in gross income for 
                                the taxable year to the extent 
                                not subject to a substantial 
                                risk of forfeiture and not 
                                previously included in gross 
                                income.
                          (ii) Application only to affected 
                        participants.-- Clause (i) shall only 
                        apply with respect to all compensation 
                        deferred under the plan for 
                        participants with respect to whom the 
                        failure relates.
                  (B) Interest and additional tax payable with 
                respect to previously deferred compensation.--
                          (i) In general.-- If compensation is 
                        required to be included in gross income 
                        under subparagraph (A) for a taxable 
                        year, the tax imposed by this chapter 
                        for the taxable year shall be increased 
                        by the sum of--
                                  (I) the amount of interest 
                                determined under clause (ii), 
                                and
                                  (II) an amount equal to 20 
                                percent of the compensation 
                                which is required to be 
                                included in gross income.
                          (ii) Interest.-- For purposes of 
                        clause (i), the interest determined 
                        under this clause for any taxable year 
                        is the amount of interest at the 
                        underpayment rate plus 1 percentage 
                        point on the underpayments that would 
                        have occurred had the deferred 
                        compensation been includible in gross 
                        income for the taxable year in which 
                        first deferred or, if later, the first 
                        taxable year in which such deferred 
                        compensation is not subject to a 
                        substantial risk of forfeiture.
          (2) Distributions.--
                  (A) In general.-- The requirements of this 
                paragraph are met if the plan provides that 
                compensation deferred under the plan may not be 
                distributed earlier than--
                          (i) separation from service as 
                        determined by the Secretary (except as 
                        provided in subparagraph (B)(i)),
                          (ii) the date the participant becomes 
                        disabled (within the meaning of 
                        subparagraph (C)),
                          (iii) death,
                          (iv) a specified time (or pursuant to 
                        a fixed schedule) specified under the 
                        plan at the date of the deferral of 
                        such compensation,
                          (v) to the extent provided by the 
                        Secretary, a change in the ownership or 
                        effective control of the corporation, 
                        or in the ownership of a substantial 
                        portion of the assets of the 
                        corporation, or
                          (vi) the occurrence of an 
                        unforeseeable emergency.
                  (B) Special rules.--
                          (i) Specified employees.-- In the 
                        case of any specified employee, the 
                        requirement of subparagraph (A)(i) is 
                        met only if distributions may not be 
                        made before the date which is 6 months 
                        after the date of separation from 
                        service (or, if earlier, the date of 
                        death of the employee). For purposes of 
                        the preceding sentence, a specified 
                        employee is a key employee (as defined 
                        in section 416(i) without regard to 
                        paragraph (5) thereof) of a corporation 
                        any stock in which is publicly traded 
                        on an established securities market or 
                        otherwise.
                          (ii) Unforeseeable emergency.-- For 
                        purposes of subparagraph (A)(vi)--
                                  (I) In general.-- The term 
                                ``unforeseeable emergency'' 
                                means a severe financial 
                                hardship to the participant 
                                resulting from an illness or 
                                accident of the participant, 
                                the participant's spouse, or a 
                                dependent (as defined in 
                                section 152(a)) of the 
                                participant, loss of the 
                                participant's property due to 
                                casualty, or other similar 
                                extraordinary and unforeseeable 
                                circumstances arising as a 
                                result of events beyond the 
                                control of the participant.
                                  (II) Limitation on 
                                distributions.-- The 
                                requirement of subparagraph 
                                (A)(vi) is met only if, as 
                                determined under regulations of 
                                the Secretary, the amounts 
                                distributed with respect to an 
                                emergency do not exceed the 
                                amounts necessary to satisfy 
                                such emergency plus amounts 
                                necessary to pay taxes 
                                reasonably anticipated as a 
                                result of the distribution, 
                                after taking into account the 
                                extent to which such hardship 
                                is or may be relieved through 
                                reimbursement or compensation 
                                by insurance or otherwise or by 
                                liquidation of the 
                                participant's assets (to the 
                                extent the liquidation of such 
                                assets would not itself cause 
                                severe financial hardship).
                  (C) Disabled.-- For purposes of subparagraph 
                (A)(ii), a participant shall be considered 
                disabled if the participant--
                          (i) is unable to engage in any 
                        substantial gainful activity by reason 
                        of any medically determinable physical 
                        or mental impairment which can be 
                        expected to result in death or can be 
                        expected to last for a continuous 
                        period of not less than 12 months, or
                          (ii) is, by reason of any medically 
                        determinable physical or mental 
                        impairment which can be expected to 
                        result in death or can be expected to 
                        last for a continuous period of not 
                        less than 12 months, receiving income 
                        replacement benefits for a period of 
                        not less than 3 months under an 
                        accident and health plan covering 
                        employees of the participant's 
                        employer.
          (3) Acceleration of benefits.-- The requirements of 
        this paragraph are met if the plan does not permit the 
        acceleration of the time or schedule of any payment 
        under the plan, except as provided in regulations by 
        the Secretary.
          (4) Elections.--
                  (A) In general.-- The requirements of this 
                paragraph are met if the requirements of 
                subparagraphs (B) and (C) are met.
                  (B) Initial deferral decision.--
                          (i) In general.-- The requirements of 
                        this subparagraph are met if the plan 
                        provides that compensation for services 
                        performed during a taxable year may be 
                        deferred at the participant's election 
                        only if the election to defer such 
                        compensation is made not later than the 
                        close of the preceding taxable year or 
                        at such other time as provided in 
                        regulations.
                          (ii) First year of eligibility.-- In 
                        the case of the first year in which a 
                        participant becomes eligible to 
                        participate in the plan, such election 
                        may be made with respect to services to 
                        be performed subsequent to the election 
                        within 30 days after the date the 
                        participant becomes eligible to 
                        participate in such plan.
                          (iii) Performance-based 
                        compensation.-- In the case of any 
                        performance-based compensation based on 
                        services performed over a period of at 
                        least 12 months, such election may be 
                        made no later than 6 months before the 
                        end of the period.
                  (C) Changes in time and form of 
                distribution.-- The requirements of this 
                subparagraph are met if, in the case of a plan 
                which permits under a subsequent election a 
                delay in a payment or a change in the form of 
                payment--
                          (i) the plan requires that such 
                        election may not take effect until at 
                        least 12 months after the date on which 
                        the election is made,
                          (ii) in the case of an election 
                        related to a payment not described in 
                        clause (ii), (iii), or (vi) of 
                        paragraph (2)(A), the plan requires 
                        that the payment with respect to which 
                        such election is made be deferred for a 
                        period of not less than 5 years from 
                        the date such payment would otherwise 
                        have been made, and
                          (iii) the plan requires that any 
                        election related to a payment described 
                        in paragraph (2)(A)(iv) may not be made 
                        less than 12 months prior to the date 
                        of the first scheduled payment under 
                        such paragraph.
  (b) Rules Relating to Funding.--
          (1) Offshore property in a trust.-- In the case of 
        assets set aside (directly or indirectly) in a trust 
        (or other arrangement determined by the Secretary) for 
        purposes of paying deferred compensation under a 
        nonqualified deferred compensation plan, for purposes 
        of section 83 such assets shall be treated as property 
        transferred in connection with the performance of 
        services whether or not such assets are available to 
        satisfy claims of general creditors--
                  (A) at the time set aside if such assets (or 
                such trust or other arrangement) are located 
                outside of the United States, or
                  (B) at the time transferred if such assets 
                (or such trust or other arrangement) are 
                subsequently transferred outside of the United 
                States.
        This paragraph shall not apply to assets located in a 
        foreign jurisdiction if substantially all of the 
        services to which the nonqualified deferred 
        compensation relates are performed in such 
        jurisdiction.
          (2) Employer's financial health.-- In the case of 
        compensation deferred under a nonqualified deferred 
        compensation plan, there is a transfer of property 
        within the meaning of section 83 with respect to such 
        compensation as of the earlier of--
                  (A) the date on which the plan first provides 
                that assets will become restricted to the 
                provision of benefits under the plan in 
                connection with a change in the employer's 
                financial health, or
                  (B) the date on which assets are so 
                restricted, whether or not such assets are 
                available to satisfy claims of general 
                creditors.
          (3) Treatment of employer's defined benefit plan 
        during restricted period.--
                  (A) In general.-- If--
                          (i) during any restricted period with 
                        respect to a single-employer defined 
                        benefit plan, assets are set aside or 
                        reserved (directly or indirectly) in a 
                        trust (or other arrangement as 
                        determined by the Secretary) or 
                        transferred to such a trust or other 
                        arrangement for purposes of paying 
                        deferred compensation of an applicable 
                        covered employee under a nonqualified 
                        deferred compensation plan of the plan 
                        sponsor or member of a controlled group 
                        which includes the plan sponsor, or
                          (ii) a nonqualified deferred 
                        compensation plan of the plan sponsor 
                        or member of a controlled group which 
                        includes the plan sponsor provides that 
                        assets will become restricted to the 
                        provision of benefits under the plan to 
                        an applicable covered employee in 
                        connection with such restricted period 
                        (or other similar financial measure 
                        determined by the Secretary) with 
                        respect to the defined benefit plan, or 
                        assets are so restricted,
                such assets shall, for purposes of section 83, 
                be treated as property transferred in 
                connection with the performance of services 
                whether or not such assets are available to 
                satisfy claims of general creditors. Clause (i) 
                shall not apply with respect to any assets 
                which are so set aside before the restricted 
                period with respect to the defined benefit 
                plan.
                  (B) Restricted period.-- For purposes of this 
                section, the term ``restricted period'' means, 
                with respect to any plan described in 
                subparagraph (A)--
                          (i) any period during which the plan 
                        is in at-risk status (as defined in 
                        section 430(i));
                          (ii) any period the plan sponsor is a 
                        debtor in a case under title 11, United 
                        States Code, or similar Federal or 
                        State law, and
                          (iii) the 12-month period beginning 
                        on the date which is 6 months before 
                        the termination date of the plan if, as 
                        of the termination date, the plan is 
                        not sufficient for benefit liabilities 
                        (within the meaning of section 4041 of 
                        the Employee Retirement Income Security 
                        Act of 1974).
                  (C) Special rule for payment of taxes on 
                deferred compensation included in income.-- If 
                an employer provides directly or indirectly for 
                the payment of any Federal, State, or local 
                income taxes with respect to any compensation 
                required to be included in gross income by 
                reason of this paragraph--
                          (i) interest shall be imposed under 
                        subsection (a)(1)(B)(i)(I) on the 
                        amount of such payment in the same 
                        manner as if such payment was part of 
                        the deferred compensation to which it 
                        relates,
                          (ii) such payment shall be taken into 
                        account in determining the amount of 
                        the additional tax under subsection 
                        (a)(1)(B)(i)(II) in the same manner as 
                        if such payment was part of the 
                        deferred compensation to which it 
                        relates, and
                          (iii) no deduction shall be allowed 
                        under this title with respect to such 
                        payment.
                  (D) Other definitions.-- For purposes of this 
                section--
                          (i) Applicable covered employee.-- 
                        The term ``applicable covered 
                        employee'' means any--
                                  (I) covered employee of a 
                                plan sponsor,
                                  (II) covered employee of a 
                                member of a controlled group 
                                which includes the plan 
                                sponsor, and
                                  (III) former employee who was 
                                a covered employee at the time 
                                of termination of employment 
                                with the plan sponsor or a 
                                member of a controlled group 
                                which includes the plan 
                                sponsor.
                          (ii) Covered employee.-- The term 
                        ``covered employee'' means an 
                        individual described in section 
                        162(m)(3) or an individual subject to 
                        the requirements of section 16(a) of 
                        the Securities Exchange Act of 1934.
          (4) Income inclusion for offshore trusts and 
        employer's financial health.-- For each taxable year 
        that assets treated as transferred under this 
        subsection remain set aside in a trust or other 
        arrangement subject to paragraph (1), (2), or (3), any 
        increase in value in, or earnings with respect to, such 
        assets shall be treated as an additional transfer of 
        property under this subsection (to the extent not 
        previously included in income).
          (5) Interest on tax liability payable with respect to 
        transferred property.--
                  (A) In general.-- If amounts are required to 
                be included in gross income by reason of 
                paragraph (1), (2), or (3) for a taxable year, 
                the tax imposed by this chapter for such 
                taxable year shall be increased by the sum of--
                          (i) the amount of interest determined 
                        under subparagraph (B), and
                          (ii) an amount equal to 20 percent of 
                        the amounts required to be included in 
                        gross income.
                  (B) Interest.-- For purposes of subparagraph 
                (A), the interest determined under this 
                subparagraph for any taxable year is the amount 
                of interest at the underpayment rate plus 1 
                percentage point on the underpayments that 
                would have occurred had the amounts so required 
                to be included in gross income by paragraph 
                (1), (2), or (3) been includible in gross 
                income for the taxable year in which first 
                deferred or, if later, the first taxable year 
                in which such amounts are not subject to a 
                substantial risk of forfeiture.
  (c) No Inference on Earlier Income Inclusion or Requirement 
of Later Inclusion.--Nothing in this section shall be construed 
to prevent the inclusion of amounts in gross income under any 
other provision of this chapter or any other rule of law 
earlier than the time provided in this section. Any amount 
included in gross income under this section shall not be 
required to be included in gross income under any other 
provision of this chapter or any other rule of law later than 
the time provided in this section.
  (d) Other Definitions and Special Rules.--For purposes of 
this section:
          (1) Nonqualified deferred compensation plan.-- The 
        term ``nonqualified deferred compensation plan'' means 
        any plan that provides for the deferral of 
        compensation, other than--
                  (A) a qualified employer plan, and
                  (B) any bona fide vacation leave, sick leave, 
                compensatory time, disability pay, or death 
                benefit plan.
          (2) Qualified employer plan.-- The term ``qualified 
        employer plan'' means--
                  (A) any plan, contract, pension, account, or 
                trust described in subparagraph (A) or (B) of 
                section 219(g)(5) (without regard to 
                subparagraph (A)(iii)),
                  (B) any eligible deferred compensation plan 
                (within the meaning of section 457(b)), and
                  (C) any plan described in section 415(m).
          (3) Plan includes arrangements, etc..-- The term 
        ``plan'' includes any agreement or arrangement, 
        including an agreement or arrangement that includes one 
        person.
          (4) Substantial risk of forfeiture.-- The rights of a 
        person to compensation are subject to a substantial 
        risk of forfeiture if such person's rights to such 
        compensation are conditioned upon the future 
        performance of substantial services by any individual.
          (5) Treatment of earnings.-- References to deferred 
        compensation shall be treated as including references 
        to income (whether actual or notional) attributable to 
        such compensation or such income.
          (6) Aggregation rules.-- Except as provided by the 
        Secretary, rules similar to the rules of subsections 
        (b) and (c) of section 414 shall apply.
  (e) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations--
          (1) providing for the determination of amounts of 
        deferral in the case of a nonqualified deferred 
        compensation plan which is a defined benefit plan,
          (2) relating to changes in the ownership and control 
        of a corporation or assets of a corporation for 
        purposes of subsection (a)(2)(A)(v),
          (3) exempting arrangements from the application of 
        subsection (b) if such arrangements will not result in 
        an improper deferral of United States tax and will not 
        result in assets being effectively beyond the reach of 
        creditors,
          (4) defining financial health for purposes of 
        subsection (b)(2), and
          (5) disregarding a substantial risk of forfeiture in 
        cases where necessary to carry out the purposes of this 
        section.

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PART II--CERTAIN STOCK OPTIONS

           *       *       *       *       *       *       *


SEC. 422. INCENTIVE STOCK OPTIONS.

  (a) In General.--Section 421(a) shall apply with respect to 
the transfer of a share of stock to an individual pursuant to 
his exercise of an incentive stock option if--
          (1) no disposition of such share is made by him 
        within 2 years from the date of the granting of the 
        option nor within 1 year after the transfer of such 
        share to him, and
          (2) at all times during the period beginning on the 
        date of the granting of the option and ending on the 
        day 3 months before the date of such exercise, such 
        individual was an employee of either the corporation 
        granting such option, a parent or subsidiary 
        corporation of such corporation, or a corporation or a 
        parent or subsidiary corporation of such corporation 
        issuing or assuming a stock option in a transaction to 
        which section 424(a) applies.
  (b) Incentive Stock Option.--For purposes of this part, the 
term ``incentive stock option'' means an option granted to an 
individual for any reason connected with his employment by a 
corporation, if granted by the employer corporation or its 
parent or subsidiary corporation, to purchase stock of any of 
such corporations, but only if--
          (1) the option is granted pursuant to a plan which 
        includes the aggregate number of shares which may be 
        issued under options and the employees (or class of 
        employees) eligible to receive options, and which is 
        approved by the stockholders of the granting 
        corporation within 12 months before or after the date 
        such plan is adopted;
          (2) such option is granted within 10 years from the 
        date such plan is adopted, or the date such plan is 
        approved by the stockholders, whichever is earlier;
          (3) such option by its terms is not exercisable after 
        the expiration of 10 years from the date such option is 
        granted;
          (4) the option price is not less than the fair market 
        value of the stock at the time such option is granted;
          (5) such option by its terms is not transferable by 
        such individual otherwise than by will or the laws of 
        descent and distribution, and is exercisable, during 
        his lifetime, only by him; and
          (6) such individual, at the time the option is 
        granted, does not own stock possessing more than 10 
        percent of the total combined voting power of all 
        classes of stock of the employer corporation or of its 
        parent or subsidiary corporation.
Such term shall not include any option if (as of the time the 
option is granted) the terms of such option provide that it 
will not be treated as an incentive stock option.
  (c) Special Rules.--
          (1) Good faith efforts to value of stock.-- If a 
        share of stock is transferred pursuant to the exercise 
        by an individual of an option which would fail to 
        qualify as an incentive stock option under subsection 
        (b) because there was a failure in an attempt, made in 
        good faith, to meet the requirement of subsection 
        (b)(4), the requirement of subsection (b)(4) shall be 
        considered to have been met. To the extent provided in 
        regulations by the Secretary, a similar rule shall 
        apply for purposes of subsection (d).
          (2) Certain disqualifying dispositions where amount 
        realized is less than value at exercise.-- If--
                  (A) an individual who has acquired a share of 
                stock by the exercise of an incentive stock 
                option makes a disposition of such share within 
                either of the periods described in subsection 
                (a)(1), and
                  (B) such disposition is a sale or exchange 
                with respect to which a loss (if sustained) 
                would be recognized to such individual,
        then the amount which is includible in the gross income 
        of such individual, and the amount which is deductible 
        from the income of his employer corporation, as 
        compensation attributable to the exercise of such 
        option shall not exceed the excess (if any) of the 
        amount realized on such sale or exchange over the 
        adjusted basis of such share.
          (3) Certain transfers by insolvent individuals.-- If 
        an insolvent individual holds a share of stock acquired 
        pursuant to his exercise of an incentive stock option, 
        and if such share is transferred to a trustee, 
        receiver, or other similar fiduciary in any proceeding 
        under title 11 or any other similar insolvency 
        proceeding, neither such transfer, nor any other 
        transfer of such share for the benefit of his creditors 
        in such proceeding, shall constitute a disposition of 
        such share for purposes of subsection (a)(1).
          (4) Permissible provisions.-- An option which meets 
        the requirements of subsection (b) shall be treated as 
        an incentive stock option even if--
                  (A) the employee may pay for the stock with 
                stock of the corporation granting the option,
                  (B) the employee has a right to receive 
                property at the time of exercise of the option, 
                or
                  (C) the option is subject to any condition 
                not inconsistent with the provisions of 
                subsection (b).
        Subparagraph (B) shall apply to a transfer of property 
        (other than cash) only if section 83 applies to the 
        property so transferred.
          (5) 10-percent shareholder rule.-- Subsection (b)(6) 
        shall not apply if at the time such option is granted 
        the option price is at least 110 percent of the fair 
        market value of the stock subject to the option and 
        such option by its terms is not exercisable after the 
        expiration of 5 years from the date such option is 
        granted.
          (6) Special rule when disabled.-- For purposes of 
        subsection (a)(2), in the case of an employee who is 
        disabled (within the meaning of section 22(e)(3)), the 
        3-month period of subsection (a)(2) shall be 1 year.
          (7) Fair market value.-- For purposes of this 
        section, the fair market value of stock shall be 
        determined without regard to any restriction other than 
        a restriction which, by its terms, will never lapse.
  (d) $100,000 per year limitation
          (1) In general.-- To the extent that the aggregate 
        fair market value of stock with respect to which 
        incentive stock options (determined without regard to 
        this subsection) are exercisable for the 1st time by 
        any individual during any calendar year (under all 
        plans of the individual's employer corporation and its 
        parent and subsidiary corporations) exceeds $100,000, 
        such options shall be treated as options which are not 
        incentive stock options.
          (2) Ordering rule.-- Paragraph (1) shall be applied 
        by taking options into account in the order in which 
        they were granted.
          (3) Determination of fair market value.-- For 
        purposes of paragraph (1), the fair market value of any 
        stock shall be determined as of the time the option 
        with respect to such stock is granted.

           *       *       *       *       *       *       *


SEC. 423. EMPLOYEE STOCK PURCHASE PLANS.

  (a) General Rule.--Section 421(a) shall apply with respect to 
the transfer of a share of stock to an individual pursuant to 
his exercise of an option granted under an employee stock 
purchase plan (as defined in subsection (b)) if--
          (1) no disposition of such share is made by him 
        within 2 years after the date of the granting of the 
        option nor within 1 year after the transfer of such 
        share to him; and
          (2) at all times during the period beginning with the 
        date of the granting of the option and ending on the 
        day 3 months before the date of such exercise, he is an 
        employee of the corporation granting such option, a 
        parent or subsidiary corporation of such corporation, 
        or a corporation or a parent or subsidiary corporation 
        of such corporation issuing or assuming a stock option 
        in a transaction to which section 424(a) applies.
  (b) Employee Stock Purchase Plan.--For purposes of this part, 
the term ``employee stock purchase plan'' means a plan which 
meets the following requirements:
          (1) the plan provides that options are to be granted 
        only to employees of the employer corporation or of its 
        parent or subsidiary corporation to purchase stock in 
        any such corporation;
          (2) such plan is approved by the stockholders of the 
        granting corporation within 12 months before or after 
        the date such plan is adopted;
          (3) under the terms of the plan, no employee can be 
        granted an option if such employee, immediately after 
        the option is granted, owns stock possessing 5 percent 
        or more of the total combined voting power or value of 
        all classes of stock of the employer corporation or of 
        its parent or subsidiary corporation. For purposes of 
        this paragraph, the rules of section 424(d) shall apply 
        in determining the stock ownership of an individual, 
        and stock which the employee may purchase under 
        outstanding options shall be treated as stock owned by 
        the employee;
          (4) under the terms of the plan, options are to be 
        granted to all employees of any corporation whose 
        employees are granted any of such options by reason of 
        their employment by such corporation, except that there 
        may be excluded--
                  (A) employees who have been employed less 
                than 2 years,
                  (B) employees whose customary employment is 
                20 hours or less per week,
                  (C) employees whose customary employment is 
                for not more than 5 months in any calendar 
                year, and
                  (D) highly compensated employees (within the 
                meaning of section 414(q));
          (5) under the terms of the plan, all employees 
        granted such options shall have the same rights and 
        privileges, except that the amount of stock which may 
        be purchased by any employee under such option may bear 
        a uniform relationship to the total compensation, or 
        the basic or regular rate of compensation, of 
        employees, and the plan may provide that no employee 
        may purchase more than a maximum amount of stock fixed 
        under the plan;
          (6) under the terms of the plan, the option price is 
        not less than the lesser of--
                  (A) an amount equal to 85 percent of the fair 
                market value of the stock at the time such 
                option is granted, or
                  (B) an amount which under the terms of the 
                option may not be less than 85 percent of the 
                fair market value of the stock at the time such 
                option is exercised;
          (7) under the terms of the plan, such option cannot 
        be exercised after the expiration of--
                  (A) 5 years from the date such option is 
                granted if, under the terms of such plan, the 
                option price is to be not less than 85 percent 
                of the fair market value of such stock at the 
                time of the exercise of the option, or
                  (B) 27 months from the date such option is 
                granted, if the option price is not 
                determinable in the manner described in 
                subparagraph (A) (8) under the terms of the 
                plan, no employee may be granted an option 
                which permits his rights to purchase stock 
                under all such plans of his employer 
                corporation and its parent and subsidiary 
                corporations to accrue at a rate which exceeds 
                $25,000 of fair market value of such stock 
                (determined at the time such option is granted) 
                for each calendar year in which such option is 
                outstanding at any time. For purposes of this 
                paragraph--
                  (A) the right to purchase stock under an 
                option accrues when the option (or any portion 
                thereof) first becomes exercisable during the 
                calendar year;
                  (B) the right to purchase stock under an 
                option accrues at the rate provided in the 
                option, but in no case may such rate exceed 
                $25,000 of fair market value of such stock 
                (determined at the time such option is granted) 
                for any one calendar year; and
                  (C) a right to purchase stock which has 
                accrued under one option granted pursuant to 
                the plan may not be carried over to any other 
                option; and
          (9) under the terms of the plan, such option is not 
        transferable by such individual otherwise than by will 
        or the laws of descent and distribution, and is 
        exercisable, during his lifetime, only by him.
For purposes of paragraphs (3) to (9), inclusive, where 
additional terms are contained in an offering made under a 
plan, such additional terms shall, with respect to options 
exercised under such offering, be treated as a part of the 
terms of such plan.
  (c) Special Rule Where Option Price Is Between 85 Percent and 
100 Percent of Value of Stock.--If the option price of a share 
of stock acquired by an individual pursuant to a transfer to 
which subsection (a) applies was less than 100 percent of the 
fair market value of such share at the time such option was 
granted, then, in the event of any disposition of such share by 
him which meets the holding period requirements of subsection 
(a), or in the event of his death (whenever occurring) while 
owning such share, there shall be included as compensation (and 
not as gain upon the sale or exchange of a capital asset) in 
his gross income, for the taxable year in which falls the date 
of such disposition or for the taxable year closing with his 
death, whichever applies, an amount equal to the lesser of--
          (1) the excess of the fair market value of the share 
        at the time of such disposition or death over the 
        amount paid for the share under the option, or
          (2) the excess of the fair market value of the share 
        at the time the option was granted over the option 
        price.
If the option price is not fixed or determinable at the time 
the option is granted, then for purposes of this subsection, 
the option price shall be determined as if the option were 
exercised at such time. In the case of the disposition of such 
share by the individual, the basis of the share in his hands at 
the time of such disposition shall be increased by an amount 
equal to the amount so includible in his gross income. No 
amount shall be required to be deducted and withheld under 
chapter 24 with respect to any amount treated as compensation 
under this subsection.

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *


SEC. 3401. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration (other than fees paid to a public 
official) for services performed by an employee for his 
employer, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that such term shall not include remuneration paid--
          (1) for active service performed in a month for which 
        such employee is entitled to the benefits of section 
        112 (relating to certain combat zone compensation of 
        members of the Armed Forces of the United States) to 
        the extent remuneration for such service is excludable 
        from gross income under such section; or
          (2) for agricultural labor (as defined in section 
        3121(g)) unless the remuneration paid for such labor is 
        wages (as defined in section 3121(a)); or
          (3) for domestic service in a private home, local 
        college club, or local chapter of a college fraternity 
        or sorority; or
          (4) for service not in the course of the employer's 
        trade or business performed in any calendar quarter by 
        an employee, unless the cash remuneration paid for such 
        service is $50 or more and such service is performed by 
        an individual who is regularly employed by such 
        employer to perform such service. For purposes of this 
        paragraph, an individual shall be deemed to be 
        regularly employed by an employer during a calendar 
        quarter only if--
                  (A) on each of some 24 days during such 
                quarter such individual performs for such 
                employer for some portion of the day service 
                not in the course of the employer's trade or 
                business; or
                  (B) such individual was regularly employed 
                (as determined under subparagraph (A)) by such 
                employer in the performance of such service 
                during the preceding calendar quarter; or
          (5) for services by a citizen or resident of the 
        United States for a foreign government or an 
        international organization; or
          (6) for such services, performed by a nonresident 
        alien individual, as may be designated by regulations 
        prescribed by the Secretary; or
          (8)(A) for services for an employer (other than the 
        United States or any agency thereof)--
                          (i) performed by a citizen of the 
                        United States if, at the time of the 
                        payment of such remuneration, it is 
                        reasonable to believe that such 
                        remuneration will be excluded from 
                        gross income under section 911; or
                          (ii) performed in a foreign country 
                        or in a possession of the United States 
                        by such a citizen if, at the time of 
                        the payment of such remuneration, the 
                        employer is required by the law of any 
                        foreign country or possession of the 
                        United States to withhold income tax 
                        upon such remuneration; or
                  (B) for services for an employer (other than 
                the United States or any agency thereof) 
                performed by a citizen of the United States 
                within a possession of the United States (other 
                than Puerto Rico), if it is reasonable to 
                believe that at least 80 percent of the 
                remuneration to be paid to the employee by such 
                employer during the calendar year will be for 
                such services; or
                  (C) for services for an employer (other than 
                the United States or any agency thereof) 
                performed by a citizen of the United States 
                within Puerto Rico, if it is reasonable to 
                believe that during the entire calendar year 
                the employee will be a bona fide resident of 
                Puerto Rico; or
                  (D) for services for the United States (or 
                any agency thereof) performed by a citizen of 
                the United States within a possession of the 
                United States to the extent the United States 
                (or such agency) withholds taxes on such 
                remuneration pursuant to an agreement with such 
                possession; or
          (9) for services performed by a duly ordained, 
        commissioned, or licensed minister of a church in the 
        exercise of his ministry or by a member of a religious 
        order in the exercise of duties required by such order; 
        or
          (10)(A) for services performed by an individual under 
        the age of 18 in the delivery or distribution of 
        newspapers or shopping news, not including delivery or 
        distribution to any point for subsequent delivery or 
        distribution; or
                  (B) for services performed by an individual 
                in, and at the time of, the sale of newspapers 
                or magazines to ultimate consumers, under an 
                arrangement under which the newspapers or 
                magazines are to be sold by him at a fixed 
                price, his compensation being based on the 
                retention of the excess of such price over the 
                amount at which the newspapers or magazines are 
                charged to him, whether or not he is guaranteed 
                a minimum amount of compensation for such 
                services, or is entitled to be credited with 
                the unsold newspapers or magazines turned back; 
                or
          (11) for services not in the course of the employer's 
        trade or business, to the extent paid in any medium 
        other than cash; or
          (12) to, or on behalf of, an employee or his 
        beneficiary--
                  (A) from or to a trust described in section 
                401(a) which is exempt from tax under section 
                501(a) at the time of such payment unless such 
                payment is made to an employee of the trust as 
                remuneration for services rendered as such 
                employee and not as a beneficiary of the trust; 
                or
                  (B) under or to an annuity plan which, at the 
                time of such payment, is a plan described in 
                section 403(a); or
                  (C) for a payment described in section 
                402(h)(1) and (2) if, at the time of such 
                payment, it is reasonable to believe that the 
                employee will be entitled to an exclusion under 
                such section for payment; or
                  (D) under an arrangement to which section 
                408(p) applies; or
          (13) pursuant to any provision of law other than 
        section 5(c) or 6(1) of the Peace Corps Act, for 
        service performed as a volunteer or volunteer leader 
        within the meaning of such Act; or
                  (E) under or to an eligible deferred 
                compensation plan which, at the time of such 
                payment, is a plan described in section 457(b) 
                which is maintained by an eligible employer 
                described in section 457(e)(1)(A), or
          (14) in the form of group-term life insurance on the 
        life of an employee; or
          (15) to or on behalf of an employee if (and to the 
        extent that) at the time of the payment of such 
        remuneration it is reasonable to believe that a 
        corresponding deduction is allowable under section 217 
        (determined without regard to section 274(n)); or
          (16)(A) as tips in any medium other than cash;
                  (B) as cash tips to an employee in any 
                calendar month in the course of his employment 
                by an employer unless the amount of such cash 
                tips is $20 or more;
          (17) for service described in section 3121(b)(20);
          (18) for any payment made, or benefit furnished, to 
        or for the benefit of an employee if at the time of 
        such payment or such furnishing it is reasonable to 
        believe that the employee will be able to exclude such 
        payment or benefit from income under section 127, 129, 
        134(b)(4), or 134(b)(5);
          (19) for any benefit provided to or on behalf of an 
        employee if at the time such benefit is provided it is 
        reasonable to believe that the employee will be able to 
        exclude such benefit from income under section 74(c), 
        108(f)(4), 117, or 132;
          (20) for any medical care reimbursement made to or 
        for the benefit of an employee under a self-insured 
        medical reimbursement plan (within the meaning of 
        section 105(h)(6));
          (21) for any payment made to or for the benefit of an 
        employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to 
        exclude such payment from income under section 106(b);
          (22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to 
        exclude such payment from income under section 106(d); 
        or
          (23) for any benefit or payment which is excludable 
        from the gross income of the employee under section 
        139B(b).
The term ``wages'' includes any amount includible in gross 
income of an employee under section 409A and payment of such 
amount shall be treated as having been made in the taxable year 
in which the amount is so includible.
  (b) Payroll Period.--For purposes of this chapter, the term 
``payroll period'' means a period for which a payment of wages 
is ordinarily made to the employee by his employer, and the 
term ``miscellaneous payroll period'' means a payroll period 
other than a daily, weekly, biweekly, semimonthly, monthly, 
quarterly, semiannual or annual payroll period.
  (c) Employee.--For purposes of this chapter, the term 
``employee'' includes an officer, employee, or elected official 
of the United States, a State, or any political subdivision 
thereof, or the District of Columbia, or any agency or 
instrumentality of any one or more of the foregoing. The term 
``employee'' also includes an officer of a corporation.
  (d) Employer.--For purposes of this chapter, the term 
``employer'' means the person for whom an individual performs 
or performed any service, of whatever nature, as the employee 
of such person, except that--
          (1) if the person for whom the individual performs or 
        performed the services does not have control of the 
        payment of the wages for such services, the term 
        ``employer'' (except for purposes of subsection (a)) 
        means the person having control of the payment of such 
        wages, and
          (2) in the case of a person paying wages on behalf of 
        a nonresident alien individual, foreign partnership, or 
        foreign corporation, not engaged in trade or business 
        within the United States, the term ``employer'' (except 
        for purposes of subsection (a)) means such person.
  (e) Number of Withholding Exemptions Claimed.--For purposes 
of this chapter, the term ``number of withholding exemptions 
claimed'' means the number of withholding exemptions claimed in 
a withholding exemption certificate in effect under section 
3402(f), or in effect under the corresponding section of prior 
law, except that if no such certificate is in effect, the 
number of withholding exemptions claimed shall be considered to 
be zero.
  (f) Tips.--For purposes of subsection (a), the term ``wages'' 
includes tips received by an employee in the course of his 
employment. Such wages shall be deemed to be paid at the time a 
written statement including such tips is furnished to the 
employer pursuant to section 6053(a) or (if no statement 
including such tips is so furnished) at the time received.
  (g) Crew Leader Rules to Apply.--Rules similar to the rules 
of section 3121(o) shall apply for purposes of this chapter.
  (h) Differential Wage Payments to Active Duty Members of the 
Uniformed Services.--
          (1) In general.-- For purposes of subsection (a), any 
        differential wage payment shall be treated as a payment 
        of wages by the employer to the employee.
          (2) Differential wage payment.-- For purposes of 
        paragraph (1), the term ``differential wage payment'' 
        means any payment which--
                  (A) is made by an employer to an individual 
                with respect to any period during which the 
                individual is performing service in the 
                uniformed services (as defined in chapter 43 of 
                title 38, United States Code) while on active 
                duty for a period of more than 30 days, and
                  (B) represents all or a portion of the wages 
                the individual would have received from the 
                employer if the individual were performing 
                service for the employer.

SEC. 3402. INCOME TAX COLLECTED AT SOURCE.

  (a) Requirement of Withholding.--
          (1) In general.-- Except as otherwise provided in 
        this section, every employer making payment of wages 
        shall deduct and withhold upon such wages a tax 
        determined in accordance with tables or computational 
        procedures prescribed by the Secretary. Any tables or 
        procedures prescribed under this paragraph shall--
                  (A) apply with respect to the amount of wages 
                paid during such periods as the Secretary may 
                prescribe, and
                  (B) be in such form, and provide for such 
                amounts to be deducted and withheld, as the 
                Secretary determines to be most appropriate to 
                carry out the purposes of this chapter and to 
                reflect the provisions of chapter 1 applicable 
                to such periods.
          (2) Amount of wages.-- For purposes of applying 
        tables or procedures prescribed under paragraph (1), 
        the term ``the amount of wages'' means the amount by 
        which the wages exceed the number of withholding 
        exemptions claimed multiplied by the amount of one such 
        exemption. The amount of each withholding exemption 
        shall be equal to the amount of one personal exemption 
        provided in section 151(b), prorated to the payroll 
        period. The maximum number of withholding exemptions 
        permitted shall be calculated in accordance with 
        regulations prescribed by the Secretary under this 
        section, taking into account any reduction in 
        withholding to which an employee is entitled under this 
        section.
  (b) Percentage Method of Withholding.--
          (1) If wages are paid with respect to a period which 
        is not a payroll period, the withholding exemption 
        allowable with respect to each payment of such wages 
        shall be the exemption allowed for a miscellaneous 
        payroll period containing a number of days (including 
        Sundays and holidays) equal to the number of days in 
        the period with respect to which such wages are paid.
          (2) In any case in which wages are paid by an 
        employer without regard to any payroll period or other 
        period, the withholding exemption allowable with 
        respect to each payment of such wages shall be the 
        exemption allowed for a miscellaneous payroll period 
        containing a number of days equal to the number of days 
        (including Sundays and holidays) which have elapsed 
        since the date of the last payment of such wages by 
        such employer during the calendar year, or the date of 
        commencement of employment with such employer during 
        such year, or January 1 of such year, whichever is the 
        later.
          (3) In any case in which the period, or the time 
        described in paragraph (2), in respect of any wages is 
        less than one week, the Secretary, under regulations 
        prescribed by him, may authorize an employer to compute 
        the tax to be deducted and withheld as if the aggregate 
        of the wages paid to the employee during the calendar 
        week were paid for a weekly payroll period.
          (4) In determining the amount to be deducted and 
        withheld under this subsection, the wages may, at the 
        election of the employer, be computed to the nearest 
        dollar.
  (c) Wage Bracket Withholding.--
          (1) At the election of the employer with respect to 
        any employee, the employer shall deduct and withhold 
        upon the wages paid to such employee a tax (in lieu of 
        the tax required to be deducted and withheld under 
        subsection (a)) determined in accordance with tables 
        prescribed by the Secretary in accordance with 
        paragraph (6).
          (2) If wages are paid with respect to a period which 
        is not a payroll period, the amount to be deducted and 
        withheld shall be that applicable in the case of a 
        miscellaneous payroll period containing a number of 
        days (including Sundays and holidays) equal to the 
        number of days in the period with respect to which such 
        wages are paid.
          (3) In any case in which wages are paid by an 
        employer without regard to any payroll period or other 
        period, the amount to be deducted and withheld shall be 
        that applicable in the case of a miscellaneous payroll 
        period containing a number of days equal to the number 
        of days (including Sundays and holidays) which have 
        elapsed since the date of the last payment of such 
        wages by such employer during the calendar year, or the 
        date of commencement of employment with such employer 
        during such year, or January 1 of such year, whichever 
        is the later.
          (4) In any case in which the period, or the time 
        described in paragraph (3), in respect of any wages is 
        less than one week, the Secretary, under regulations 
        prescribed by him, may authorize an employer to 
        determine the amount to be deducted and withheld under 
        the tables applicable in the case of a weekly payroll 
        period, in which case the aggregate of the wages paid 
        to the employee during the calendar week shall be 
        considered the weekly wages.
          (5) If the wages exceed the highest wage bracket, in 
        determining the amount to be deducted and withheld 
        under this subsection, the wages may, at the election 
        of the employer, be computed to the nearest dollar.
          (6) In the case of wages paid after December 31, 
        1969, the amount deducted and withheld under paragraph 
        (1) shall be determined in accordance with tables 
        prescribed by the Secretary. In the tables so 
        prescribed, the amounts set forth as amounts of wages 
        and amounts of income tax to be deducted and withheld 
        shall be computed on the basis of the table for an 
        annual payroll period prescribed pursuant to subsection 
        (a).
  (d) Tax Paid by Recipient.--If the employer, in violation of 
the provisions of this chapter, fails to deduct and withhold 
the tax under this chapter, and thereafter the tax against 
which such tax may be credited is paid, the tax so required to 
be deducted and withheld shall not be collected from the 
employer; but this subsection shall in no case relieve the 
employer from liability for any penalties or additions to the 
tax otherwise applicable in respect of such failure to deduct 
and withhold.
  (e) Included and Excluded Wages.--If the remuneration paid by 
an employer to an employee for services performed during one-
half or more of any payroll period of not more than 31 
consecutive days constitutes wages, all the remuneration paid 
by such employer to such employee for such period shall be 
deemed to be wages; but if the remuneration paid by an employer 
to an employee for services performed during more than one-half 
of any such payroll period does not constitute wages, then none 
of the remuneration paid by such employer to such employee for 
such period shall be deemed to be wages.
  (f) Withholding Exemptions.--
          (1) In general.-- An employee receiving wages shall 
        on any day be entitled to the following withholding 
        exemptions:
                  (A) an exemption for himself unless he is an 
                individual described in section 151(d)(2);
                  (B) if the employee is married, any exemption 
                to which his spouse is entitled, or would be 
                entitled if such spouse were an employee 
                receiving wages, under subparagraph (A) or (D), 
                but only if such spouse does not have in effect 
                a withholding exemption certificate claiming 
                such exemption;
                  (C) an exemption for each individual with 
                respect to whom, on the basis of facts existing 
                at the beginning of such day, there may 
                reasonably be expected to be allowable an 
                exemption under section 151(c) for the taxable 
                year under subtitle A in respect of which 
                amounts deducted and withheld under this 
                chapter in the calendar year in which such day 
                falls are allowed as a credit;
                  (D) any allowance to which he is entitled 
                under subsection (m), but only if his spouse 
                does not have in effect a withholding exemption 
                certificate claiming such allowance; and
                  (E) a standard deduction allowance which 
                shall be an amount equal to one exemption (or 
                more than one exemption if so prescribed by the 
                Secretary) unless (i) he is married (as 
                determined under section 7703) and his spouse 
                is an employee receiving wages subject to 
                withholding or (ii) he has withholding 
                exemption certificates in effect with respect 
                to more than one employer.
        For purposes of this title, any standard deduction 
        allowance under subparagraph (E) shall be treated as if 
        it were denominated a withholding exemption.
          (2) Exemption certificates.--
                  (A) On commencement of employment.-- On or 
                before the date of the commencement of 
                employment with an employer, the employee shall 
                furnish the employer with a signed withholding 
                exemption certificate relating to the number of 
                withholding exemptions which he claims, which 
                shall in no event exceed the number to which he 
                is entitled.
                  (B) Change of status.-- If, on any day during 
                the calendar year, the number of withholding 
                exemptions to which the employee is entitled is 
                less than the number of withholding exemptions 
                claimed by the employee on the withholding 
                exemption certificate then in effect with 
                respect to him, the employee shall within 10 
                days thereafter furnish the employer with a new 
                withholding exemption certificate relating to 
                the number of withholding exemptions which the 
                employee then claims, which shall in no event 
                exceed the number to which he is entitled on 
                such day. If, on any day during the calendar 
                year, the number of withholding exemptions to 
                which the employee is entitled is greater than 
                the number of withholding exemptions claimed, 
                the employee may furnish the employer with a 
                new withholding exemption certificate relating 
                to the number of withholding exemptions which 
                the employee then claims, which shall in no 
                event exceed the number to which he is entitled 
                on such day.
                  (C) Change of status which affects next 
                calendar year.-- If on any day during the 
                calendar year the number of withholding 
                exemptions to which the employee will be, or 
                may reasonably be expected to be, entitled at 
                the beginning of his next taxable year under 
                subtitle A is different from the number to 
                which the employee is entitled on such day, the 
                employee shall, in such cases and at such times 
                as the Secretary may by regulations prescribe, 
                furnish the employer with a withholding 
                exemption certificate relating to the number of 
                withholding exemptions which he claims with 
                respect to such next taxable year, which shall 
                in no event exceed the number to which he will 
                be, or may reasonably be expected to be, so 
                entitled.
          (3) When certificate takes effect.--
                  (A) First certificate furnished.-- A 
                withholding exemption certificate furnished the 
                employer in cases in which no previous such 
                certificate is in effect shall take effect as 
                of the beginning of the first payroll period 
                ending, or the first payment of wages made 
                without regard to a payroll period, on or after 
                the date on which such certificate is so 
                furnished.
                  (B) Furnished to take place of existing 
                certificate.--
                          (i) In general.-- Except as provided 
                        in clauses (ii) and (iii), a 
                        withholding exemption certificate 
                        furnished to the employer in cases in 
                        which a previous such certificate is in 
                        effect shall take effect as of the 
                        beginning of the 1st payroll period 
                        ending (or the 1st payment of wages 
                        made without regard to a payroll 
                        period) on or after the 30th day after 
                        the day on which such certificate is so 
                        furnished.
                          (ii) Employer may elect earlier 
                        effective date.-- At the election of 
                        the employer, a certificate described 
                        in clause (i) may be made effective 
                        beginning with any payment of wages 
                        made on or after the day on which the 
                        certificate is so furnished and before 
                        the 30th day referred to in clause (i).
                          (iii) Change of status which affects 
                        next year.-- Any certificate furnished 
                        pursuant to paragraph (2)(C) shall not 
                        take effect, and may not be made 
                        effective, with respect to any payment 
                        of wages made in the calendar year in 
                        which the certificate is furnished.
          (4) Period during which certificate remains in 
        effect.-- A withholding exemption certificate which 
        takes effect under this subsection, or which on 
        December 31, 1954, was in effect under the 
        corresponding subsection of prior law, shall continue 
        in effect with respect to the employer until another 
        such certificate takes effect under this subsection.
          (5) Form and contents of certificate.-- Withholding 
        exemption certificates shall be in such form and 
        contain such information as the Secretary may by 
        regulations prescribe.
          (6) Exemption of certain nonresident aliens.-- 
        Notwithstanding the provisions of paragraph (1), a 
        nonresident alien individual (other than an individual 
        described in section 3401(a)(6)(A) or (B)) shall be 
        entitled to only one withholding exemption.
          (7) Exemption where certificate with another employer 
        is in effect.-- If a withholding exemption certificate 
        is in effect with respect to one employer, an employee 
        shall not be entitled under a certificate in effect 
        with any other employer to any withholding exemption 
        which he has claimed under such first certificate.
  (g) Overlapping Pay Periods, and Payment by Agent or 
Fiduciary.--If a payment of wages is made to an employee by an 
employer--
          (1) with respect to a payroll period or other period, 
        any part of which is included in a payroll period or 
        other period with respect to which wages are also paid 
        to such employee by such employer, or
          (2) without regard to any payroll period or other 
        period, but on or prior to the expiration of a payroll 
        period or other period with respect to which wages are 
        also paid to such employee by such employer, or
          (3) with respect to a period beginning in one and 
        ending in another calendar year, or
          (4) through an agent, fiduciary, or other person who 
        also has the control, receipt, custody, or disposal of, 
        or pays, the wages payable by another employer to such 
        employee,
the manner of withholding and the amount to be deducted and 
withheld under this chapter shall be determined in accordance 
with regulations prescribed by the Secretary under which the 
withholding exemption allowed to the employee in any calendar 
year shall approximate the withholding exemption allowable with 
respect to an annual payroll period.
  (h) Alternative Methods of Computing Amount to be Withheld.--
The Secretary may, under regulations prescribed by him, 
authorize--
          (1) Withholding on basis of average wages.-- An 
        employer--
                  (A) to estimate the wages which will be paid 
                to any employee in any quarter of the calendar 
                year,
                  (B) to determine the amount to be deducted 
                and withheld upon each payment of wages to such 
                employee during such quarter as if the 
                appropriate average of the wages so estimated 
                constituted the actual wages paid, and
                  (C) to deduct and withhold upon any payment 
                of wages to such employee during such quarter 
                (and, in the case of tips referred to in 
                subsection (k), within 30 days thereafter) such 
                amount as may be necessary to adjust the amount 
                actually deducted and withheld upon the wages 
                of such employee during such quarter to the 
                amount required to be deducted and withheld 
                during such quarter without regard to this 
                subsection.
          (2) Withholding on basis of annualized wages.-- An 
        employer to determine the amount of tax to be deducted 
        and withheld upon a payment of wages to an employee for 
        a payroll period by--
                  (A) multiplying the amount of an employee's 
                wages for a payroll period by the number of 
                such payroll periods in the calendar year,
                  (B) determining the amount of tax which would 
                be required to be deducted and withheld upon 
                the amount determined under subparagraph (A) if 
                such amount constituted the actual wages for 
                the calendar year and the payroll period of the 
                employee were an annual payroll period, and
                  (C) dividing the amount of tax determined 
                under subparagraph (B) by the number of payroll 
                periods (described in subparagraph (A)) in the 
                calendar year.
          (3) Withholding on basis of cumulative wages.-- An 
        employer, in the case of any employee who requests to 
        have the amount of tax to be withheld from his wages 
        computed on the basis of his cumulative wages, to--
                  (A) add the amount of the wages to be paid to 
                the employee for the payroll period to the 
                total amount of wages paid by the employer to 
                the employee during the calendar year,
                  (B) divide the aggregate amount of wages 
                computed under subparagraph (A) by the number 
                of payroll periods to which such aggregate 
                amount of wages relates,
                  (C) compute the total amount of tax that 
                would have been required to be deducted and 
                withheld under subsection (a) if the average 
                amount of wages (as computed under subparagraph 
                (B)) had been paid to the employee for the 
                number of payroll periods to which the 
                aggregate amount of wages (computed under 
                subparagraph (A)) relates,
                  (D) determine the excess, if any, of the 
                amount of tax computed under subparagraph (C) 
                over the total amount of tax deducted and 
                withheld by the employer from wages paid to the 
                employee during the calendar year, and
                  (E) deduct and withhold upon the payment of 
                wages (referred to in subparagraph (A)) to the 
                employee an amount equal to the excess (if any) 
                computed under subparagraph (D).
          (4) Other methods.-- An employer to determine the 
        amount of tax to be deducted and withheld upon the 
        wages paid to an employee by any other method which 
        will require the employer to deduct and withhold upon 
        such wages substantially the same amount as would be 
        required to be deducted and withheld by applying 
        subsection (a) or (c), either with respect to a payroll 
        period or with respect to the entire taxable year.
  (i) Changes in Withholding.--
          (1) In general.-- The Secretary may by regulations 
        provide for increases in the amount of withholding 
        otherwise required under this section in cases where 
        the employee requests such changes.
          (2) Treatment as tax.-- Any increased withholding 
        under paragraph (1) shall for all purposes be 
        considered tax required to be deducted and withheld 
        under this chapter.
  (j) Noncash Remuneration to Retail Commission Salesman.--In 
the case of remuneration paid in any medium other than cash for 
services performed by an individual as a retail salesman for a 
person, where the service performed by such individual for such 
person is ordinarily performed for remuneration solely by way 
of cash commission an employer shall not be required to deduct 
or withhold any tax under this subchapter with respect to such 
remuneration, provided that such employer files with the 
Secretary such information with respect to such remuneration as 
the Secretary may by regulation prescribe.
  (k) Tips.--In the case of tips which constitute wages, 
subsection (a) shall be applicable only to such tips as are 
included in a written statement furnished to the employer 
pursuant to section 6053(a), and only to the extent that the 
tax can be deducted and withheld by the employer, at or after 
the time such statement is so furnished and before the close of 
the calendar year in which such statement is furnished, from 
such wages of the employee (excluding tips, but including funds 
turned over by the employee to the employer for the purpose of 
such deduction and withholding) as are under the control of the 
employer; and an employer who is furnished by an employee a 
written statement of tips (received in a calendar month) 
pursuant to section 6053(a) to which paragraph (16)(B) of 
section 3401(a) is applicable may deduct and withhold the tax 
with respect to such tips from any wages of the employee 
(excluding tips) under his control, even though at the time 
such statement is furnished the total amount of the tips 
included in statements furnished to the employer as having been 
received by the employee in such calendar month in the course 
of his employment by such employer is less than $20. Such tax 
shall not at any time be deducted and withheld in an amount 
which exceeds the aggregate of such wages and funds (including 
funds turned over under section 3102(c)(2) or section 
3202(c)(2)) minus any tax required by section 3102(a) or 
section 3202(a) to be collected from such wages and funds.
  (l) Determination and Disclosure of Marital Status.--
          (1) Determination of status by employer.-- For 
        purposes of applying the tables in subsections (a) and 
        (c) to a payment of wages, the employer shall treat the 
        employee as a single person unless there is in effect 
        with respect to such payment of wages a withholding 
        exemption certificate furnished to the employer by the 
        employee after the date of the enactment of this 
        subsection indicating that the employee is married.
          (2) Disclosure of status by employee.-- An employee 
        shall be entitled to furnish the employer with a 
        withholding exemption certificate indicating he is 
        married only if, on the day of such furnishing, he is 
        married (determined with the application of the rules 
        in paragraph (3)). An employee whose marital status 
        changes from married to single shall, at such time as 
        the Secretary may by regulations prescribe, furnish the 
        employer with a new withholding exemption certificate.
          (3) Determination of marital status.-- For purposes 
        of paragraph (2), an employee shall on any day be 
        considered--
                  (A) as not married, if (i) he is legally 
                separated from his spouse under a decree of 
                divorce or separate maintenance, or (ii) either 
                he or his spouse is, or on any preceding day 
                within the calendar year was, a nonresident 
                alien; or
                  (B) as married, if (i) his spouse (other than 
                a spouse referred to in subparagraph (A)) died 
                within the portion of his taxable year which 
                precedes such day, or (ii) his spouse died 
                during one of the two taxable years immediately 
                preceding the current taxable year and, on the 
                basis of facts existing at the beginning of 
                such day, the employee reasonably expects, at 
                the close of his taxable year, to be a 
                surviving spouse (as defined in section 2(a)).
  (m) Withholding Allowances.--Under regulations prescribed by 
the Secretary, an employee shall be entitled to additional 
withholding allowances or additional reductions in withholding 
under this subsection. In determining the number of additional 
withholding allowances or the amount of additional reductions 
in withholding under this subsection, the employee may take 
into account (to the extent and in the manner provided by such 
regulations)--
          (1) estimated itemized deductions allowable under 
        chapter 1 (other than the deductions referred to in 
        section 151 and other than the deductions required to 
        be taken into account in determining adjusted gross 
        income under section 62(a) (other than paragraph (10) 
        thereof)),
          (2) estimated tax credits allowable under chapter 1, 
        and
          (3) such additional deductions (including the 
        additional standard deduction under section 63(c)(3) 
        for the aged and blind) and other items as may be 
        specified by the Secretary in regulations.
  (n) Employees Incurring No Income Tax Liability.--
Notwithstanding any other provision of this section, an 
employer shall not be required to deduct and withhold any tax 
under this chapter upon a payment of wages to an employee if 
there is in effect with respect to such payment a withholding 
exemption certificate (in such form and containing such other 
information as the Secretary may prescribe) furnished to the 
employer by the employee certifying that the employee--
          (1) incurred no liability for income tax imposed 
        under subtitle A for his preceding taxable year, and
          (2) anticipates that he will incur no liability for 
        income tax imposed under subtitle A for his current 
        taxable year.
The Secretary shall by regulations provide for the coordination 
of the provisions of this subsection with the provisions of 
subsection (f).
  (o) Extension of Withholding to Certain Payments Other Than 
Wages.--
          (1) General rule.-- For purposes of this chapter (and 
        so much of subtitle F as relates to this chapter)--
                  (A) any supplemental unemployment 
                compensation benefit paid to an individual,
                  (B) any payment of an annuity to an 
                individual, if at the time the payment is made 
                a request that such annuity be subject to 
                withholding under this chapter is in effect, 
                and
                  (C) any payment to an individual of sick pay 
                which does not constitute wages (determined 
                without regard to this subsection), if at the 
                time the payment is made a request that such 
                sick pay be subject to withholding under this 
                chapter is in effect,
        shall be treated as if it were a payment of wages by an 
        employer to an employee for a payroll period.
          (2) Definitions.--
                  (A) Supplemental unemployment compensation 
                benefits.-- For purposes of paragraph (1), the 
                term ``supplemental unemployment compensation 
                benefits'' means amounts which are paid to an 
                employee, pursuant to a plan to which the 
                employer is a party, because of an employee's 
                involuntary separation from employment (whether 
                or not such separation is temporary), resulting 
                directly from a reduction in force, the 
                discontinuance of a plant or operation, or 
                other similar conditions, but only to the 
                extent such benefits are includible in the 
                employee's gross income.
                  (B) Annuity.-- For purposes of this 
                subsection, the term ``annuity'' means any 
                amount paid to an individual as a pension or 
                annuity.
                  (C) Sick pay.-- For purposes of this 
                subsection, the term ``sick pay'' means any 
                amount which--
                          (i) is paid to an employee pursuant 
                        to a plan to which the employer is a 
                        party, and
                          (ii) constitutes remuneration or a 
                        payment in lieu of remuneration for any 
                        period during which the employee is 
                        temporarily absent from work on account 
                        of sickness or personal injuries.
          (3) Amount withheld from annuity payments or sick 
        pay.-- If a payee makes a request that an annuity or 
        any sick pay be subject to withholding under this 
        chapter, the amount to be deducted and withheld under 
        this chapter from any payment to which such request 
        applies shall be an amount (not less than a minimum 
        amount determined under regulations prescribed by the 
        Secretary) specified by the payee in such request. The 
        amount deducted and withheld with respect to a payment 
        which is greater or less than a full payment shall bear 
        the same relation to the specified amount as such 
        payment bears to a full payment.
          (4) Request for withholding.-- A request that an 
        annuity or any sick pay be subject to withholding under 
        this chapter--
                  (A) shall be made by the payee in writing to 
                the person making the payments and shall 
                contain the social security number of the 
                payee,
                  (B) shall specify the amount to be deducted 
                and withheld from each full payment, and
                  (C) shall take effect--
                          (i) in the case of sick pay, with 
                        respect to payments made more than 7 
                        days after the date on which such 
                        request is furnished to the payor, or
                          (ii) in the case of an annuity, at 
                        such time (after the date on which such 
                        request is furnished to the payor) as 
                        the Secretary shall by regulations 
                        prescribe.
        Such a request may be changed or terminated by 
        furnishing to the person making the payments a written 
        statement of change or termination which shall take 
        effect in the same manner as provided in subparagraph 
        (C). At the election of the payor, any such request (or 
        statement of change or revocation) may take effect 
        earlier than as provided in subparagraph (C).
          (5) Special rule for sick pay paid pursuant to 
        certain collective-bargaining agreements.-- In the case 
        of any sick pay paid pursuant to a collective-
        bargaining agreement between employee representatives 
        and one or more employers which contains a provision 
        specifying that this paragraph is to apply to sick pay 
        paid pursuant to such agreement and contains a 
        provision for determining the amount to be deducted and 
        withheld from each payment of such sick pay--
                  (A) the requirement of paragraph (1)(C) that 
                a request for withholding be in effect shall 
                not apply, and
                  (B) except as provided in subsection (n), the 
                amounts to be deducted and withheld under this 
                chapter shall be determined in accordance with 
                such agreement.
        The preceding sentence shall not apply with respect to 
        sick pay paid pursuant to any agreement to any 
        individual unless the social security number of such 
        individual is furnished to the payor and the payor is 
        furnished with such information as is necessary to 
        determine whether the payment is pursuant to the 
        agreement and to determine the amount to be deducted 
        and withheld.
          (6) Coordination with withholding on designated 
        distributions under section 3405.-- This subsection 
        shall not apply to any amount which is a designated 
        distribution (within the meaning of section 
        3405(e)(1)).
  (p) Voluntary Withholding Agreements.--
          (1) Certain Federal payments.--
                  (A) In general.-- If, at the time a specified 
                Federal payment is made to any person, a 
                request by such person is in effect that such 
                payment be subject to withholding under this 
                chapter, then for purposes of this chapter and 
                so much of subtitle F as relates to this 
                chapter, such payment shall be treated as if it 
                were a payment of wages by an employer to an 
                employee.
                  (B) Amount withheld.-- The amount to be 
                deducted and withheld under this chapter from 
                any payment to which any request under 
                subparagraph (A) applies shall be an amount 
                equal to the percentage of such payment 
                specified in such request. Such a request shall 
                apply to any payment only if the percentage 
                specified is 7 percent, any percentage 
                applicable to any of the 3 lowest income 
                brackets in the table under section 1(c), or 
                such other percentage as is permitted under 
                regulations prescribed by the Secretary.
                  (C) Specified Federal payments.-- For 
                purposes of this paragraph, the term 
                ``specified Federal payment'' means--
                          (i) any payment of a social security 
                        benefit (as defined in section 86(d)),
                          (ii) any payment referred to in the 
                        second sentence of section 451(d) which 
                        is treated as insurance proceeds,
                          (iii) any amount which is includible 
                        in gross income under section 77(a), 
                        and
                          (iv) any other payment made pursuant 
                        to Federal law which is specified by 
                        the Secretary for purposes of this 
                        paragraph.
                  (D) Requests for withholding.-- Rules similar 
                to the rules that apply to annuities under 
                subsection (o)(4) shall apply to requests under 
                this paragraph and paragraph (2).
          (2) Voluntary withholding on unemployment benefits.-- 
        If, at the time a payment of unemployment compensation 
        (as defined in section 85(b)) is made to any person, a 
        request by such person is in effect that such payment 
        be subject to withholding under this chapter, then for 
        purposes of this chapter and so much of subtitle F as 
        relates to this chapter, such payment shall be treated 
        as if it were a payment of wages by an employer to an 
        employee. The amount to be deducted and withheld under 
        this chapter from any payment to which any request 
        under this paragraph applies shall be an amount equal 
        to 10 percent of such payment.
          (3) Authority for other voluntary withholding.-- The 
        Secretary is authorized by regulations to provide for 
        withholding--
                  (A) from remuneration for services performed 
                by an employee for the employee's employer 
                which (without regard to this paragraph) does 
                not constitute wages, and
                  (B) from any other type of payment with 
                respect to which the Secretary finds that 
                withholding would be appropriate under the 
                provisions of this chapter,
        if the employer and employee, or the person making and 
        the person receiving such other type of payment, agree 
        to such withholding. Such agreement shall be in such 
        form and manner as the Secretary may by regulations 
        prescribe. For purposes of this chapter (and so much of 
        subtitle F as relates to this chapter), remuneration or 
        other payments with respect to which such agreement is 
        made shall be treated as if they were wages paid by an 
        employer to an employee to the extent that such 
        remuneration is paid or other payments are made during 
        the period for which the agreement is in effect.
  (q) Extension of Withholding to Certain Gambling Winnings.--
          (1) General rule.-- Every person, including the 
        Government of the United States, a State, or a 
        political subdivision thereof, or any instrumentalities 
        of the foregoing, making any payment of winnings which 
        are subject to withholding shall deduct and withhold 
        from such payment a tax in an amount equal to the 
        product of the third lowest rate of tax applicable 
        under section 1(c) and such payment.
          (2) Exemption where tax otherwise withheld.-- In the 
        case of any payment of winnings which are subject to 
        withholding made to a nonresident alien individual or a 
        foreign corporation, the tax imposed under paragraph 
        (1) shall not apply to any such payment subject to tax 
        under section 1441(a) (relating to withholding on 
        nonresident aliens) or tax under section 1442(a) 
        (relating to withholding on foreign corporations).
          (3) Winnings which are subject to withholding.-- For 
        purposes of this subsection, the term ``winnings which 
        are subject to withholding'' means proceeds from a 
        wager determined in accordance with the following:
                  (A) In general.-- Except as provided in 
                subparagraphs (B) and (C), proceeds of more 
                than $5,000 from a wagering transaction, if the 
                amount of such proceeds is at least 300 times 
                as large as the amount wagered.
                  (B) State-conducted lotteries.-- Proceeds of 
                more than $5,000 from a wager placed in a 
                lottery conducted by an agency of a State 
                acting under authority of State law, but only 
                if such wager is placed with the State agency 
                conducting such lottery, or with its authorized 
                employees or agents.
                  (C) Sweepstakes, wagering pools, certain 
                parimutuel pools, jai alai, and lotteries.-- 
                Proceeds of more than $5,000 from--
                          (i) a wager placed in a sweepstakes, 
                        wagering pool, or lottery (other than a 
                        wager described in subparagraph (B)), 
                        or
                          (ii) a wagering transaction in a 
                        parimutuel pool with respect to horse 
                        races, dog races, or jai alai if the 
                        amount of such proceeds is at least 300 
                        times as large as the amount wagered.
          (4) Rules for determining proceeds from a wager.-- 
        For purposes of this subsection--
                  (A) proceeds from a wager shall be determined 
                by reducing the amount received by the amount 
                of the wager, and
                  (B) proceeds which are not money shall be 
                taken into account at their fair market value.
          (5) Exception for bingo, keno, and slot machines.-- 
        The tax imposed under paragraph (1) shall not apply to 
        winnings from a slot machine, keno, and bingo.
          (6) Statement by recipient.-- Every person who is to 
        receive a payment of winnings which are subject to 
        withholding shall furnish the person making such 
        payment a statement, made under the penalties of 
        perjury, containing the name, address, and taxpayer 
        identification number of the person receiving the 
        payment and of each person entitled to any portion of 
        such payment.
          (7) Coordination with other sections.-- For purposes 
        of sections 3403 and 3404 and for purposes of so much 
        of subtitle F (except section 7205) as relates to this 
        chapter, payments to any person of winnings which are 
        subject to withholding shall be treated as if they were 
        wages paid by an employer to an employee.
  (r) Extension of Withholding to Certain Taxable Payments of 
Indian Casino Profits.--
          (1) In general.-- Every person, including an Indian 
        tribe, making a payment to a member of an Indian tribe 
        from the net revenues of any class II or class III 
        gaming activity conducted or licensed by such tribe 
        shall deduct and withhold from such payment a tax in an 
        amount equal to such payment's proportionate share of 
        the annualized tax.
          (2) Exception.-- The tax imposed by paragraph (1) 
        shall not apply to any payment to the extent that the 
        payment, when annualized, does not exceed an amount 
        equal to the sum of--
                  (A) the basic standard deduction (as defined 
                in section 63(c)) for an individual to whom 
                section 63(c)(2)(C) applies, and
                  (B) the exemption amount (as defined in 
                section 151(d)).
          (3) Annualized tax.-- For purposes of paragraph (1), 
        the term ``annualized tax'' means, with respect to any 
        payment, the amount of tax which would be imposed by 
        section 1(c) (determined without regard to any rate of 
        tax in excess of the fourth lowest rate of tax 
        applicable under section 1(c)) on an amount of taxable 
        income equal to the excess of--
                  (A) the annualized amount of such payment, 
                over
                  (B) the amount determined under paragraph 
                (2).
          (4) Classes of gaming activities, etc..-- For 
        purposes of this subsection, terms used in paragraph 
        (1) which are defined in section 4 of the Indian Gaming 
        Regulatory Act (25 U.S.C. 2701 et seq.), as in effect 
        on the date of the enactment of this subsection, shall 
        have the respective meanings given such terms by such 
        section.
          (5) Annualization.-- Payments shall be placed on an 
        annualized basis under regulations prescribed by the 
        Secretary.
          (6) Alternate withholding procedures.-- At the 
        election of an Indian tribe, the tax imposed by this 
        subsection on any payment made by such tribe shall be 
        determined in accordance with such tables or 
        computational procedures as may be specified in 
        regulations prescribed by the Secretary (in lieu of in 
        accordance with paragraphs (2) and (3)).
          (7) Coordination with other sections.-- For purposes 
        of this chapter and so much of subtitle F as relates to 
        this chapter, payments to any person which are subject 
        to withholding under this subsection shall be treated 
        as if they were wages paid by an employer to an 
        employee.
  (s) Exemption from Withholding for Any Vehicle Fringe 
Benefit.--
          (1) Employer election not to withhold.-- The employer 
        may elect not to deduct and withhold any tax under this 
        chapter with respect to any vehicle fringe benefit 
        provided to any employee if such employee is notified 
        by the employer of such election (at such time and in 
        such manner as the Secretary shall by regulations 
        prescribe). The preceding sentence shall not apply to 
        any vehicle fringe benefit unless the amount of such 
        benefit is included by the employer on a statement 
        timely furnished under section 6051.
          (2) Employer must furnish W-2.-- Any vehicle fringe 
        benefit shall be treated as wages from which amounts 
        are required to be deducted and withheld under this 
        chapter for purposes of section 6051.
          (3) Vehicle fringe benefit.-- For purposes of this 
        subsection, the term ``vehicle fringe benefit'' means 
        any fringe benefit--
                  (A) which constitutes wages (as defined in 
                section 3401), and
                  (B) which consists of providing a highway 
                motor vehicle for the use of the employee.

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Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart C--Information Regarding Wages Paid Employees

           *       *       *       *       *       *       *


SEC. 6051. RECEIPTS FOR EMPLOYEES.

  (a) Requirement.--Every person required to deduct and 
withhold from an employee a tax under section 3101 or 3402, or 
who would have been required to deduct and withhold a tax under 
section 3402 (determined without regard to subsection (n)) if 
the employee had claimed no more than one withholding 
exemption, or every employer engaged in a trade or business who 
pays remuneration for services performed by an employee, 
including the cash value of such remuneration paid in any 
medium other than cash, shall furnish to each such employee in 
respect of the remuneration paid by such person to such 
employee during the calendar year, on or before January 31 of 
the succeeding year, or, if his employment is terminated before 
the close of such calendar year, within 30 days after the date 
of receipt of a written request from the employee if such 30-
day period ends before January 31, a written statement showing 
the following:
          (1) the name of such person,
          (2) the name of the employee (and an identifying 
        number for the employee if wages as defined in section 
        3121(a) have been paid),
          (3) the total amount of wages as defined in section 
        3401(a),
          (4) the total amount deducted and withheld as tax 
        under section 3402,
          (5) the total amount of wages as defined in section 
        3121(a),
          (6) the total amount deducted and withheld as tax 
        under section 3101,
          (8) the total amount of elective deferrals (within 
        the meaning of section 402(g)(3)) and compensation 
        deferred under section 457, including the amount of 
        designated Roth contributions (as defined in section 
        402A),
          (9) the total amount incurred for dependent care 
        assistance with respect to such employee under a 
        dependent care assistance program described in section 
        129(d),
          (10) in the case of an employee who is a member of 
        the Armed Forces of the United States, such employee's 
        earned income as determined for purposes of section 32 
        (relating to earned income credit),
          (11) the amount contributed to any Archer MSA (as 
        defined in section 220(d)) of such employee or such 
        employee's spouse,
          (12) the amount contributed to any health savings 
        account (as defined in section 223(d)) of such employee 
        or such employee's spouse,
          (13) the total amount of deferrals for the year under 
        a nonqualified deferred compensation plan (within the 
        meaning of section 409A(d)), and
          (14) the aggregate cost (determined under rules 
        similar to the rules of section 4980B(f)(4)) of 
        applicable employer-sponsored coverage (as defined in 
        section 4980I(d)(1)), except that this paragraph shall 
        not apply to--
                  (A) coverage to which paragraphs (11) and 
                (12) apply, or
                  (B) the amount of any salary reduction 
                contributions to a flexible spending 
                arrangement (within the meaning of section 
                125).
In the case of compensation paid for service as a member of a 
uniformed service, the statement shall show, in lieu of the 
amount required to be shown by paragraph (5), the total amount 
of wages as defined in section 3121(a), computed in accordance 
with such section and section 3121(i)(2). In the case of 
compensation paid for service as a volunteer or volunteer 
leader within the meaning of the Peace Corps Act, the statement 
shall show, in lieu of the amount required to be shown by 
paragraph (5), the total amount of wages as defined in section 
3121(a), computed in accordance with such section and section 
3121(i)(3). In the case of tips received by an employee in the 
course of his employment, the amounts required to be shown by 
paragraphs (3) and (5) shall include only such tips as are 
included in statements furnished to the employer pursuant to 
section 6053(a). The amounts required to be shown by paragraph 
(5) shall not include wages which are exempted pursuant to 
sections 3101(c) and 3111(c) from the taxes imposed by sections 
3101 and 3111. In the case of the amounts required to be shown 
by paragraph (13), the Secretary may (by regulation) establish 
a minimum amount of deferrals below which paragraph (13) does 
not apply.
  (b) Special Rule as to Compensation of Members of Armed 
Forces.--In the case of compensation paid for service as a 
member of the Armed Forces, the statement required by 
subsection (a) shall be furnished if any tax was withheld 
during the calendar year under section 3402, or if any of the 
compensation paid during such year is includible in gross 
income under chapter 1, or if during the calendar year any 
amount was required to be withheld as tax under section 3101. 
In lieu of the amount required to be shown by paragraph (3) of 
subsection (a), such statement shall show as wages paid during 
the calendar year the amount of such compensation paid during 
the calendar year which is not excluded from gross income under 
chapter 1 (whether or not such compensation constituted wages 
as defined in section 3401(a)).
  (c) Additional Requirements.--The statements required to be 
furnished pursuant to this section in respect of any 
remuneration shall be furnished at such other times, shall 
contain such other information, and shall be in such form as 
the Secretary may by regulations prescribe. The statements 
required under this section shall also show the proportion of 
the total amount withheld as tax under section 3101 which is 
for financing the cost of hospital insurance benefits under 
part A of title XVIII of the Social Security Act.
  (d) Statements to Constitute Information Returns.--A 
duplicate of any statement made pursuant to this section and in 
accordance with regulations prescribed by the Secretary shall, 
when required by such regulations, be filed with the Secretary.
  (e) Railroad Employees.--
          (1) Additional requirement.-- Every person required 
        to deduct and withhold tax under section 3201 from an 
        employee shall include on or with the statement 
        required to be furnished such employee under subsection 
        (a) a notice concerning the provisions of this title 
        with respect to the allowance of a credit or refund of 
        the tax on wages imposed by section 3101(b) and the tax 
        on compensation imposed by section 3201 or 3211 which 
        is treated as a tax on wages imposed by section 
        3101(b).
          (2) Information to be supplied to employees.-- Each 
        person required to deduct and withhold tax under 
        section 3201 during any year from an employee who has 
        also received wages during such year subject to the tax 
        imposed by section 3101(b) shall, upon request of such 
        employee, furnish to him a written statement showing--
                  (A) the total amount of compensation with 
                respect to which the tax imposed by section 
                3201 was deducted,
                  (B) the total amount deducted as tax under 
                section 3201, and
                  (C) the portion of the total amount deducted 
                as tax under section 3201 which is for 
                financing the cost of hospital insurance under 
                part A of title XVIII of the Social Security 
                Act.
  (f) Statements Required in Case of Sick Pay Paid by Third 
Parties.--
          (1) Statements required from payor.--
                  (A) In general.-- If, during any calendar 
                year, any person makes a payment of third-party 
                sick pay to an employee, such person shall, on 
                or before January 15 of the succeeding year, 
                furnish a written statement to the employer in 
                respect of whom such payment was made showing--
                          (i) the name and, if there is 
                        withholding under section 3402(o), the 
                        social security number of such 
                        employee,
                          (ii) the total amount of the third-
                        party sick pay paid to such employee 
                        during the calendar year, and
                          (iii) the total amount (if any) 
                        deducted and withheld from such sick 
                        pay under section 3402.
                For purposes of the preceding sentence, the 
                term ``third-party sick pay'' means any sick 
                pay (as defined in section 3402(o)(2)(C)) which 
                does not constitute wages for purposes of 
                chapter 24 (determined without regard to 
                section 3402(o)(1)).
                  (B) Special rules.--
                          (i) Statements are in lieu of other 
                        reporting requirements.-- The reporting 
                        requirements of subparagraph (A) with 
                        respect to any payments shall, with 
                        respect to such payments, be in lieu of 
                        the requirements of subsection (a) and 
                        of section 6041.
                          (ii) Penalties made applicable.-- For 
                        purposes of sections 6674 and 7204, the 
                        statements required to be furnished by 
                        subparagraph (A) shall be treated as 
                        statements required under this section 
                        to be furnished to employees.
          (2) Information required to be furnished by 
        employer.-- Every employer who receives a statement 
        under paragraph (1)(A) with respect to sick pay paid to 
        any employee during any calendar year shall, on or 
        before January 31 of the succeeding year, furnish a 
        written statement to such employee showing--
                  (A) the information shown on the statement 
                furnished under paragraph (1)(A), and
                  (B) if any portion of the sick pay is 
                excludable from gross income under section 
                104(a)(3), the portion which is not so 
                excludable and the portion which is so 
                excludable.
        To the extent practicable, the information required 
        under the preceding sentence shall be furnished on or 
        with the statement (if any) required under subsection 
        (a).

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION 
                    STATEMENTS, ETC.

  (a) Returns With Respect to Certain Payments Aggregating Less 
Than $10.--In the case of each failure to file a statement of a 
payment to another person required under the authority of--
          (1) section 6042(a)(2) (relating to payments of 
        dividends aggregating less than $10), or
          (2) section 6044(a)(2) (relating to payments of 
        patronage dividends aggregating less than $10),
on the date prescribed therefor (determined with regard to any 
extension of time for filing), unless it is shown that such 
failure is due to reasonable cause and not to willful neglect, 
there shall be paid (upon notice and demand by the Secretary 
and in the same manner as tax) by the person failing to so file 
the statement, $1 for each such statement not so filed, but the 
total amount imposed on the delinquent person for all such 
failures during the calendar year shall not exceed $1,000.
  (b) Failure to Report Tips.--In the case of failure by an 
employee to report to his employer on the date and in the 
manner prescribed therefor any amount of tips required to be so 
reported by section 6053(a) which are wages (as defined in 
section 3121(a)) or which are compensation (as defined in 
section 3231(e)), unless it is shown that such failure is due 
to reasonable cause and not due to willful neglect, there shall 
be paid by the employee, in addition to the tax imposed by 
section 3101 or section 3201 (as the case may be) with respect 
to the amount of tips which he so failed to report, an amount 
equal to 50 percent of such tax.
  (c) Returns by Exempt Organizations and by Certain Trusts.--
          (1) Annual returns under section 6033(a)(1) or 
        6012(a)(6).--
                  (A) Penalty on organization.-- In the case 
                of--
                          (i) a failure to file a return 
                        required under section 6033(a)(1) 
                        (relating to returns by exempt 
                        organizations) or section 6012(a)(6) 
                        (relating to returns by political 
                        organizations) on the date and in the 
                        manner prescribed therefor (determined 
                        with regard to any extension of time 
                        for filing), or
                          (ii) a failure to include any of the 
                        information required to be shown on a 
                        return filed under section 6033(a)(1) 
                        or section 6012(a)(6) or to show the 
                        correct information,
                there shall be paid by the exempt organization 
                $20 for each day during which such failure 
                continues. The maximum penalty under this 
                subparagraph on failures with respect to any 1 
                return shall not exceed the lesser of $10,000 
                or 5 percent of the gross receipts of the 
                organization for the year. In the case of an 
                organization having gross receipts exceeding 
                $1,000,000 for any year, with respect to the 
                return required under section 6033(a)(1) or 
                section 6012(a)(6) for such year, in applying 
                the first sentence of this subparagraph, the 
                amount of the penalty for each day during which 
                a failure continues shall be $100 in lieu of 
                the amount otherwise specified, and, in lieu of 
                applying the second sentence of this 
                subparagraph, the maximum penalty under this 
                subparagraph shall not exceed $50,000.
                  (B) Managers.--
                          (i) In general.-- The Secretary may 
                        make a written demand on any 
                        organization subject to penalty under 
                        subparagraph (A) specifying therein a 
                        reasonable future date by which the 
                        return shall be filed (or the 
                        information furnished) for purposes of 
                        this subparagraph.
                          (ii) Failure to comply with demand.-- 
                        If any person fails to comply with any 
                        demand under clause (i) on or before 
                        the date specified in such demand, 
                        there shall be paid by the person 
                        failing to so comply $10 for each day 
                        after the expiration of the time 
                        specified in such demand during which 
                        such failure continues. The maximum 
                        penalty imposed under this subparagraph 
                        on all persons for failures with 
                        respect to any 1 return shall not 
                        exceed $5,000.
                  (C) Public inspection of annual returns and 
                reports.-- In the case of a failure to comply 
                with the requirements of section 6104(d) with 
                respect to any annual return on the date and in 
                the manner prescribed therefor (determined with 
                regard to any extension of time for filing) or 
                report required under section 527(j), there 
                shall be paid by the person failing to meet 
                such requirements $20 for each day during which 
                such failure continues. The maximum penalty 
                imposed under this subparagraph on all persons 
                for failures with respect to any 1 return or 
                report shall not exceed $10,000.
                  (D) Public inspection of applications for 
                exemption and notice of status.-- In the case 
                of a failure to comply with the requirements of 
                section 6104(d) with respect to any exempt 
                status application materials (as defined in 
                such section) or notice materials (as defined 
                in such section) on the date and in the manner 
                prescribed therefor, there shall be paid by the 
                person failing to meet such requirements $20 
                for each day during which such failure 
                continues.
                  (E) No penalty for certain annual notices.-- 
                This paragraph shall not apply with respect to 
                any notice required under section 6033(i).
          (2) Returns under section 6034 or 6043(b).--
                  (A) Penalty on organization or trust.-- In 
                the case of a failure to file a return required 
                under section 6034 (relating to returns by 
                certain trusts) or section 6043(b) (relating to 
                terminations, etc., of exempt organizations), 
                on the date and in the manner prescribed 
                therefor (determined with regard to any 
                extension of time for filing), there shall be 
                paid by the exempt organization or trust 
                failing so to file $10 for each day during 
                which such failure continues, but the total 
                amount imposed under this subparagraph on any 
                organization or trust for failure to file any 1 
                return shall not exceed $5,000.
                  (B) Managers.-- The Secretary may make 
                written demand on an organization or trust 
                failing to file under subparagraph (A) 
                specifying therein a reasonable future date by 
                which such filing shall be made for purposes of 
                this subparagraph. If such filing is not made 
                on or before such date, there shall be paid by 
                the person failing so to file $10 for each day 
                after the expiration of the time specified in 
                the written demand during which such failure 
                continues, but the total amount imposed under 
                this subparagraph on all persons for failure to 
                file any 1 return shall not exceed $5,000.
                  (C) Split-interest trusts.-- In the case of a 
                trust which is required to file a return under 
                section 6034(a), subparagraphs (A) and (B) of 
                this paragraph shall not apply and paragraph 
                (1) shall apply in the same manner as if such 
                return were required under section 6033, except 
                that--
                          (i) the 5 percent limitation in the 
                        second sentence of paragraph (1)(A) 
                        shall not apply,
                          (ii) in the case of any trust with 
                        gross income in excess of $250,000, in 
                        applying the first sentence of 
                        paragraph (1)(A), the amount of the 
                        penalty for each day during which a 
                        failure continues shall be $100 in lieu 
                        of the amount otherwise specified, and 
                        in lieu of applying the second sentence 
                        of paragraph (1)(A), the maximum 
                        penalty under paragraph (1)(A) shall 
                        not exceed $50,000, and
                          (iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                In addition to any penalty imposed on the trust 
                pursuant to this subparagraph, if the person 
                required to file such return knowingly fails to 
                file the return, such penalty shall also be 
                imposed on such person who shall be personally 
                liable for such penalty.
          (3) Disclosure under section 6033(a)(2).--
                  (A) Penalty on entities.-- In the case of a 
                failure to file a disclosure required under 
                section 6033(a)(2), there shall be paid by the 
                tax-exempt entity (the entity manager in the 
                case of a tax-exempt entity described in 
                paragraph (4), (5), (6), or (7) of section 
                4965(c)) $100 for each day during which such 
                failure continues. The maximum penalty under 
                this subparagraph on failures with respect to 
                any 1 disclosure shall not exceed $50,000.
                  (B) Written demand.--
                          (i) In general.-- The Secretary may 
                        make a written demand on any entity or 
                        manager subject to penalty under 
                        subparagraph (A) specifying therein a 
                        reasonable future date by which the 
                        disclosure shall be filed for purposes 
                        of this subparagraph.
                          (ii) Failure to comply with demand.-- 
                        If any entity or manager fails to 
                        comply with any demand under clause (i) 
                        on or before the date specified in such 
                        demand, there shall be paid by such 
                        entity or manager failing to so comply 
                        $100 for each day after the expiration 
                        of the time specified in such demand 
                        during which such failure continues. 
                        The maximum penalty imposed under this 
                        subparagraph on all entities and 
                        managers for failures with respect to 
                        any 1 disclosure shall not exceed 
                        $10,000.
                  (C) Definitions.-- Any term used in this 
                section which is also used in section 4965 
                shall have the meaning given such term under 
                section 4965.
          (4) Notices under section 506.--
                  (A) Penalty on organization.-- In the case of 
                a failure to submit a notice required under 
                section 506(a) (relating to organizations 
                required to notify Secretary of intent to 
                operate as 501(c)(4)) on the date and in the 
                manner prescribed therefor, there shall be paid 
                by the organization failing to so submit $20 
                for each day during which such failure 
                continues, but the total amount imposed under 
                this subparagraph on any organization for 
                failure to submit any one notice shall not 
                exceed $5,000.
                  (B) Managers.-- The Secretary may make 
                written demand on an organization subject to 
                penalty under subparagraph (A) specifying in 
                such demand a reasonable future date by which 
                the notice shall be submitted for purposes of 
                this subparagraph. If such notice is not 
                submitted on or before such date, there shall 
                be paid by the person failing to so submit $20 
                for each day after the expiration of the time 
                specified in the written demand during which 
                such failure continues, but the total amount 
                imposed under this subparagraph on all persons 
                for failure to submit any one notice shall not 
                exceed $5,000.
          (5) Reasonable cause exception.-- No penalty shall be 
        imposed under this subsection with respect to any 
        failure if it is shown that such failure is due to 
        reasonable cause.
          (6) Other special rules.--
                  (A) Treatment as tax.-- Any penalty imposed 
                under this subsection shall be paid on notice 
                and demand of the Secretary and in the same 
                manner as tax.
                  (B) Joint and several liability.-- If more 
                than 1 person is liable under this subsection 
                for any penalty with respect to any failure, 
                all such persons shall be jointly and severally 
                liable with respect to such failure.
                  (C) Person.-- For purposes of this 
                subsection, the term ``person'' means any 
                officer, director, trustee, employee, or other 
                individual who is under a duty to perform the 
                act in respect of which the violation occurs.
          (7) Adjustment for inflation.--
                  (A) In general.-- In the case of any failure 
                relating to a return required to be filed in a 
                calendar year beginning after 2014, each of the 
                dollar amounts under paragraphs (1), (2), and 
                (3) shall be increased by such dollar amount 
                multiplied by the cost-of-living adjustment 
                determined under section 1(f)(3) determined by 
                substituting ``calendar year 2013'' for 
                ``calendar year 1992'' in subparagraph (B) 
                thereof.
                  (B) Rounding.-- If any amount adjusted under 
                subparagraph (A)--
                          (i) is not less than $5,000 and is 
                        not a multiple of $500, such amount 
                        shall be rounded to the next lowest 
                        multiple of $500, and
                          (ii) is not described in clause (i) 
                        and is not a multiple of $5, such 
                        amount shall be rounded to the next 
                        lowest multiple of $5.
  (d) Annual Registration and Other Notification by Pension 
Plan.--
          (1) Registration.-- In the case of any failure to 
        file a registration statement required under section 
        6057(a) (relating to annual registration of certain 
        plans) which includes all participants required to be 
        included in such statement, on the date prescribed 
        therefor (determined without regard to any extension of 
        time for filing), unless it is shown that such failure 
        is due to reasonable cause, there shall be paid (on 
        notice and demand by the Secretary and in the same 
        manner as tax) by the person failing so to file, an 
        amount equal to $1 for each participant with respect to 
        whom there is a failure to file, multiplied by the 
        number of days during which such failure continues, but 
        the total amount imposed under this paragraph on any 
        person for any failure to file with respect to any plan 
        year shall not exceed $5,000.
          (2) Notification of change of status.-- In the case 
        of failure to file a notification required under 
        section 6057(b) (relating to notification of change of 
        status) on the date prescribed therefor (determined 
        without regard to any extension of time for filing), 
        unless it is shown that such failure is due to 
        reasonable cause, there shall be paid (on notice and 
        demand by the Secretary and in the same manner as tax) 
        by the person failing so to file, $1 for each day 
        during which such failure continues, but the total 
        amounts imposed under this paragraph on any person for 
        failure to file any notification shall not exceed 
        $1,000.
  (e) Information Required in Connection With Certain Plans of 
Deferred Compensation, Etc..--In the case of failure to file a 
return or statement required under section 6058 (relating to 
information required in connection with certain plans of 
deferred compensation), 6047 (relating to information relating 
to certain trusts and annuity and bond purchase plans), or 
6039D (relating to returns and records with respect to certain 
fringe benefit plans) on the date and in the manner prescribed 
therefor (determined with regard to any extension of time for 
filing), unless it is shown that such failure is due to 
reasonable cause, there shall be paid (on notice and demand by 
the Secretary and in the same manner as tax) by the person 
failing so to file, $25 for each day during which such failure 
continues, but the total amount imposed under this subsection 
on any person for failure to file any return shall not exceed 
$15,000. This subsection shall not apply to any return or 
statement which is an information return described in section 
6724(d)(1)(C)(ii) or a payee statement described in section 
6724(d)(2)(Y).
  (f) Returns Required Under Section 6039C.--
          (1) In general.-- In the case of each failure to make 
        a return required by section 6039C which contains the 
        information required by such section on the date 
        prescribed therefor (determined with regard to any 
        extension of time for filing), unless it is shown that 
        such failure is due to reasonable cause and not to 
        willful neglect, the amount determined under paragraph 
        (2) shall be paid (upon notice and demand by the 
        Secretary and in the same manner as tax) by the person 
        failing to make such return.
          (2) Amount of penalty.-- For purposes of paragraph 
        (1), the amount determined under this paragraph with 
        respect to any failure shall be $25 for each day during 
        which such failure continues.
          (3) Limitation.-- The amount determined under 
        paragraph (2) with respect to any person for failing to 
        meet the requirements of section 6039C for any calendar 
        year shall not exceed the lesser of--
                  (A) $25,000, or
                  (B) 5 percent of the aggregate of the fair 
                market value of the United States real property 
                interests owned by such person at any time 
                during such year.
        For purposes of the preceding sentence, fair market 
        value shall be determined as of the end of the calendar 
        year (or, in the case of any property disposed of 
        during the calendar year, as of the date of such 
        disposition).
  (h) Failure to Give Notice to Recipients of Certain Pension, 
Etc., Distributions.--In the case of each failure to provide 
notice as required by section 3405(e)(10)(B), at the time 
prescribed therefor, unless it is shown that such failure is 
due to reasonable cause and not to willful neglect, there shall 
be paid, on notice and demand of the Secretary and in the same 
manner as tax, by the person failing to provide such notice, an 
amount equal to $10 for each such failure, but the total amount 
imposed on such person for all such failures during any 
calendar year shall not exceed $5,000.
  (i) Failure to Give Written Explanation to Recipients of 
Certain Qualifying Rollover Distributions.--In the case of each 
failure to provide a written explanation as required by section 
402(f), at the time prescribed therefor, unless it is shown 
that such failure is due to reasonable cause and not to willful 
neglect, there shall be paid, on notice and demand of the 
Secretary and in the same manner as tax, by the person failing 
to provide such written explanation, an amount equal to $100 
for each such failure, but the total amount imposed on such 
person for all such failures during any calendar year shall not 
exceed $50,000.
  (j) Failure to File Certification With Respect to Certain 
Residential Rental Projects.--In the case of each failure to 
provide a certification as required by section 142(d)(7) at the 
time prescribed therefor, unless it is shown that such failure 
is due to reasonable cause and not to willful neglect, there 
shall be paid, on notice and demand of the Secretary and in the 
same manner as tax, by the person failing to provide such 
certification, an amount equal to $100 for each such failure.
  (k)  Failure to Make Reports Required Under Section 1202.--
   In the case of a failure to make a report required under 
section 1202(d)(1)(C) which contains the information required 
by such section on the date prescribed therefor (determined 
with regard to any extension of time for filing), there shall 
be paid (on notice and demand by the Secretary and in the same 
manner as tax) by the person failing to make such report, an 
amount equal to $50 for each report with respect to which there 
was such a failure. In the case of any failure due to 
negligence or intentional disregard, the preceding sentence 
shall be applied by substituting ``$100'' for ``$50''. In the 
case of a report covering periods in 2 or more years, the 
penalty determined under preceding provisions of this 
subsection shall be multiplied by the number of such years. No 
penalty shall be imposed under this subsection on any failure 
which is shown to be due to reasonable cause and not willful 
neglect.
  (l) Failure to File Return With Respect to Certain Corporate 
Transactions.--In the case of any failure to make a return 
required under section 6043(c) containing the information 
required by such section on the date prescribed therefor 
(determined with regard to any extension of time for filing), 
unless it is shown that such failure is due to reasonable 
cause, there shall be paid (on notice and demand by the 
Secretary and in the same manner as tax) by the person failing 
to file such return, an amount equal to $500 for each day 
during which such failure continues, but the total amount 
imposed under this subsection with respect to any return shall 
not exceed $100,000.
  (m) Alcohol and Tobacco Taxes for Penalties for Failure to 
File Certain Information Returns.--with respect to alcohol and 
tobacco taxes, see, generally, subtitle E.
  (n) Failure to Make Reports Required Under Sections 3511, 
6053(C)(8), and 7705.--In the case of a failure to make a 
report required under section 3511, 6053(c)(8), or 7705 which 
contains the information required by such section on the date 
prescribed therefor (determined with regard to any extension of 
time for filing), there shall be paid (on notice and demand by 
the Secretary and in the same manner as tax) by the person 
failing to make such report, an amount equal to $50 for each 
report with respect to which there was such a failure. In the 
case of any failure due to negligence or intentional disregard 
the preceding sentence shall be applied by substituting 
``$100'' for ``$50''.

           *       *       *       *       *       *       *


      B. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed by the bill, as reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italics, existing law in 
which no change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
made by the bill, as reported, are shown as follows (existing 
law proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 83. PROPERTY TRANSFERRED IN CONNECTION WITH PERFORMANCE OF 
                    SERVICES.

  (a) General Rule.--If, in connection with the performance of 
services, property is transferred to any person other than the 
person for whom such services are performed, the excess of--
          (1) the fair market value of such property 
        (determined without regard to any restriction other 
        than a restriction which by its terms will never lapse) 
        at the first time the rights of the person having the 
        beneficial interest in such property are transferable 
        or are not subject to a substantial risk of forfeiture, 
        whichever occurs earlier, over
          (2) the amount (if any) paid for such property, shall 
        be included in the gross income of the person who 
        performed such services in the first taxable year in 
        which the rights of the person having the beneficial 
        interest in such property are transferable or are not 
        subject to a substantial risk of forfeiture, whichever 
        is applicable. The preceding sentence shall not apply 
        if such person sells or otherwise disposes of such 
        property in an arm's length transaction before his 
        rights in such property become transferable or not 
        subject to a substantial risk of forfeiture.
  (b) Election to Include in Gross Income in Year of 
Transfer.--
          (1) In general.--Any person who performs services in 
        connection with which property is transferred to any 
        person may elect to include in his gross income for the 
        taxable year in which such property is transferred, the 
        excess of--
                  (A) the fair market value of such property at 
                the time of transfer (determined without regard 
                to any restriction other than a restriction 
                which by its terms will never lapse), over
                  (B) the amount (if any) paid for such 
                property.
        If such election is made, subsection (a) shall not 
        apply with respect to the transfer of such property, 
        and if such property is subsequently forfeited, no 
        deduction shall be allowed in respect of such 
        forfeiture.
          (2) Election.--An election under paragraph (1) with 
        respect to any transfer of property shall be made in 
        such manner as the Secretary prescribes and shall be 
        made not later than 30 days after the date of such 
        transfer. Such election may not be revoked except with 
        the consent of the Secretary.
  (c) Special Rules.--For purposes of this section--
          (1) Substantial risk of forfeiture.--The rights of a 
        person in property are subject to a substantial risk of 
        forfeiture if such person's rights to full enjoyment of 
        such property are conditioned upon the future 
        performance of substantial services by any individual.
          (2) Transferability of property.--The rights of a 
        person in property are transferable only if the rights 
        in such property of any transferee are not subject to a 
        substantial risk of forfeiture.
          (3) Sales which may give rise to suit under section 
        16(b) of the Securities Exchange Act of 1934.--So long 
        as the sale of property at a profit could subject a 
        person to suit under section 16(b) of the Securities 
        Exchange Act of 1934, such person's rights in such 
        property are--
                  (A) subject to a substantial risk of 
                forfeiture, and
                  (B) not transferable.
          (4) For purposes of determining an individual's basis 
        in property transferred in connection with the 
        performance of services, rules similar to the rules of 
        section 72(w) shall apply.
  (d) Certain Restrictions Which Will Never Lapse.--
          (1) Valuation.--In the case of property subject to a 
        restriction which by its terms will never lapse, and 
        which allows the transferee to sell such property only 
        at a price determined under a formula, the price so 
        determined shall be deemed to be the fair market value 
        of the property unless established to the contrary by 
        the Secretary, and the burden of proof shall be on the 
        Secretary with respect to such value.
          (2) Cancellation.--If, in the case of property 
        subject to a restriction which by its terms will never 
        lapse, the restriction is canceled, then, unless the 
        taxpayer establishes--
                  (A) that such cancellation was not 
                compensatory, and
                  (B) that the person, if any, who would be 
                allowed a deduction if the cancellation were 
                treated as compensatory, will treat the 
                transaction as not compensatory, as evidenced 
                in such manner as the Secretary shall prescribe 
                by regulations,
        the excess of the fair market value of the property 
        (computed without regard to the restrictions) at the 
        time of cancellation over the sum of--
                  (C) the fair market value of such property 
                (computed by taking the restriction into 
                account) immediately before the cancellation, 
                and
                  (D) the amount, if any, paid for the 
                cancellation, shall be treated as compensation 
                for the taxable year in which such cancellation 
                occurs.
  (e) Applicability of Section.--This section shall not apply 
to--
          (1) a transaction to which section 421 applies,
          (2) a transfer to or from a trust described in 
        section 401(a) or a transfer under an annuity plan 
        which meets the requirements of section 404(a)(2),
          (3) the transfer of an option without a readily 
        ascertainable fair market value,
          (4) the transfer of property pursuant to the exercise 
        of an option with a readily ascertainable fair market 
        value at the date of grant, or
          (5) group-term life insurance to which section 79 
        applies.
  (f) Holding Period.--In determining the period for which the 
taxpayer has held property to which subsection (a) applies, 
there shall be included only the period beginning at the first 
time his rights in such property are transferable or are not 
subject to a substantial risk of forfeiture, whichever occurs 
earlier.
  (g) Certain Exchanges.--If property to which subsection (a) 
applies is exchanged for property subject to restrictions and 
conditions substantially similar to those to which the property 
given in such exchange was subject, and if section 354, 355, 
356, or 1036 (or so much of section 1031 as relates to section 
1036) applied to such exchange, or if such exchange was 
pursuant to the exercise of a conversion privilege--
          (1) such exchange shall be disregarded for purposes 
        of subsection (a), and
          (2) the property received shall be treated as 
        property to which subsection (a) applies.
  (h) Deduction by Employer.--In the case of a transfer of 
property to which this section applies or a cancellation of a 
restriction described in subsection (d), there shall be allowed 
as a deduction under section 162, to the person for whom were 
performed the services in connection with which such property 
was transferred, an amount equal to the amount included under 
subsection (a), (b), [or (d)(2)] (d)(2), or (i) in the gross 
income of the person who performed such services. Such 
deduction shall be allowed for the taxable year of such person 
in which or with which ends the taxable year in which such 
amount is included in the gross income of the person who 
performed such services.
  (i) Qualified Equity Grants.--
          (1) In general.--For purposes of this subtitle, if 
        qualified stock is transferred to a qualified employee 
        who makes an election with respect to such stock under 
        this subsection--
                  (A) except as provided in subparagraph (B), 
                no amount shall be included in income under 
                subsection (a) 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 forfeiture, whichever is 
                applicable, and
                  (B) an amount equal to the amount which would 
                be included in income of the employee under 
                subsection (a) (determined without regard to 
                this subsection) shall be included in income 
                for the taxable year of the employee which 
                includes the earliest of--
                          (i) the first date such qualified 
                        stock becomes transferable (including 
                        transferable to the employer),
                          (ii) the date the employee first 
                        becomes an excluded employee,
                          (iii) the first date on which any 
                        stock of the corporation which issued 
                        the qualified stock becomes readily 
                        tradable on an established securities 
                        market (as determined by the Secretary, 
                        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 
                        subsection),
                          (iv) the date that is 7 years after 
                        the first date the rights of the 
                        employee in such stock are transferable 
                        or are not subject to a substantial 
                        risk of forfeiture, whichever occurs 
                        earlier, or
                          (v) the date on which the employee 
                        revokes (at such time and in such 
                        manner as the Secretary may provide) 
                        the election under this subsection with 
                        respect to such stock.
          (2) Qualified stock.--
                  (A) In general.--For purposes of this 
                subsection, the term ``qualified stock'' means, 
                with respect to any qualified employee, any 
                stock in a corporation which is the employer of 
                such employee, if--
                          (i) such stock is received--
                                  (I) in connection with the 
                                exercise of an option, or
                                  (II) in settlement of a 
                                restricted stock unit, and
                          (ii) such option or restricted stock 
                        unit was provided by the corporation--
                                  (I) in connection with the 
                                performance of services as an 
                                employee, and
                                  (II) during a calendar year 
                                in which such corporation was 
                                an eligible corporation.
                  (B) Limitation.--The term ``qualified stock'' 
                shall not include any stock if the employee may 
                sell such stock to, or otherwise receive cash 
                in lieu of stock from, 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 forfeiture.
                  (C) Eligible corporation.--For purposes of 
                subparagraph (A)(ii)(II)--
                          (i) In general.--The term ``eligible 
                        corporation'' means, with respect to 
                        any calendar year, any corporation if--
                                  (I) no stock of such 
                                corporation (or any predecessor 
                                of such corporation) is readily 
                                tradable on an established 
                                securities market (as 
                                determined under paragraph 
                                (1)(B)(iii)) during any 
                                preceding calendar year, and
                                  (II) such corporation has a 
                                written plan under which, in 
                                such calendar year, not less 
                                than 80 percent of all 
                                employees who provide services 
                                to such corporation in the 
                                United States (or any 
                                possession of the United 
                                States) are granted stock 
                                options, or restricted stock 
                                units, with the same rights and 
                                privileges to receive qualified 
                                stock.
                          (ii) Same rights and privileges.--For 
                        purposes of clause (i)(II)--
                                  (I) except as provided in 
                                subclauses (II) and (III), the 
                                determination of rights and 
                                privileges with respect to 
                                stock shall be determined in a 
                                similar manner as provided 
                                under section 423(b)(5),
                                  (II) 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 amount, so long as 
                                the number of shares available 
                                to each employee is more than a 
                                de minimis amount, and
                                  (III) 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 unit.
                          (iii) Employee.--For purposes of 
                        clause (i)(II), the term ``employee'' 
                        shall not include any employee 
                        described in section 4980E(d)(4) or any 
                        excluded employee.
                          (iv) Special rule for calendar years 
                        before 2017.--In the case of any 
                        calendar year beginning before January 
                        1, 2017, clause (i)(II) shall be 
                        applied without regard to whether the 
                        rights and privileges with respect to 
                        the qualified stock are the same.
          (3) Qualified employee; excluded employee.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified 
                employee'' means any individual who--
                          (i) is not an excluded employee, and
                          (ii) 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 24 with 
                        respect to the qualified stock are met.
                  (B) Excluded employee.--The term ``excluded 
                employee'' means, with respect to any 
                corporation, any individual--
                          (i) who was a 1-percent owner (within 
                        the meaning of section 
                        416(i)(1)(B)(ii)) at any time during 
                        the 10 preceding calendar years,
                          (ii) who is or has been at any prior 
                        time--
                                  (I) the chief executive 
                                officer of such corporation or 
                                an individual acting in such a 
                                capacity, or
                                  (II) the chief financial 
                                officer of such corporation or 
                                an individual acting in such a 
                                capacity,
                          (iii) who bears a relationship 
                        described in section 318(a)(1) to any 
                        individual described in subclause (I) 
                        or (II) of clause (ii), or
                          (iv) who has been for any of the 10 
                        preceding taxable years one of the 4 
                        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 1934 (as if such rules 
                        applied to such corporation).
          (4) Election.--
                  (A) Time for making election.--An election 
                with respect to qualified stock shall be made 
                under this subsection no later than 30 days 
                after the first time the rights of the employee 
                in such stock are transferable or are not 
                subject to a substantial risk of forfeiture, 
                whichever occurs earlier, and shall be made in 
                a manner similar to the manner in which an 
                election is made under subsection (b).
                  (B) Limitations.--No election may be made 
                under this section with respect to any 
                qualified stock if--
                          (i) the qualified employee has made 
                        an election under subsection (b) with 
                        respect to such qualified stock,
                          (ii) any stock of the corporation 
                        which issued the qualified stock is 
                        readily tradable on an established 
                        securities market (as determined under 
                        paragraph (1)(B)(iii)) at any time 
                        before the election is made, or
                          (iii) 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 forfeiture, 
                        unless--
                                  (I) not less than 25 percent 
                                of the total dollar amount of 
                                the stock so purchased is 
                                deferral stock, and
                                  (II) the determination of 
                                which individuals from whom 
                                deferral stock is purchased is 
                                made on a reasonable basis.
                  (C) Definitions and special rules related to 
                limitation on stock redemptions.--
                          (i) Deferral stock.--For purposes of 
                        this paragraph, the term ``deferral 
                        stock'' means stock with respect to 
                        which an election is in effect under 
                        this subsection
                          (ii) 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 
                        (iii) if such individual (immediately 
                        after such purchase) 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 
                        purchased.
                          (iii) Purchase of all outstanding 
                        deferral stock.--The requirements of 
                        subclauses (I) and (II) of subparagraph 
                        (B)(iii) shall be treated as met if the 
                        stock so purchased includes all of the 
                        corporation's outstanding deferral 
                        stock.
                          (iv) 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 which, or with 
                        which, 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 paragraph.
          (5) Controlled groups.--For purposes of this 
        subsection, all corporations which are members of the 
        same controlled group of corporations (as defined in 
        section 1563(a)) shall be treated as one corporation.
          (6) Notice requirement.--Any corporation that 
        transfers qualified stock to a qualified employee 
        shall, at the time that (or a reasonable period before) 
        an amount attributable to such stock would (but for 
        this subsection) first be includible in the gross 
        income of such employee--
                  (A) certify to such employee that such stock 
                is qualified stock, and
                  (B) notify such employee--
                          (i) that the employee may elect to 
                        defer income on such stock under this 
                        subsection, and
                          (ii) that, if the employee makes such 
                        an election--
                                  (I) 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 forfeiture, notwithstanding 
                                whether the value of the stock 
                                has declined during the 
                                deferral period,
                                  (II) the amount of such 
                                income recognized at the end of 
                                the deferral period will be 
                                subject to withholding under 
                                section 3401(i) at the rate 
                                determined under section 
                                3402(t), and
                                  (III) the responsibilities of 
                                the employee (as determined by 
                                the Secretary under paragraph 
                                (3)(A)(ii)) with respect to 
                                such withholding.

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Subchapter D--Deferred Compensation, Etc

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC

           *       *       *       *       *       *       *


Subpart A--General Rule

           *       *       *       *       *       *       *


SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER 
                    NONQUALIFIED DEFERRED COMPENSATION PLANS.

  (a) Rules Relating to Constructive Receipt.--
          (1) Plan failures.--
                  (A) Gross income inclusion.--
                          (i) In general.--If at any time 
                        during a taxable year a nonqualified 
                        deferred compensation plan--
                                  (I) fails to meet the 
                                requirements of paragraphs (2), 
                                (3), and (4), or
                                  (II) is not operated in 
                                accordance with such 
                                requirements, all compensation 
                                deferred under the plan for the 
                                taxable year and all preceding 
                                taxable years shall be 
                                includible in gross income for 
                                the taxable year to the extent 
                                not subject to a substantial 
                                risk of forfeiture and not 
                                previously included in gross 
                                income.
                          (ii) Application only to affected 
                        participants.--Clause (i) shall only 
                        apply with respect to all compensation 
                        deferred under the plan for 
                        participants with respect to whom the 
                        failure relates.
                  (B) Interest and additional tax payable with 
                respect to previously deferred compensation.--
                          (i) In general.--If compensation is 
                        required to be included in gross income 
                        under subparagraph (A) for a taxable 
                        year, the tax imposed by this chapter 
                        for the taxable year shall be increased 
                        by the sum of--
                                  (I) the amount of interest 
                                determined under clause (ii), 
                                and
                                  (II) an amount equal to 20 
                                percent of the compensation 
                                which is required to be 
                                included in gross income.
                          (ii) Interest.--For purposes of 
                        clause (i), the interest determined 
                        under this clause for any taxable year 
                        is the amount of interest at the 
                        underpayment rate plus 1 percentage 
                        point on the underpayments that would 
                        have occurred had the deferred 
                        compensation been includible in gross 
                        income for the taxable year in which 
                        first deferred or, if later, the first 
                        taxable year in which such deferred 
                        compensation is not subject to a 
                        substantial risk of forfeiture.
          (2) Distributions.--
                  (A) In general.--The requirements of this 
                paragraph are met if the plan provides that 
                compensation deferred under the plan may not be 
                distributed earlier than--
                          (i) separation from service as 
                        determined by the Secretary (except as 
                        provided in subparagraph (B)(i)),
                          (ii) the date the participant becomes 
                        disabled (within the meaning of 
                        subparagraph (C)),
                          (iii) death,
                          (iv) a specified time (or pursuant to 
                        a fixed schedule) specified under the 
                        plan at the date of the deferral of 
                        such compensation,
                          (v) to the extent provided by the 
                        Secretary, a change in the ownership or 
                        effective control of the corporation, 
                        or in the ownership of a substantial 
                        portion of the assets of the 
                        corporation, or
                          (vi) the occurrence of an 
                        unforeseeable emergency.
                  (B) Special rules.--
                          (i) Specified employees.--In the case 
                        of any specified employee, the 
                        requirement of subparagraph (A)(i) is 
                        met only if distributions may not be 
                        made before the date which is 6 months 
                        after the date of separation from 
                        service (or, if earlier, the date of 
                        death of the employee). For purposes of 
                        the preceding sentence, a specified 
                        employee is a key employee (as defined 
                        in section 416(i) without regard to 
                        paragraph (5) thereof) of a corporation 
                        any stock in which is publicly traded 
                        on an established securities market or 
                        otherwise.
                          (ii) Unforeseeable emergency.--For 
                        purposes of subparagraph (A)(vi)--
                                  (I) In general.--The term 
                                ``unforeseeable emergency'' 
                                means a severe financial 
                                hardship to the participant 
                                resulting from an illness or 
                                accident of the participant, 
                                the participant's spouse, or a 
                                dependent (as defined in 
                                section 152(a)) of the 
                                participant, loss of the 
                                participant's property due to 
                                casualty, or other similar 
                                extraordinary and unforeseeable 
                                circumstances arising as a 
                                result of events beyond the 
                                control of the participant.
                                  (II) Limitation on 
                                distributions.--The requirement 
                                of subparagraph (A)(vi) is met 
                                only if, as determined under 
                                regulations of the Secretary, 
                                the amounts distributed with 
                                respect to an emergency do not 
                                exceed the amounts necessary to 
                                satisfy such emergency plus 
                                amounts necessary to pay taxes 
                                reasonably anticipated as a 
                                result of the distribution, 
                                after taking into account the 
                                extent to which such hardship 
                                is or may be relieved through 
                                reimbursement or compensation 
                                by insurance or otherwise or by 
                                liquidation of the 
                                participant's assets (to the 
                                extent the liquidation of such 
                                assets would not itself cause 
                                severe financial hardship).
                  (C) Disabled.--For purposes of subparagraph 
                (A)(ii), a participant shall be considered 
                disabled if the participant--
                          (i) is unable to engage in any 
                        substantial gainful activity by reason 
                        of any medically determinable physical 
                        or mental impairment which can be 
                        expected to result in death or can be 
                        expected to last for a continuous 
                        period of not less than 12 months, or
                          (ii) is, by reason of any medically 
                        determinable physical or mental 
                        impairment which can be expected to 
                        result in death or can be expected to 
                        last for a continuous period of not 
                        less than 12 months, receiving income 
                        replacement benefits for a period of 
                        not less than 3 months under an 
                        accident and health plan covering 
                        employees of the participant's 
                        employer.
          (3) Acceleration of benefits.--The requirements of 
        this paragraph are met if the plan does not permit the 
        acceleration of the time or schedule of any payment 
        under the plan, except as provided in regulations by 
        the Secretary.
          (4) Elections.--
                  (A) In general.--The requirements of this 
                paragraph are met if the requirements of 
                subparagraphs (B) and (C) are met.
                  (B) Initial deferral decision.--
                          (i) In general.--The requirements of 
                        this subparagraph are met if the plan 
                        provides that compensation for services 
                        performed during a taxable year may be 
                        deferred at the participant's election 
                        only if the election to defer such 
                        compensation is made not later than the 
                        close of the preceding taxable year or 
                        at such other time as provided in 
                        regulations.
                          (ii) First year of eligibility.--In 
                        the case of the first year in which a 
                        participant becomes eligible to 
                        participate in the plan, such election 
                        may be made with respect to services to 
                        be performed subsequent to the election 
                        within 30 days after the date the 
                        participant becomes eligible to 
                        participate in such plan.
                          (iii) Performance-based 
                        compensation.--In the case of any 
                        performance-based compensation based on 
                        services performed over a period of at 
                        least 12 months, such election may be 
                        made no later than 6 months before the 
                        end of the period.
                  (C) Changes in time and form of 
                distribution.--The requirements of this 
                subparagraph are met if, in the case of a plan 
                which permits under a subsequent election a 
                delay in a payment or a change in the form of 
                payment--
                          (i) the plan requires that such 
                        election may not take effect until at 
                        least 12 months after the date on which 
                        the election is made,
                          (ii) in the case of an election 
                        related to a payment not described in 
                        clause (ii), (iii), or (vi) of 
                        paragraph (2)(A), the plan requires 
                        that the payment with respect to which 
                        such election is made be deferred for a 
                        period of not less than 5 years from 
                        the date such payment would otherwise 
                        have been made, and
                          (iii) the plan requires that any 
                        election related to a payment described 
                        in paragraph (2)(A)(iv) may not be made 
                        less than 12 months prior to the date 
                        of the first scheduled payment under 
                        such paragraph.
  (b) Rules Relating to Funding.--
          (1) Offshore property in a trust.--In the case of 
        assets set aside (directly or indirectly) in a trust 
        (or other arrangement determined by the Secretary) for 
        purposes of paying deferred compensation under a 
        nonqualified deferred compensation plan, for purposes 
        of section 83 such assets shall be treated as property 
        transferred in connection with the performance of 
        services whether or not such assets are available to 
        satisfy claims of general creditors--
                  (A) at the time set aside if such assets (or 
                such trust or other arrangement) are located 
                outside of the United States, or
                  (B) at the time transferred if such assets 
                (or such trust or other arrangement) are 
                subsequently transferred outside of the United 
                States.
        This paragraph shall not apply to assets located in a 
        foreign jurisdiction if substantially all of the 
        services to which the nonqualified deferred 
        compensation relates are performed in such 
        jurisdiction.
          (2) Employer's financial health.--In the case of 
        compensation deferred under a nonqualified deferred 
        compensation plan, there is a transfer of property 
        within the meaning of section 83 with respect to such 
        compensation as of the earlier of--
                  (A) the date on which the plan first provides 
                that assets will become restricted to the 
                provision of benefits under the plan in 
                connection with a change in the employer's 
                financial health, or
                  (B) the date on which assets are so 
                restricted, whether or not such assets are 
                available to satisfy claims of general 
                creditors.
          (3) Treatment of employer's defined benefit plan 
        during restricted period.--
                  (A) In general.--If--
                          (i) during any restricted period with 
                        respect to a single-employer defined 
                        benefit plan, assets are set aside or 
                        reserved (directly or indirectly) in a 
                        trust (or other arrangement as 
                        determined by the Secretary) or 
                        transferred to such a trust or other 
                        arrangement for purposes of paying 
                        deferred compensation of an applicable 
                        covered employee under a nonqualified 
                        deferred compensation plan of the plan 
                        sponsor or member of a controlled group 
                        which includes the plan sponsor, or
                          (ii) a nonqualified deferred 
                        compensation plan of the plan sponsor 
                        or member of a controlled group which 
                        includes the plan sponsor provides that 
                        assets will become restricted to the 
                        provision of benefits under the plan to 
                        an applicable covered employee in 
                        connection with such restricted period 
                        (or other similar financial measure 
                        determined by the Secretary) with 
                        respect to the defined benefit plan, or 
                        assets are so restricted,
                such assets shall, for purposes of section 83, 
                be treated as property transferred in 
                connection with the performance of services 
                whether or not such assets are available to 
                satisfy claims of general creditors. Clause (i) 
                shall not apply with respect to any assets 
                which are so set aside before the restricted 
                period with respect to the defined benefit 
                plan.
                  (B) Restricted period.--For purposes of this 
                section, the term ``restricted period'' means, 
                with respect to any plan described in 
                subparagraph (A)--
                          (i) any period during which the plan 
                        is in at-risk status (as defined in 
                        section 430(i));
                          (ii) any period the plan sponsor is a 
                        debtor in a case under title 11, United 
                        States Code, or similar Federal or 
                        State law, and
                          (iii) the 12-month period beginning 
                        on the date which is 6 months before 
                        the termination date of the plan if, as 
                        of the termination date, the plan is 
                        not sufficient for benefit liabilities 
                        (within the meaning of section 4041 of 
                        the Employee Retirement Income Security 
                        Act of 1974).
                  (C) Special rule for payment of taxes on 
                deferred compensation included in income.--If 
                an employer provides directly or indirectly for 
                the payment of any Federal, State, or local 
                income taxes with respect to any compensation 
                required to be included in gross income by 
                reason of this paragraph--
                          (i) interest shall be imposed under 
                        subsection (a)(1)(B)(i)(I) on the 
                        amount of such payment in the same 
                        manner as if such payment was part of 
                        the deferred compensation to which it 
                        relates,
                          (ii) such payment shall be taken into 
                        account in determining the amount of 
                        the additional tax under subsection 
                        (a)(1)(B)(i)(II) in the same manner as 
                        if such payment was part of the 
                        deferred compensation to which it 
                        relates, and
                          (iii) no deduction shall be allowed 
                        under this title with respect to such 
                        payment.
                  (D) Other definitions.--For purposes of this 
                section--
                          (i) Applicable covered employee.--The 
                        term ``applicable covered employee'' 
                        means any--
                                  (I) covered employee of a 
                                plan sponsor,
                                  (II) covered employee of a 
                                member of a controlled group 
                                which includes the plan 
                                sponsor, and
                                  (III) former employee who was 
                                a covered employee at the time 
                                of termination of employment 
                                with the plan sponsor or a 
                                member of a controlled group 
                                which includes the plan 
                                sponsor.
                          (ii) Covered employee.--The term 
                        ``covered employee'' means an 
                        individual described in section 
                        162(m)(3) or an individual subject to 
                        the requirements of section 16(a) of 
                        the Securities Exchange Act of 1934.
          (4) Income inclusion for offshore trusts and 
        employer's financial health.--For each taxable year 
        that assets treated as transferred under this 
        subsection remain set aside in a trust or other 
        arrangement subject to paragraph (1), (2), or (3), any 
        increase in value in, or earnings with respect to, such 
        assets shall be treated as an additional transfer of 
        property under this subsection (to the extent not 
        previously included in income).
          (5) Interest on tax liability payable with respect to 
        transferred property.--
                  (A) In general.--If amounts are required to 
                be included in gross income by reason of 
                paragraph (1), (2), or (3) for a taxable year, 
                the tax imposed by this chapter for such 
                taxable year shall be increased by the sum of--
                          (i) the amount of interest determined 
                        under subparagraph (B), and
                          (ii) an amount equal to 20 percent of 
                        the amounts required to be included in 
                        gross income.
                  (B) Interest.--For purposes of subparagraph 
                (A), the interest determined under this 
                subparagraph for any taxable year is the amount 
                of interest at the underpayment rate plus 1 
                percentage point on the underpayments that 
                would have occurred had the amounts so required 
                to be included in gross income by paragraph 
                (1), (2), or (3) been includible in gross 
                income for the taxable year in which first 
                deferred or, if later, the first taxable year 
                in which such amounts are not subject to a 
                substantial risk of forfeiture.
  (c) No Inference on Earlier Income Inclusion or Requirement 
of Later Inclusion.--Nothing in this section shall be construed 
to prevent the inclusion of amounts in gross income under any 
other provision of this chapter or any other rule of law 
earlier than the time provided in this section. Any amount 
included in gross income under this section shall not be 
required to be included in gross income under any other 
provision of this chapter or any other rule of law later than 
the time provided in this section.
  (d) Other Definitions and Special Rules.--For purposes of 
this section:
          (1) Nonqualified deferred compensation plan.--The 
        term ``nonqualified deferred compensation plan'' means 
        any plan that provides for the deferral of 
        compensation, other than--
                  (A) a qualified employer plan, and
                  (B) any bona fide vacation leave, sick leave, 
                compensatory time, disability pay, or death 
                benefit plan.
          (2) Qualified employer plan.--The term ``qualified 
        employer plan'' means--
                  (A) any plan, contract, pension, account, or 
                trust described in subparagraph (A) or (B) of 
                section 219(g)(5) (without regard to 
                subparagraph (A)(iii)),
                  (B) any eligible deferred compensation plan 
                (within the meaning of section 457(b)), and
                  (C) any plan described in section 415(m).
          (3) Plan includes arrangements, etc..--The term 
        ``plan'' includes any agreement or arrangement, 
        including an agreement or arrangement that includes one 
        person.
          (4) Substantial risk of forfeiture.--The rights of a 
        person to compensation are subject to a substantial 
        risk of forfeiture if such person's rights to such 
        compensation are conditioned upon the future 
        performance of substantial services by any individual.
          (5) Treatment of earnings.--References to deferred 
        compensation shall be treated as including references 
        to income (whether actual or notional) attributable to 
        such compensation or such income.
          (6) Aggregation rules.--Except as provided by the 
        Secretary, rules similar to the rules of subsections 
        (b) and (c) of section 414 shall apply.
          (7) Treatment of qualified stock.--An arrangement 
        under which an employee may receive qualified stock (as 
        defined in section 83(i)(2)) 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 83(i).
  (e) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations--
          (1) providing for the determination of amounts of 
        deferral in the case of a nonqualified deferred 
        compensation plan which is a defined benefit plan,
          (2) relating to changes in the ownership and control 
        of a corporation or assets of a corporation for 
        purposes of subsection (a)(2)(A)(v),
          (3) exempting arrangements from the application of 
        subsection (b) if such arrangements will not result in 
        an improper deferral of United States tax and will not 
        result in assets being effectively beyond the reach of 
        creditors,
          (4) defining financial health for purposes of 
        subsection (b)(2), and
          (5) disregarding a substantial risk of forfeiture in 
        cases where necessary to carry out the purposes of this 
        section.

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PART II--CERTAIN STOCK OPTIONS

           *       *       *       *       *       *       *


SEC. 422. INCENTIVE STOCK OPTIONS.

  (a) In General.--Section 421(a) shall apply with respect to 
the transfer of a share of stock to an individual pursuant to 
his exercise of an incentive stock option if--
          (1) no disposition of such share is made by him 
        within 2 years from the date of the granting of the 
        option nor within 1 year after the transfer of such 
        share to him, and
          (2) at all times during the period beginning on the 
        date of the granting of the option and ending on the 
        day 3 months before the date of such exercise, such 
        individual was an employee of either the corporation 
        granting such option, a parent or subsidiary 
        corporation of such corporation, or a corporation or a 
        parent or subsidiary corporation of such corporation 
        issuing or assuming a stock option in a transaction to 
        which section 424(a) applies.
  (b) Incentive Stock Option.--For purposes of this part, the 
term ``incentive stock option'' means an option granted to an 
individual for any reason connected with his employment by a 
corporation, if granted by the employer corporation or its 
parent or subsidiary corporation, to purchase stock of any of 
such corporations, but only if--
          (1) the option is granted pursuant to a plan which 
        includes the aggregate number of shares which may be 
        issued under options and the employees (or class of 
        employees) eligible to receive options, and which is 
        approved by the stockholders of the granting 
        corporation within 12 months before or after the date 
        such plan is adopted;
          (2) such option is granted within 10 years from the 
        date such plan is adopted, or the date such plan is 
        approved by the stockholders, whichever is earlier;
          (3) such option by its terms is not exercisable after 
        the expiration of 10 years from the date such option is 
        granted;
          (4) the option price is not less than the fair market 
        value of the stock at the time such option is granted;
          (5) such option by its terms is not transferable by 
        such individual otherwise than by will or the laws of 
        descent and distribution, and is exercisable, during 
        his lifetime, only by him; and
          (6) such individual, at the time the option is 
        granted, does not own stock possessing more than 10 
        percent of the total combined voting power of all 
        classes of stock of the employer corporation or of its 
        parent or subsidiary corporation.
Such term shall not include any option if (as of the time the 
option is granted) the terms of such option provide that it 
will not be treated as an incentive stock option. Such term 
shall not include any option if an election is made under 
section 83(i) with respect to the stock received in connection 
with the exercise of such option.
  (c) Special Rules.--
          (1) Good faith efforts to value of stock.--If a share 
        of stock is transferred pursuant to the exercise by an 
        individual of an option which would fail to qualify as 
        an incentive stock option under subsection (b) because 
        there was a failure in an attempt, made in good faith, 
        to meet the requirement of subsection (b)(4), the 
        requirement of subsection (b)(4) shall be considered to 
        have been met. To the extent provided in regulations by 
        the Secretary, a similar rule shall apply for purposes 
        of subsection (d).
          (2) Certain disqualifying dispositions where amount 
        realized is less than value at exercise.--If--
                  (A) an individual who has acquired a share of 
                stock by the exercise of an incentive stock 
                option makes a disposition of such share within 
                either of the periods described in subsection 
                (a)(1), and
                  (B) such disposition is a sale or exchange 
                with respect to which a loss (if sustained) 
                would be recognized to such individual,
        then the amount which is includible in the gross income 
        of such individual, and the amount which is deductible 
        from the income of his employer corporation, as 
        compensation attributable to the exercise of such 
        option shall not exceed the excess (if any) of the 
        amount realized on such sale or exchange over the 
        adjusted basis of such share.
          (3) Certain transfers by insolvent individuals.--If 
        an insolvent individual holds a share of stock acquired 
        pursuant to his exercise of an incentive stock option, 
        and if such share is transferred to a trustee, 
        receiver, or other similar fiduciary in any proceeding 
        under title 11 or any other similar insolvency 
        proceeding, neither such transfer, nor any other 
        transfer of such share for the benefit of his creditors 
        in such proceeding, shall constitute a disposition of 
        such share for purposes of subsection (a)(1).
          (4) Permissible provisions.--An option which meets 
        the requirements of subsection (b) shall be treated as 
        an incentive stock option even if--
                  (A) the employee may pay for the stock with 
                stock of the corporation granting the option,
                  (B) the employee has a right to receive 
                property at the time of exercise of the option, 
                or
                  (C) the option is subject to any condition 
                not inconsistent with the provisions of 
                subsection (b).
        Subparagraph (B) shall apply to a transfer of property 
        (other than cash) only if section 83 applies to the 
        property so transferred.
          (5) 10-percent shareholder rule.--Subsection (b)(6) 
        shall not apply if at the time such option is granted 
        the option price is at least 110 percent of the fair 
        market value of the stock subject to the option and 
        such option by its terms is not exercisable after the 
        expiration of 5 years from the date such option is 
        granted.
          (6) Special rule when disabled.--For purposes of 
        subsection (a)(2), in the case of an employee who is 
        disabled (within the meaning of section 22(e)(3)), the 
        3-month period of subsection (a)(2) shall be 1 year.
          (7) Fair market value.--For purposes of this section, 
        the fair market value of stock shall be determined 
        without regard to any restriction other than a 
        restriction which, by its terms, will never lapse.
  (d) $100,000 per year limitation
          (1) In general.--To the extent that the aggregate 
        fair market value of stock with respect to which 
        incentive stock options (determined without regard to 
        this subsection) are exercisable for the 1st time by 
        any individual during any calendar year (under all 
        plans of the individual's employer corporation and its 
        parent and subsidiary corporations) exceeds $100,000, 
        such options shall be treated as options which are not 
        incentive stock options.
          (2) Ordering rule.--Paragraph (1) shall be applied by 
        taking options into account in the order in which they 
        were granted.
          (3) Determination of fair market value.--For purposes 
        of paragraph (1), the fair market value of any stock 
        shall be determined as of the time the option with 
        respect to such stock is granted.

           *       *       *       *       *       *       *


SEC. 423. EMPLOYEE STOCK PURCHASE PLANS.

  (a) General Rule.--Section 421(a) shall apply with respect to 
the transfer of a share of stock to an individual pursuant to 
his exercise of an option granted under an employee stock 
purchase plan (as defined in subsection (b)) if--
          (1) no disposition of such share is made by him 
        within 2 years after the date of the granting of the 
        option nor within 1 year after the transfer of such 
        share to him; and
          (2) at all times during the period beginning with the 
        date of the granting of the option and ending on the 
        day 3 months before the date of such exercise, he is an 
        employee of the corporation granting such option, a 
        parent or subsidiary corporation of such corporation, 
        or a corporation or a parent or subsidiary corporation 
        of such corporation issuing or assuming a stock option 
        in a transaction to which section 424(a) applies.
The preceding sentence shall not apply to any share of stock 
with respect to which an election is made under section 83(i).
  (b) Employee Stock Purchase Plan.--For purposes of this part, 
the term ``employee stock purchase plan'' means a plan which 
meets the following requirements:
          (1) the plan provides that options are to be granted 
        only to employees of the employer corporation or of its 
        parent or subsidiary corporation to purchase stock in 
        any such corporation;
          (2) such plan is approved by the stockholders of the 
        granting corporation within 12 months before or after 
        the date such plan is adopted;
          (3) under the terms of the plan, no employee can be 
        granted an option if such employee, immediately after 
        the option is granted, owns stock possessing 5 percent 
        or more of the total combined voting power or value of 
        all classes of stock of the employer corporation or of 
        its parent or subsidiary corporation. For purposes of 
        this paragraph, the rules of section 424(d) shall apply 
        in determining the stock ownership of an individual, 
        and stock which the employee may purchase under 
        outstanding options shall be treated as stock owned by 
        the employee;
          (4) under the terms of the plan, options are to be 
        granted to all employees of any corporation whose 
        employees are granted any of such options by reason of 
        their employment by such corporation, except that there 
        may be excluded--
                  (A) employees who have been employed less 
                than 2 years,
                  (B) employees whose customary employment is 
                20 hours or less per week,
                  (C) employees whose customary employment is 
                for not more than 5 months in any calendar 
                year, and
                  (D) highly compensated employees (within the 
                meaning of section 414(q));
          (5) under the terms of the plan, all employees 
        granted such options shall have the same rights and 
        privileges, except that the amount of stock which may 
        be purchased by any employee under such option may bear 
        a uniform relationship to the total compensation, or 
        the basic or regular rate of compensation, of 
        employees, and the plan may provide that no employee 
        may purchase more than a maximum amount of stock fixed 
        under the plan;
          (6) under the terms of the plan, the option price is 
        not less than the lesser of--
                  (A) an amount equal to 85 percent of the fair 
                market value of the stock at the time such 
                option is granted, or
                  (B) an amount which under the terms of the 
                option may not be less than 85 percent of the 
                fair market value of the stock at the time such 
                option is exercised;
          (7) under the terms of the plan, such option cannot 
        be exercised after the expiration of--
                  (A) 5 years from the date such option is 
                granted if, under the terms of such plan, the 
                option price is to be not less than 85 percent 
                of the fair market value of such stock at the 
                time of the exercise of the option, or
                  (B) 27 months from the date such option is 
                granted, if the option price is not 
                determinable in the manner described in 
                subparagraph (A) (8) under the terms of the 
                plan, no employee may be granted an option 
                which permits his rights to purchase stock 
                under all such plans of his employer 
                corporation and its parent and subsidiary 
                corporations to accrue at a rate which exceeds 
                $25,000 of fair market value of such stock 
                (determined at the time such option is granted) 
                for each calendar year in which such option is 
                outstanding at any time. For purposes of this 
                paragraph--
                  (A) the right to purchase stock under an 
                option accrues when the option (or any portion 
                thereof) first becomes exercisable during the 
                calendar year;
                  (B) the right to purchase stock under an 
                option accrues at the rate provided in the 
                option, but in no case may such rate exceed 
                $25,000 of fair market value of such stock 
                (determined at the time such option is granted) 
                for any one calendar year; and
                  (C) a right to purchase stock which has 
                accrued under one option granted pursuant to 
                the plan may not be carried over to any other 
                option; and
          (9) under the terms of the plan, such option is not 
        transferable by such individual otherwise than by will 
        or the laws of descent and distribution, and is 
        exercisable, during his lifetime, only by him.
For purposes of paragraphs (3) to (9), inclusive, where 
additional terms are contained in an offering made under a 
plan, such additional terms shall, with respect to options 
exercised under such offering, be treated as a part of the 
terms of such plan.
  (c) Special Rule Where Option Price Is Between 85 Percent and 
100 Percent of Value of Stock.--If the option price of a share 
of stock acquired by an individual pursuant to a transfer to 
which subsection (a) applies was less than 100 percent of the 
fair market value of such share at the time such option was 
granted, then, in the event of any disposition of such share by 
him which meets the holding period requirements of subsection 
(a), or in the event of his death (whenever occurring) while 
owning such share, there shall be included as compensation (and 
not as gain upon the sale or exchange of a capital asset) in 
his gross income, for the taxable year in which falls the date 
of such disposition or for the taxable year closing with his 
death, whichever applies, an amount equal to the lesser of--
          (1) the excess of the fair market value of the share 
        at the time of such disposition or death over the 
        amount paid for the share under the option, or
          (2) the excess of the fair market value of the share 
        at the time the option was granted over the option 
        price.
If the option price is not fixed or determinable at the time 
the option is granted, then for purposes of this subsection, 
the option price shall be determined as if the option were 
exercised at such time. In the case of the disposition of such 
share by the individual, the basis of the share in his hands at 
the time of such disposition shall be increased by an amount 
equal to the amount so includible in his gross income. No 
amount shall be required to be deducted and withheld under 
chapter 24 with respect to any amount treated as compensation 
under this subsection.

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


        CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

SEC. 3401. DEFINITIONS.

  (a) Wages.--For purposes of this chapter, the term ``wages'' 
means all remuneration (other than fees paid to a public 
official) for services performed by an employee for his 
employer, including the cash value of all remuneration 
(including benefits) paid in any medium other than cash; except 
that such term shall not include remuneration paid--
          (1) for active service performed in a month for which 
        such employee is entitled to the benefits of section 
        112 (relating to certain combat zone compensation of 
        members of the Armed Forces of the United States) to 
        the extent remuneration for such service is excludable 
        from gross income under such section; or
          (2) for agricultural labor (as defined in section 
        3121(g)) unless the remuneration paid for such labor is 
        wages (as defined in section 3121(a)); or
          (3) for domestic service in a private home, local 
        college club, or local chapter of a college fraternity 
        or sorority; or
          (4) for service not in the course of the employer's 
        trade or business performed in any calendar quarter by 
        an employee, unless the cash remuneration paid for such 
        service is $50 or more and such service is performed by 
        an individual who is regularly employed by such 
        employer to perform such service. For purposes of this 
        paragraph, an individual shall be deemed to be 
        regularly employed by an employer during a calendar 
        quarter only if--
                  (A) on each of some 24 days during such 
                quarter such individual performs for such 
                employer for some portion of the day service 
                not in the course of the employer's trade or 
                business; or
                  (B) such individual was regularly employed 
                (as determined under subparagraph (A)) by such 
                employer in the performance of such service 
                during the preceding calendar quarter; or
          (5) for services by a citizen or resident of the 
        United States for a foreign government or an 
        international organization; or
          (6) for such services, performed by a nonresident 
        alien individual, as may be designated by regulations 
        prescribed by the Secretary; or
          (8)(A) for services for an employer (other than the 
        United States or any agency thereof)--
                          (i) performed by a citizen of the 
                        United States if, at the time of the 
                        payment of such remuneration, it is 
                        reasonable to believe that such 
                        remuneration will be excluded from 
                        gross income under section 911; or
                          (ii) performed in a foreign country 
                        or in a possession of the United States 
                        by such a citizen if, at the time of 
                        the payment of such remuneration, the 
                        employer is required by the law of any 
                        foreign country or possession of the 
                        United States to withhold income tax 
                        upon such remuneration; or
                  (B) for services for an employer (other than 
                the United States or any agency thereof) 
                performed by a citizen of the United States 
                within a possession of the United States (other 
                than Puerto Rico), if it is reasonable to 
                believe that at least 80 percent of the 
                remuneration to be paid to the employee by such 
                employer during the calendar year will be for 
                such services; or
                  (C) for services for an employer (other than 
                the United States or any agency thereof) 
                performed by a citizen of the United States 
                within Puerto Rico, if it is reasonable to 
                believe that during the entire calendar year 
                the employee will be a bona fide resident of 
                Puerto Rico; or
                  (D) for services for the United States (or 
                any agency thereof) performed by a citizen of 
                the United States within a possession of the 
                United States to the extent the United States 
                (or such agency) withholds taxes on such 
                remuneration pursuant to an agreement with such 
                possession; or
          (9) for services performed by a duly ordained, 
        commissioned, or licensed minister of a church in the 
        exercise of his ministry or by a member of a religious 
        order in the exercise of duties required by such order; 
        or
          (10)(A) for services performed by an individual under 
        the age of 18 in the delivery or distribution of 
        newspapers or shopping news, not including delivery or 
        distribution to any point for subsequent delivery or 
        distribution; or
                  (B) for services performed by an individual 
                in, and at the time of, the sale of newspapers 
                or magazines to ultimate consumers, under an 
                arrangement under which the newspapers or 
                magazines are to be sold by him at a fixed 
                price, his compensation being based on the 
                retention of the excess of such price over the 
                amount at which the newspapers or magazines are 
                charged to him, whether or not he is guaranteed 
                a minimum amount of compensation for such 
                services, or is entitled to be credited with 
                the unsold newspapers or magazines turned back; 
                or
          (11) for services not in the course of the employer's 
        trade or business, to the extent paid in any medium 
        other than cash; or
          (12) to, or on behalf of, an employee or his 
        beneficiary--
                  (A) from or to a trust described in section 
                401(a) which is exempt from tax under section 
                501(a) at the time of such payment unless such 
                payment is made to an employee of the trust as 
                remuneration for services rendered as such 
                employee and not as a beneficiary of the trust; 
                or
                  (B) under or to an annuity plan which, at the 
                time of such payment, is a plan described in 
                section 403(a); or
                  (C) for a payment described in section 
                402(h)(1) and (2) if, at the time of such 
                payment, it is reasonable to believe that the 
                employee will be entitled to an exclusion under 
                such section for payment; or
                  (D) under an arrangement to which section 
                408(p) applies; or
          (13) pursuant to any provision of law other than 
        section 5(c) or 6(1) of the Peace Corps Act, for 
        service performed as a volunteer or volunteer leader 
        within the meaning of such Act; or
                  (E) under or to an eligible deferred 
                compensation plan which, at the time of such 
                payment, is a plan described in section 457(b) 
                which is maintained by an eligible employer 
                described in section 457(e)(1)(A), or
          (14) in the form of group-term life insurance on the 
        life of an employee; or
          (15) to or on behalf of an employee if (and to the 
        extent that) at the time of the payment of such 
        remuneration it is reasonable to believe that a 
        corresponding deduction is allowable under section 217 
        (determined without regard to section 274(n)); or
          (16)(A) as tips in any medium other than cash;
                  (B) as cash tips to an employee in any 
                calendar month in the course of his employment 
                by an employer unless the amount of such cash 
                tips is $20 or more;
          (17) for service described in section 3121(b)(20);
          (18) for any payment made, or benefit furnished, to 
        or for the benefit of an employee if at the time of 
        such payment or such furnishing it is reasonable to 
        believe that the employee will be able to exclude such 
        payment or benefit from income under section 127, 129, 
        134(b)(4), or 134(b)(5);
          (19) for any benefit provided to or on behalf of an 
        employee if at the time such benefit is provided it is 
        reasonable to believe that the employee will be able to 
        exclude such benefit from income under section 74(c), 
        108(f)(4), 117, or 132;
          (20) for any medical care reimbursement made to or 
        for the benefit of an employee under a self-insured 
        medical reimbursement plan (within the meaning of 
        section 105(h)(6));
          (21) for any payment made to or for the benefit of an 
        employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to 
        exclude such payment from income under section 106(b);
          (22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to 
        exclude such payment from income under section 106(d); 
        or
          (23) for any benefit or payment which is excludable 
        from the gross income of the employee under section 
        139B(b).
The term ``wages'' includes any amount includible in gross 
income of an employee under section 409A and payment of such 
amount shall be treated as having been made in the taxable year 
in which the amount is so includible.
  (b) Payroll Period.--For purposes of this chapter, the term 
``payroll period'' means a period for which a payment of wages 
is ordinarily made to the employee by his employer, and the 
term ``miscellaneous payroll period'' means a payroll period 
other than a daily, weekly, biweekly, semimonthly, monthly, 
quarterly, semiannual or annual payroll period.
  (c) Employee.--For purposes of this chapter, the term 
``employee'' includes an officer, employee, or elected official 
of the United States, a State, or any political subdivision 
thereof, or the District of Columbia, or any agency or 
instrumentality of any one or more of the foregoing. The term 
``employee'' also includes an officer of a corporation.
  (d) Employer.--For purposes of this chapter, the term 
``employer'' means the person for whom an individual performs 
or performed any service, of whatever nature, as the employee 
of such person, except that--
          (1) if the person for whom the individual performs or 
        performed the services does not have control of the 
        payment of the wages for such services, the term 
        ``employer'' (except for purposes of subsection (a)) 
        means the person having control of the payment of such 
        wages, and
          (2) in the case of a person paying wages on behalf of 
        a nonresident alien individual, foreign partnership, or 
        foreign corporation, not engaged in trade or business 
        within the United States, the term ``employer'' (except 
        for purposes of subsection (a)) means such person.
  (e) Number of Withholding Exemptions Claimed.--For purposes 
of this chapter, the term ``number of withholding exemptions 
claimed'' means the number of withholding exemptions claimed in 
a withholding exemption certificate in effect under section 
3402(f), or in effect under the corresponding section of prior 
law, except that if no such certificate is in effect, the 
number of withholding exemptions claimed shall be considered to 
be zero.
  (f) Tips.--For purposes of subsection (a), the term ``wages'' 
includes tips received by an employee in the course of his 
employment. Such wages shall be deemed to be paid at the time a 
written statement including such tips is furnished to the 
employer pursuant to section 6053(a) or (if no statement 
including such tips is so furnished) at the time received.
  (g) Crew Leader Rules to Apply.--Rules similar to the rules 
of section 3121(o) shall apply for purposes of this chapter.
  (h) Differential Wage Payments to Active Duty Members of the 
Uniformed Services.--
          (1) In general.--For purposes of subsection (a), any 
        differential wage payment shall be treated as a payment 
        of wages by the employer to the employee.
          (2) Differential wage payment.--For purposes of 
        paragraph (1), the term ``differential wage payment'' 
        means any payment which--
                  (A) is made by an employer to an individual 
                with respect to any period during which the 
                individual is performing service in the 
                uniformed services (as defined in chapter 43 of 
                title 38, United States Code) while on active 
                duty for a period of more than 30 days, and
                  (B) represents all or a portion of the wages 
                the individual would have received from the 
                employer if the individual were performing 
                service for the employer.
  (i) Qualified Stock for Which an Election Is in Effect Under 
Section 83(i).--For purposes of subsection (a), qualified stock 
(as defined in section 83(i)) with respect to which an election 
is made under section 83(i) shall be treated as wages--
          (1) received on the earliest date described in 
        section 83(i)(1)(B), and
          (2) in an amount equal to the amount included in 
        income under section 83 for the taxable year which 
        includes such date.

SEC. 3402. INCOME TAX COLLECTED AT SOURCE.

  (a) Requirement of Withholding.--
          (1) In general.--Except as otherwise provided in this 
        section, every employer making payment of wages shall 
        deduct and withhold upon such wages a tax determined in 
        accordance with tables or computational procedures 
        prescribed by the Secretary. Any tables or procedures 
        prescribed under this paragraph shall--
                  (A) apply with respect to the amount of wages 
                paid during such periods as the Secretary may 
                prescribe, and
                  (B) be in such form, and provide for such 
                amounts to be deducted and withheld, as the 
                Secretary determines to be most appropriate to 
                carry out the purposes of this chapter and to 
                reflect the provisions of chapter 1 applicable 
                to such periods.
          (2) Amount of wages.--For purposes of applying tables 
        or procedures prescribed under paragraph (1), the term 
        ``the amount of wages'' means the amount by which the 
        wages exceed the number of withholding exemptions 
        claimed multiplied by the amount of one such exemption. 
        The amount of each withholding exemption shall be equal 
        to the amount of one personal exemption provided in 
        section 151(b), prorated to the payroll period. The 
        maximum number of withholding exemptions permitted 
        shall be calculated in accordance with regulations 
        prescribed by the Secretary under this section, taking 
        into account any reduction in withholding to which an 
        employee is entitled under this section.
  (b) Percentage Method of Withholding.--
          (1) If wages are paid with respect to a period which 
        is not a payroll period, the withholding exemption 
        allowable with respect to each payment of such wages 
        shall be the exemption allowed for a miscellaneous 
        payroll period containing a number of days (including 
        Sundays and holidays) equal to the number of days in 
        the period with respect to which such wages are paid.
          (2) In any case in which wages are paid by an 
        employer without regard to any payroll period or other 
        period, the withholding exemption allowable with 
        respect to each payment of such wages shall be the 
        exemption allowed for a miscellaneous payroll period 
        containing a number of days equal to the number of days 
        (including Sundays and holidays) which have elapsed 
        since the date of the last payment of such wages by 
        such employer during the calendar year, or the date of 
        commencement of employment with such employer during 
        such year, or January 1 of such year, whichever is the 
        later.
          (3) In any case in which the period, or the time 
        described in paragraph (2), in respect of any wages is 
        less than one week, the Secretary, under regulations 
        prescribed by him, may authorize an employer to compute 
        the tax to be deducted and withheld as if the aggregate 
        of the wages paid to the employee during the calendar 
        week were paid for a weekly payroll period.
          (4) In determining the amount to be deducted and 
        withheld under this subsection, the wages may, at the 
        election of the employer, be computed to the nearest 
        dollar.
  (c) Wage Bracket Withholding.--
          (1) At the election of the employer with respect to 
        any employee, the employer shall deduct and withhold 
        upon the wages paid to such employee a tax (in lieu of 
        the tax required to be deducted and withheld under 
        subsection (a)) determined in accordance with tables 
        prescribed by the Secretary in accordance with 
        paragraph (6).
          (2) If wages are paid with respect to a period which 
        is not a payroll period, the amount to be deducted and 
        withheld shall be that applicable in the case of a 
        miscellaneous payroll period containing a number of 
        days (including Sundays and holidays) equal to the 
        number of days in the period with respect to which such 
        wages are paid.
          (3) In any case in which wages are paid by an 
        employer without regard to any payroll period or other 
        period, the amount to be deducted and withheld shall be 
        that applicable in the case of a miscellaneous payroll 
        period containing a number of days equal to the number 
        of days (including Sundays and holidays) which have 
        elapsed since the date of the last payment of such 
        wages by such employer during the calendar year, or the 
        date of commencement of employment with such employer 
        during such year, or January 1 of such year, whichever 
        is the later.
          (4) In any case in which the period, or the time 
        described in paragraph (3), in respect of any wages is 
        less than one week, the Secretary, under regulations 
        prescribed by him, may authorize an employer to 
        determine the amount to be deducted and withheld under 
        the tables applicable in the case of a weekly payroll 
        period, in which case the aggregate of the wages paid 
        to the employee during the calendar week shall be 
        considered the weekly wages.
          (5) If the wages exceed the highest wage bracket, in 
        determining the amount to be deducted and withheld 
        under this subsection, the wages may, at the election 
        of the employer, be computed to the nearest dollar.
          (6) In the case of wages paid after December 31, 
        1969, the amount deducted and withheld under paragraph 
        (1) shall be determined in accordance with tables 
        prescribed by the Secretary. In the tables so 
        prescribed, the amounts set forth as amounts of wages 
        and amounts of income tax to be deducted and withheld 
        shall be computed on the basis of the table for an 
        annual payroll period prescribed pursuant to subsection 
        (a).
  (d) Tax Paid by Recipient.--If the employer, in violation of 
the provisions of this chapter, fails to deduct and withhold 
the tax under this chapter, and thereafter the tax against 
which such tax may be credited is paid, the tax so required to 
be deducted and withheld shall not be collected from the 
employer; but this subsection shall in no case relieve the 
employer from liability for any penalties or additions to the 
tax otherwise applicable in respect of such failure to deduct 
and withhold.
  (e) Included and Excluded Wages.--If the remuneration paid by 
an employer to an employee for services performed during one-
half or more of any payroll period of not more than 31 
consecutive days constitutes wages, all the remuneration paid 
by such employer to such employee for such period shall be 
deemed to be wages; but if the remuneration paid by an employer 
to an employee for services performed during more than one-half 
of any such payroll period does not constitute wages, then none 
of the remuneration paid by such employer to such employee for 
such period shall be deemed to be wages.
  (f) Withholding Exemptions.--
          (1) In general.--An employee receiving wages shall on 
        any day be entitled to the following withholding 
        exemptions:
                  (A) an exemption for himself unless he is an 
                individual described in section 151(d)(2);
                  (B) if the employee is married, any exemption 
                to which his spouse is entitled, or would be 
                entitled if such spouse were an employee 
                receiving wages, under subparagraph (A) or (D), 
                but only if such spouse does not have in effect 
                a withholding exemption certificate claiming 
                such exemption;
                  (C) an exemption for each individual with 
                respect to whom, on the basis of facts existing 
                at the beginning of such day, there may 
                reasonably be expected to be allowable an 
                exemption under section 151(c) for the taxable 
                year under subtitle A in respect of which 
                amounts deducted and withheld under this 
                chapter in the calendar year in which such day 
                falls are allowed as a credit;
                  (D) any allowance to which he is entitled 
                under subsection (m), but only if his spouse 
                does not have in effect a withholding exemption 
                certificate claiming such allowance; and
                  (E) a standard deduction allowance which 
                shall be an amount equal to one exemption (or 
                more than one exemption if so prescribed by the 
                Secretary) unless (i) he is married (as 
                determined under section 7703) and his spouse 
                is an employee receiving wages subject to 
                withholding or (ii) he has withholding 
                exemption certificates in effect with respect 
                to more than one employer.
        For purposes of this title, any standard deduction 
        allowance under subparagraph (E) shall be treated as if 
        it were denominated a withholding exemption.
          (2) Exemption certificates.--
                  (A) On commencement of employment.--On or 
                before the date of the commencement of 
                employment with an employer, the employee shall 
                furnish the employer with a signed withholding 
                exemption certificate relating to the number of 
                withholding exemptions which he claims, which 
                shall in no event exceed the number to which he 
                is entitled.
                  (B) Change of status.--If, on any day during 
                the calendar year, the number of withholding 
                exemptions to which the employee is entitled is 
                less than the number of withholding exemptions 
                claimed by the employee on the withholding 
                exemption certificate then in effect with 
                respect to him, the employee shall within 10 
                days thereafter furnish the employer with a new 
                withholding exemption certificate relating to 
                the number of withholding exemptions which the 
                employee then claims, which shall in no event 
                exceed the number to which he is entitled on 
                such day. If, on any day during the calendar 
                year, the number of withholding exemptions to 
                which the employee is entitled is greater than 
                the number of withholding exemptions claimed, 
                the employee may furnish the employer with a 
                new withholding exemption certificate relating 
                to the number of withholding exemptions which 
                the employee then claims, which shall in no 
                event exceed the number to which he is entitled 
                on such day.
                  (C) Change of status which affects next 
                calendar year.--If on any day during the 
                calendar year the number of withholding 
                exemptions to which the employee will be, or 
                may reasonably be expected to be, entitled at 
                the beginning of his next taxable year under 
                subtitle A is different from the number to 
                which the employee is entitled on such day, the 
                employee shall, in such cases and at such times 
                as the Secretary may by regulations prescribe, 
                furnish the employer with a withholding 
                exemption certificate relating to the number of 
                withholding exemptions which he claims with 
                respect to such next taxable year, which shall 
                in no event exceed the number to which he will 
                be, or may reasonably be expected to be, so 
                entitled.
          (3) When certificate takes effect.--
                  (A) First certificate furnished.--A 
                withholding exemption certificate furnished the 
                employer in cases in which no previous such 
                certificate is in effect shall take effect as 
                of the beginning of the first payroll period 
                ending, or the first payment of wages made 
                without regard to a payroll period, on or after 
                the date on which such certificate is so 
                furnished.
                  (B) Furnished to take place of existing 
                certificate.--
                          (i) In general.--Except as provided 
                        in clauses (ii) and (iii), a 
                        withholding exemption certificate 
                        furnished to the employer in cases in 
                        which a previous such certificate is in 
                        effect shall take effect as of the 
                        beginning of the 1st payroll period 
                        ending (or the 1st payment of wages 
                        made without regard to a payroll 
                        period) on or after the 30th day after 
                        the day on which such certificate is so 
                        furnished.
                          (ii) Employer may elect earlier 
                        effective date.--At the election of the 
                        employer, a certificate described in 
                        clause (i) may be made effective 
                        beginning with any payment of wages 
                        made on or after the day on which the 
                        certificate is so furnished and before 
                        the 30th day referred to in clause (i).
                          (iii) Change of status which affects 
                        next year.--Any certificate furnished 
                        pursuant to paragraph (2)(C) shall not 
                        take effect, and may not be made 
                        effective, with respect to any payment 
                        of wages made in the calendar year in 
                        which the certificate is furnished.
          (4) Period during which certificate remains in 
        effect.--A withholding exemption certificate which 
        takes effect under this subsection, or which on 
        December 31, 1954, was in effect under the 
        corresponding subsection of prior law, shall continue 
        in effect with respect to the employer until another 
        such certificate takes effect under this subsection.
          (5) Form and contents of certificate.--Withholding 
        exemption certificates shall be in such form and 
        contain such information as the Secretary may by 
        regulations prescribe.
          (6) Exemption of certain nonresident aliens.--
        Notwithstanding the provisions of paragraph (1), a 
        nonresident alien individual (other than an individual 
        described in section 3401(a)(6)(A) or (B)) shall be 
        entitled to only one withholding exemption.
          (7) Exemption where certificate with another employer 
        is in effect.--If a withholding exemption certificate 
        is in effect with respect to one employer, an employee 
        shall not be entitled under a certificate in effect 
        with any other employer to any withholding exemption 
        which he has claimed under such first certificate.
  (g) Overlapping Pay Periods, and Payment by Agent or 
Fiduciary.--If a payment of wages is made to an employee by an 
employer--
          (1) with respect to a payroll period or other period, 
        any part of which is included in a payroll period or 
        other period with respect to which wages are also paid 
        to such employee by such employer, or
          (2) without regard to any payroll period or other 
        period, but on or prior to the expiration of a payroll 
        period or other period with respect to which wages are 
        also paid to such employee by such employer, or
          (3) with respect to a period beginning in one and 
        ending in another calendar year, or
          (4) through an agent, fiduciary, or other person who 
        also has the control, receipt, custody, or disposal of, 
        or pays, the wages payable by another employer to such 
        employee,
the manner of withholding and the amount to be deducted and 
withheld under this chapter shall be determined in accordance 
with regulations prescribed by the Secretary under which the 
withholding exemption allowed to the employee in any calendar 
year shall approximate the withholding exemption allowable with 
respect to an annual payroll period.
  (h) Alternative Methods of Computing Amount to be Withheld.--
The Secretary may, under regulations prescribed by him, 
authorize--
          (1) Withholding on basis of average wages.--An 
        employer--
                  (A) to estimate the wages which will be paid 
                to any employee in any quarter of the calendar 
                year,
                  (B) to determine the amount to be deducted 
                and withheld upon each payment of wages to such 
                employee during such quarter as if the 
                appropriate average of the wages so estimated 
                constituted the actual wages paid, and
                  (C) to deduct and withhold upon any payment 
                of wages to such employee during such quarter 
                (and, in the case of tips referred to in 
                subsection (k), within 30 days thereafter) such 
                amount as may be necessary to adjust the amount 
                actually deducted and withheld upon the wages 
                of such employee during such quarter to the 
                amount required to be deducted and withheld 
                during such quarter without regard to this 
                subsection.
          (2) Withholding on basis of annualized wages.--An 
        employer to determine the amount of tax to be deducted 
        and withheld upon a payment of wages to an employee for 
        a payroll period by--
                  (A) multiplying the amount of an employee's 
                wages for a payroll period by the number of 
                such payroll periods in the calendar year,
                  (B) determining the amount of tax which would 
                be required to be deducted and withheld upon 
                the amount determined under subparagraph (A) if 
                such amount constituted the actual wages for 
                the calendar year and the payroll period of the 
                employee were an annual payroll period, and
                  (C) dividing the amount of tax determined 
                under subparagraph (B) by the number of payroll 
                periods (described in subparagraph (A)) in the 
                calendar year.
          (3) Withholding on basis of cumulative wages.--An 
        employer, in the case of any employee who requests to 
        have the amount of tax to be withheld from his wages 
        computed on the basis of his cumulative wages, to--
                  (A) add the amount of the wages to be paid to 
                the employee for the payroll period to the 
                total amount of wages paid by the employer to 
                the employee during the calendar year,
                  (B) divide the aggregate amount of wages 
                computed under subparagraph (A) by the number 
                of payroll periods to which such aggregate 
                amount of wages relates,
                  (C) compute the total amount of tax that 
                would have been required to be deducted and 
                withheld under subsection (a) if the average 
                amount of wages (as computed under subparagraph 
                (B)) had been paid to the employee for the 
                number of payroll periods to which the 
                aggregate amount of wages (computed under 
                subparagraph (A)) relates,
                  (D) determine the excess, if any, of the 
                amount of tax computed under subparagraph (C) 
                over the total amount of tax deducted and 
                withheld by the employer from wages paid to the 
                employee during the calendar year, and
                  (E) deduct and withhold upon the payment of 
                wages (referred to in subparagraph (A)) to the 
                employee an amount equal to the excess (if any) 
                computed under subparagraph (D).
          (4) Other methods.--An employer to determine the 
        amount of tax to be deducted and withheld upon the 
        wages paid to an employee by any other method which 
        will require the employer to deduct and withhold upon 
        such wages substantially the same amount as would be 
        required to be deducted and withheld by applying 
        subsection (a) or (c), either with respect to a payroll 
        period or with respect to the entire taxable year.
  (i) Changes in Withholding.--
          (1) In general.--The Secretary may by regulations 
        provide for increases in the amount of withholding 
        otherwise required under this section in cases where 
        the employee requests such changes.
          (2) Treatment as tax.--Any increased withholding 
        under paragraph (1) shall for all purposes be 
        considered tax required to be deducted and withheld 
        under this chapter.
  (j) Noncash Remuneration to Retail Commission Salesman.--In 
the case of remuneration paid in any medium other than cash for 
services performed by an individual as a retail salesman for a 
person, where the service performed by such individual for such 
person is ordinarily performed for remuneration solely by way 
of cash commission an employer shall not be required to deduct 
or withhold any tax under this subchapter with respect to such 
remuneration, provided that such employer files with the 
Secretary such information with respect to such remuneration as 
the Secretary may by regulation prescribe.
  (k) Tips.--In the case of tips which constitute wages, 
subsection (a) shall be applicable only to such tips as are 
included in a written statement furnished to the employer 
pursuant to section 6053(a), and only to the extent that the 
tax can be deducted and withheld by the employer, at or after 
the time such statement is so furnished and before the close of 
the calendar year in which such statement is furnished, from 
such wages of the employee (excluding tips, but including funds 
turned over by the employee to the employer for the purpose of 
such deduction and withholding) as are under the control of the 
employer; and an employer who is furnished by an employee a 
written statement of tips (received in a calendar month) 
pursuant to section 6053(a) to which paragraph (16)(B) of 
section 3401(a) is applicable may deduct and withhold the tax 
with respect to such tips from any wages of the employee 
(excluding tips) under his control, even though at the time 
such statement is furnished the total amount of the tips 
included in statements furnished to the employer as having been 
received by the employee in such calendar month in the course 
of his employment by such employer is less than $20. Such tax 
shall not at any time be deducted and withheld in an amount 
which exceeds the aggregate of such wages and funds (including 
funds turned over under section 3102(c)(2) or section 
3202(c)(2)) minus any tax required by section 3102(a) or 
section 3202(a) to be collected from such wages and funds.
  (l) Determination and Disclosure of Marital Status.--
          (1) Determination of status by employer.--For 
        purposes of applying the tables in subsections (a) and 
        (c) to a payment of wages, the employer shall treat the 
        employee as a single person unless there is in effect 
        with respect to such payment of wages a withholding 
        exemption certificate furnished to the employer by the 
        employee after the date of the enactment of this 
        subsection indicating that the employee is married.
          (2) Disclosure of status by employee.--An employee 
        shall be entitled to furnish the employer with a 
        withholding exemption certificate indicating he is 
        married only if, on the day of such furnishing, he is 
        married (determined with the application of the rules 
        in paragraph (3)). An employee whose marital status 
        changes from married to single shall, at such time as 
        the Secretary may by regulations prescribe, furnish the 
        employer with a new withholding exemption certificate.
          (3) Determination of marital status.--For purposes of 
        paragraph (2), an employee shall on any day be 
        considered--
                  (A) as not married, if (i) he is legally 
                separated from his spouse under a decree of 
                divorce or separate maintenance, or (ii) either 
                he or his spouse is, or on any preceding day 
                within the calendar year was, a nonresident 
                alien; or
                  (B) as married, if (i) his spouse (other than 
                a spouse referred to in subparagraph (A)) died 
                within the portion of his taxable year which 
                precedes such day, or (ii) his spouse died 
                during one of the two taxable years immediately 
                preceding the current taxable year and, on the 
                basis of facts existing at the beginning of 
                such day, the employee reasonably expects, at 
                the close of his taxable year, to be a 
                surviving spouse (as defined in section 2(a)).
  (m) Withholding Allowances.--Under regulations prescribed by 
the Secretary, an employee shall be entitled to additional 
withholding allowances or additional reductions in withholding 
under this subsection. In determining the number of additional 
withholding allowances or the amount of additional reductions 
in withholding under this subsection, the employee may take 
into account (to the extent and in the manner provided by such 
regulations)--
          (1) estimated itemized deductions allowable under 
        chapter 1 (other than the deductions referred to in 
        section 151 and other than the deductions required to 
        be taken into account in determining adjusted gross 
        income under section 62(a) (other than paragraph (10) 
        thereof)),
          (2) estimated tax credits allowable under chapter 1, 
        and
          (3) such additional deductions (including the 
        additional standard deduction under section 63(c)(3) 
        for the aged and blind) and other items as may be 
        specified by the Secretary in regulations.
  (n) Employees Incurring No Income Tax Liability.--
Notwithstanding any other provision of this section, an 
employer shall not be required to deduct and withhold any tax 
under this chapter upon a payment of wages to an employee if 
there is in effect with respect to such payment a withholding 
exemption certificate (in such form and containing such other 
information as the Secretary may prescribe) furnished to the 
employer by the employee certifying that the employee--
          (1) incurred no liability for income tax imposed 
        under subtitle A for his preceding taxable year, and
          (2) anticipates that he will incur no liability for 
        income tax imposed under subtitle A for his current 
        taxable year.
The Secretary shall by regulations provide for the coordination 
of the provisions of this subsection with the provisions of 
subsection (f).
  (o) Extension of Withholding to Certain Payments Other Than 
Wages.--
          (1) General rule.--For purposes of this chapter (and 
        so much of subtitle F as relates to this chapter)--
                  (A) any supplemental unemployment 
                compensation benefit paid to an individual,
                  (B) any payment of an annuity to an 
                individual, if at the time the payment is made 
                a request that such annuity be subject to 
                withholding under this chapter is in effect, 
                and
                  (C) any payment to an individual of sick pay 
                which does not constitute wages (determined 
                without regard to this subsection), if at the 
                time the payment is made a request that such 
                sick pay be subject to withholding under this 
                chapter is in effect,
        shall be treated as if it were a payment of wages by an 
        employer to an employee for a payroll period.
          (2) Definitions.--
                  (A) Supplemental unemployment compensation 
                benefits.--For purposes of paragraph (1), the 
                term ``supplemental unemployment compensation 
                benefits'' means amounts which are paid to an 
                employee, pursuant to a plan to which the 
                employer is a party, because of an employee's 
                involuntary separation from employment (whether 
                or not such separation is temporary), resulting 
                directly from a reduction in force, the 
                discontinuance of a plant or operation, or 
                other similar conditions, but only to the 
                extent such benefits are includible in the 
                employee's gross income.
                  (B) Annuity.--For purposes of this 
                subsection, the term ``annuity'' means any 
                amount paid to an individual as a pension or 
                annuity.
                  (C) Sick pay.--For purposes of this 
                subsection, the term ``sick pay'' means any 
                amount which--
                          (i) is paid to an employee pursuant 
                        to a plan to which the employer is a 
                        party, and
                          (ii) constitutes remuneration or a 
                        payment in lieu of remuneration for any 
                        period during which the employee is 
                        temporarily absent from work on account 
                        of sickness or personal injuries.
          (3) Amount withheld from annuity payments or sick 
        pay.--If a payee makes a request that an annuity or any 
        sick pay be subject to withholding under this chapter, 
        the amount to be deducted and withheld under this 
        chapter from any payment to which such request applies 
        shall be an amount (not less than a minimum amount 
        determined under regulations prescribed by the 
        Secretary) specified by the payee in such request. The 
        amount deducted and withheld with respect to a payment 
        which is greater or less than a full payment shall bear 
        the same relation to the specified amount as such 
        payment bears to a full payment.
          (4) Request for withholding.--A request that an 
        annuity or any sick pay be subject to withholding under 
        this chapter--
                  (A) shall be made by the payee in writing to 
                the person making the payments and shall 
                contain the social security number of the 
                payee,
                  (B) shall specify the amount to be deducted 
                and withheld from each full payment, and
                  (C) shall take effect--
                          (i) in the case of sick pay, with 
                        respect to payments made more than 7 
                        days after the date on which such 
                        request is furnished to the payor, or
                          (ii) in the case of an annuity, at 
                        such time (after the date on which such 
                        request is furnished to the payor) as 
                        the Secretary shall by regulations 
                        prescribe.
        Such a request may be changed or terminated by 
        furnishing to the person making the payments a written 
        statement of change or termination which shall take 
        effect in the same manner as provided in subparagraph 
        (C). At the election of the payor, any such request (or 
        statement of change or revocation) may take effect 
        earlier than as provided in subparagraph (C).
          (5) Special rule for sick pay paid pursuant to 
        certain collective-bargaining agreements.--In the case 
        of any sick pay paid pursuant to a collective-
        bargaining agreement between employee representatives 
        and one or more employers which contains a provision 
        specifying that this paragraph is to apply to sick pay 
        paid pursuant to such agreement and contains a 
        provision for determining the amount to be deducted and 
        withheld from each payment of such sick pay--
                  (A) the requirement of paragraph (1)(C) that 
                a request for withholding be in effect shall 
                not apply, and
                  (B) except as provided in subsection (n), the 
                amounts to be deducted and withheld under this 
                chapter shall be determined in accordance with 
                such agreement.
        The preceding sentence shall not apply with respect to 
        sick pay paid pursuant to any agreement to any 
        individual unless the social security number of such 
        individual is furnished to the payor and the payor is 
        furnished with such information as is necessary to 
        determine whether the payment is pursuant to the 
        agreement and to determine the amount to be deducted 
        and withheld.
          (6) Coordination with withholding on designated 
        distributions under section 3405.--This subsection 
        shall not apply to any amount which is a designated 
        distribution (within the meaning of section 
        3405(e)(1)).
  (p) Voluntary Withholding Agreements.--
          (1) Certain Federal payments.--
                  (A) In general.--If, at the time a specified 
                Federal payment is made to any person, a 
                request by such person is in effect that such 
                payment be subject to withholding under this 
                chapter, then for purposes of this chapter and 
                so much of subtitle F as relates to this 
                chapter, such payment shall be treated as if it 
                were a payment of wages by an employer to an 
                employee.
                  (B) Amount withheld.--The amount to be 
                deducted and withheld under this chapter from 
                any payment to which any request under 
                subparagraph (A) applies shall be an amount 
                equal to the percentage of such payment 
                specified in such request. Such a request shall 
                apply to any payment only if the percentage 
                specified is 7 percent, any percentage 
                applicable to any of the 3 lowest income 
                brackets in the table under section 1(c), or 
                such other percentage as is permitted under 
                regulations prescribed by the Secretary.
                  (C) Specified Federal payments.--For purposes 
                of this paragraph, the term ``specified Federal 
                payment'' means--
                          (i) any payment of a social security 
                        benefit (as defined in section 86(d)),
                          (ii) any payment referred to in the 
                        second sentence of section 451(d) which 
                        is treated as insurance proceeds,
                          (iii) any amount which is includible 
                        in gross income under section 77(a), 
                        and
                          (iv) any other payment made pursuant 
                        to Federal law which is specified by 
                        the Secretary for purposes of this 
                        paragraph.
                  (D) Requests for withholding.--Rules similar 
                to the rules that apply to annuities under 
                subsection (o)(4) shall apply to requests under 
                this paragraph and paragraph (2).
          (2) Voluntary withholding on unemployment benefits.--
        If, at the time a payment of unemployment compensation 
        (as defined in section 85(b)) is made to any person, a 
        request by such person is in effect that such payment 
        be subject to withholding under this chapter, then for 
        purposes of this chapter and so much of subtitle F as 
        relates to this chapter, such payment shall be treated 
        as if it were a payment of wages by an employer to an 
        employee. The amount to be deducted and withheld under 
        this chapter from any payment to which any request 
        under this paragraph applies shall be an amount equal 
        to 10 percent of such payment.
          (3) Authority for other voluntary withholding.--The 
        Secretary is authorized by regulations to provide for 
        withholding--
                  (A) from remuneration for services performed 
                by an employee for the employee's employer 
                which (without regard to this paragraph) does 
                not constitute wages, and
                  (B) from any other type of payment with 
                respect to which the Secretary finds that 
                withholding would be appropriate under the 
                provisions of this chapter,
        if the employer and employee, or the person making and 
        the person receiving such other type of payment, agree 
        to such withholding. Such agreement shall be in such 
        form and manner as the Secretary may by regulations 
        prescribe. For purposes of this chapter (and so much of 
        subtitle F as relates to this chapter), remuneration or 
        other payments with respect to which such agreement is 
        made shall be treated as if they were wages paid by an 
        employer to an employee to the extent that such 
        remuneration is paid or other payments are made during 
        the period for which the agreement is in effect.
  (q) Extension of Withholding to Certain Gambling Winnings.--
          (1) General rule.--Every person, including the 
        Government of the United States, a State, or a 
        political subdivision thereof, or any instrumentalities 
        of the foregoing, making any payment of winnings which 
        are subject to withholding shall deduct and withhold 
        from such payment a tax in an amount equal to the 
        product of the third lowest rate of tax applicable 
        under section 1(c) and such payment.
          (2) Exemption where tax otherwise withheld.--In the 
        case of any payment of winnings which are subject to 
        withholding made to a nonresident alien individual or a 
        foreign corporation, the tax imposed under paragraph 
        (1) shall not apply to any such payment subject to tax 
        under section 1441(a) (relating to withholding on 
        nonresident aliens) or tax under section 1442(a) 
        (relating to withholding on foreign corporations).
          (3) Winnings which are subject to withholding.--For 
        purposes of this subsection, the term ``winnings which 
        are subject to withholding'' means proceeds from a 
        wager determined in accordance with the following:
                  (A) In general.--Except as provided in 
                subparagraphs (B) and (C), proceeds of more 
                than $5,000 from a wagering transaction, if the 
                amount of such proceeds is at least 300 times 
                as large as the amount wagered.
                  (B) State-conducted lotteries.--Proceeds of 
                more than $5,000 from a wager placed in a 
                lottery conducted by an agency of a State 
                acting under authority of State law, but only 
                if such wager is placed with the State agency 
                conducting such lottery, or with its authorized 
                employees or agents.
                  (C) Sweepstakes, wagering pools, certain 
                parimutuel pools, jai alai, and lotteries.--
                Proceeds of more than $5,000 from--
                          (i) a wager placed in a sweepstakes, 
                        wagering pool, or lottery (other than a 
                        wager described in subparagraph (B)), 
                        or
                          (ii) a wagering transaction in a 
                        parimutuel pool with respect to horse 
                        races, dog races, or jai alai if the 
                        amount of such proceeds is at least 300 
                        times as large as the amount wagered.
          (4) Rules for determining proceeds from a wager.--For 
        purposes of this subsection--
                  (A) proceeds from a wager shall be determined 
                by reducing the amount received by the amount 
                of the wager, and
                  (B) proceeds which are not money shall be 
                taken into account at their fair market value.
          (5) Exception for bingo, keno, and slot machines.--
        The tax imposed under paragraph (1) shall not apply to 
        winnings from a slot machine, keno, and bingo.
          (6) Statement by recipient.--Every person who is to 
        receive a payment of winnings which are subject to 
        withholding shall furnish the person making such 
        payment a statement, made under the penalties of 
        perjury, containing the name, address, and taxpayer 
        identification number of the person receiving the 
        payment and of each person entitled to any portion of 
        such payment.
          (7) Coordination with other sections.--For purposes 
        of sections 3403 and 3404 and for purposes of so much 
        of subtitle F (except section 7205) as relates to this 
        chapter, payments to any person of winnings which are 
        subject to withholding shall be treated as if they were 
        wages paid by an employer to an employee.
  (r) Extension of Withholding to Certain Taxable Payments of 
Indian Casino Profits.--
          (1) In general.--Every person, including an Indian 
        tribe, making a payment to a member of an Indian tribe 
        from the net revenues of any class II or class III 
        gaming activity conducted or licensed by such tribe 
        shall deduct and withhold from such payment a tax in an 
        amount equal to such payment's proportionate share of 
        the annualized tax.
          (2) Exception.--The tax imposed by paragraph (1) 
        shall not apply to any payment to the extent that the 
        payment, when annualized, does not exceed an amount 
        equal to the sum of--
                  (A) the basic standard deduction (as defined 
                in section 63(c)) for an individual to whom 
                section 63(c)(2)(C) applies, and
                  (B) the exemption amount (as defined in 
                section 151(d)).
          (3) Annualized tax.--For purposes of paragraph (1), 
        the term ``annualized tax'' means, with respect to any 
        payment, the amount of tax which would be imposed by 
        section 1(c) (determined without regard to any rate of 
        tax in excess of the fourth lowest rate of tax 
        applicable under section 1(c)) on an amount of taxable 
        income equal to the excess of--
                  (A) the annualized amount of such payment, 
                over
                  (B) the amount determined under paragraph 
                (2).
          (4) Classes of gaming activities, etc..--For purposes 
        of this subsection, terms used in paragraph (1) which 
        are defined in section 4 of the Indian Gaming 
        Regulatory Act (25 U.S.C. 2701 et seq.), as in effect 
        on the date of the enactment of this subsection, shall 
        have the respective meanings given such terms by such 
        section.
          (5) Annualization.--Payments shall be placed on an 
        annualized basis under regulations prescribed by the 
        Secretary.
          (6) Alternate withholding procedures.--At the 
        election of an Indian tribe, the tax imposed by this 
        subsection on any payment made by such tribe shall be 
        determined in accordance with such tables or 
        computational procedures as may be specified in 
        regulations prescribed by the Secretary (in lieu of in 
        accordance with paragraphs (2) and (3)).
          (7) Coordination with other sections.--For purposes 
        of this chapter and so much of subtitle F as relates to 
        this chapter, payments to any person which are subject 
        to withholding under this subsection shall be treated 
        as if they were wages paid by an employer to an 
        employee.
  (s) Exemption from Withholding for Any Vehicle Fringe 
Benefit.--
          (1) Employer election not to withhold.--The employer 
        may elect not to deduct and withhold any tax under this 
        chapter with respect to any vehicle fringe benefit 
        provided to any employee if such employee is notified 
        by the employer of such election (at such time and in 
        such manner as the Secretary shall by regulations 
        prescribe). The preceding sentence shall not apply to 
        any vehicle fringe benefit unless the amount of such 
        benefit is included by the employer on a statement 
        timely furnished under section 6051.
          (2) Employer must furnish W-2.--Any vehicle fringe 
        benefit shall be treated as wages from which amounts 
        are required to be deducted and withheld under this 
        chapter for purposes of section 6051.
          (3) Vehicle fringe benefit.--For purposes of this 
        subsection, the term ``vehicle fringe benefit'' means 
        any fringe benefit--
                  (A) which constitutes wages (as defined in 
                section 3401), and
                  (B) which consists of providing a highway 
                motor vehicle for the use of the employee.
  (t) Rate of Withholding for Certain Stock.--In the case of 
any qualified stock (as defined in section 83(i)) with respect 
to which an election is made under section 83(i)--
          (1) the rate of tax under subsection (a) shall not be 
        less than the maximum rate of tax in effect under 
        section 1, and
          (2) such stock shall be treated for purposes of 
        section 3501(b) in the same manner as a non-cash fringe 
        benefit.

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Subtitle F--Procedure and Administration

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CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


         Subpart C--Information Regarding Wages Paid Employees

SEC. 6051. RECEIPTS FOR EMPLOYEES.

  (a) Requirement.--Every person required to deduct and 
withhold from an employee a tax under section 3101 or 3402, or 
who would have been required to deduct and withhold a tax under 
section 3402 (determined without regard to subsection (n)) if 
the employee had claimed no more than one withholding 
exemption, or every employer engaged in a trade or business who 
pays remuneration for services performed by an employee, 
including the cash value of such remuneration paid in any 
medium other than cash, shall furnish to each such employee in 
respect of the remuneration paid by such person to such 
employee during the calendar year, on or before January 31 of 
the succeeding year, or, if his employment is terminated before 
the close of such calendar year, within 30 days after the date 
of receipt of a written request from the employee if such 30-
day period ends before January 31, a written statement showing 
the following:
          (1) the name of such person,
          (2) the name of the employee (and an identifying 
        number for the employee if wages as defined in section 
        3121(a) have been paid),
          (3) the total amount of wages as defined in section 
        3401(a),
          (4) the total amount deducted and withheld as tax 
        under section 3402,
          (5) the total amount of wages as defined in section 
        3121(a),
          (6) the total amount deducted and withheld as tax 
        under section 3101,
          (8) the total amount of elective deferrals (within 
        the meaning of section 402(g)(3)) and compensation 
        deferred under section 457, including the amount of 
        designated Roth contributions (as defined in section 
        402A),
          (9) the total amount incurred for dependent care 
        assistance with respect to such employee under a 
        dependent care assistance program described in section 
        129(d),
          (10) in the case of an employee who is a member of 
        the Armed Forces of the United States, such employee's 
        earned income as determined for purposes of section 32 
        (relating to earned income credit),
          (11) the amount contributed to any Archer MSA (as 
        defined in section 220(d)) of such employee or such 
        employee's spouse,
          (12) the amount contributed to any health savings 
        account (as defined in section 223(d)) of such employee 
        or such employee's spouse,
          (13) the total amount of deferrals for the year under 
        a nonqualified deferred compensation plan (within the 
        meaning of section 409A(d)), [and]
          (14) the aggregate cost (determined under rules 
        similar to the rules of section 4980B(f)(4)) of 
        applicable employer-sponsored coverage (as defined in 
        section 4980I(d)(1)), except that this paragraph shall 
        not apply to--
                  (A) coverage to which paragraphs (11) and 
                (12) apply, or
                  (B) the amount of any salary reduction 
                contributions to a flexible spending 
                arrangement (within the meaning of section 
                125)[.],
          (15) the amount excludable from gross income under 
        subparagraph (A) of section 83(i)(1),
          (16) the amount includible in gross income under 
        subparagraph (B) of section 83(i)(1) with respect to an 
        event described in such subparagraph which occurs in 
        such calendar year, and
          (17) the aggregate amount of income which is being 
        deferred pursuant to elections under section 83(i), 
        determined as of the close of the calendar year.
In the case of compensation paid for service as a member of a 
uniformed service, the statement shall show, in lieu of the 
amount required to be shown by paragraph (5), the total amount 
of wages as defined in section 3121(a), computed in accordance 
with such section and section 3121(i)(2). In the case of 
compensation paid for service as a volunteer or volunteer 
leader within the meaning of the Peace Corps Act, the statement 
shall show, in lieu of the amount required to be shown by 
paragraph (5), the total amount of wages as defined in section 
3121(a), computed in accordance with such section and section 
3121(i)(3). In the case of tips received by an employee in the 
course of his employment, the amounts required to be shown by 
paragraphs (3) and (5) shall include only such tips as are 
included in statements furnished to the employer pursuant to 
section 6053(a). The amounts required to be shown by paragraph 
(5) shall not include wages which are exempted pursuant to 
sections 3101(c) and 3111(c) from the taxes imposed by sections 
3101 and 3111. In the case of the amounts required to be shown 
by paragraph (13), the Secretary may (by regulation) establish 
a minimum amount of deferrals below which paragraph (13) does 
not apply.
  (b) Special Rule as to Compensation of Members of Armed 
Forces.--In the case of compensation paid for service as a 
member of the Armed Forces, the statement required by 
subsection (a) shall be furnished if any tax was withheld 
during the calendar year under section 3402, or if any of the 
compensation paid during such year is includible in gross 
income under chapter 1, or if during the calendar year any 
amount was required to be withheld as tax under section 3101. 
In lieu of the amount required to be shown by paragraph (3) of 
subsection (a), such statement shall show as wages paid during 
the calendar year the amount of such compensation paid during 
the calendar year which is not excluded from gross income under 
chapter 1 (whether or not such compensation constituted wages 
as defined in section 3401(a)).
  (c) Additional Requirements.--The statements required to be 
furnished pursuant to this section in respect of any 
remuneration shall be furnished at such other times, shall 
contain such other information, and shall be in such form as 
the Secretary may by regulations prescribe. The statements 
required under this section shall also show the proportion of 
the total amount withheld as tax under section 3101 which is 
for financing the cost of hospital insurance benefits under 
part A of title XVIII of the Social Security Act.
  (d) Statements to Constitute Information Returns.--A 
duplicate of any statement made pursuant to this section and in 
accordance with regulations prescribed by the Secretary shall, 
when required by such regulations, be filed with the Secretary.
  (e) Railroad Employees.--
          (1) Additional requirement.--Every person required to 
        deduct and withhold tax under section 3201 from an 
        employee shall include on or with the statement 
        required to be furnished such employee under subsection 
        (a) a notice concerning the provisions of this title 
        with respect to the allowance of a credit or refund of 
        the tax on wages imposed by section 3101(b) and the tax 
        on compensation imposed by section 3201 or 3211 which 
        is treated as a tax on wages imposed by section 
        3101(b).
          (2) Information to be supplied to employees.--Each 
        person required to deduct and withhold tax under 
        section 3201 during any year from an employee who has 
        also received wages during such year subject to the tax 
        imposed by section 3101(b) shall, upon request of such 
        employee, furnish to him a written statement showing--
                  (A) the total amount of compensation with 
                respect to which the tax imposed by section 
                3201 was deducted,
                  (B) the total amount deducted as tax under 
                section 3201, and
                  (C) the portion of the total amount deducted 
                as tax under section 3201 which is for 
                financing the cost of hospital insurance under 
                part A of title XVIII of the Social Security 
                Act.
  (f) Statements Required in Case of Sick Pay Paid by Third 
Parties.--
          (1) Statements required from payor.--
                  (A) In general.--If, during any calendar 
                year, any person makes a payment of third-party 
                sick pay to an employee, such person shall, on 
                or before January 15 of the succeeding year, 
                furnish a written statement to the employer in 
                respect of whom such payment was made showing--
                          (i) the name and, if there is 
                        withholding under section 3402(o), the 
                        social security number of such 
                        employee,
                          (ii) the total amount of the third-
                        party sick pay paid to such employee 
                        during the calendar year, and
                          (iii) the total amount (if any) 
                        deducted and withheld from such sick 
                        pay under section 3402.
                For purposes of the preceding sentence, the 
                term ``third-party sick pay'' means any sick 
                pay (as defined in section 3402(o)(2)(C)) which 
                does not constitute wages for purposes of 
                chapter 24 (determined without regard to 
                section 3402(o)(1)).
                  (B) Special rules.--
                          (i) Statements are in lieu of other 
                        reporting requirements.--The reporting 
                        requirements of subparagraph (A) with 
                        respect to any payments shall, with 
                        respect to such payments, be in lieu of 
                        the requirements of subsection (a) and 
                        of section 6041.
                          (ii) Penalties made applicable.--For 
                        purposes of sections 6674 and 7204, the 
                        statements required to be furnished by 
                        subparagraph (A) shall be treated as 
                        statements required under this section 
                        to be furnished to employees.
          (2) Information required to be furnished by 
        employer.--Every employer who receives a statement 
        under paragraph (1)(A) with respect to sick pay paid to 
        any employee during any calendar year shall, on or 
        before January 31 of the succeeding year, furnish a 
        written statement to such employee showing--
                  (A) the information shown on the statement 
                furnished under paragraph (1)(A), and
                  (B) if any portion of the sick pay is 
                excludable from gross income under section 
                104(a)(3), the portion which is not so 
                excludable and the portion which is so 
                excludable.
        To the extent practicable, the information required 
        under the preceding sentence shall be furnished on or 
        with the statement (if any) required under subsection 
        (a).

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 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION 
                    STATEMENTS, ETC.

  (a) Returns With Respect to Certain Payments Aggregating Less 
Than $10.--In the case of each failure to file a statement of a 
payment to another person required under the authority of--
          (1) section 6042(a)(2) (relating to payments of 
        dividends aggregating less than $10), or
          (2) section 6044(a)(2) (relating to payments of 
        patronage dividends aggregating less than $10),
on the date prescribed therefor (determined with regard to any 
extension of time for filing), unless it is shown that such 
failure is due to reasonable cause and not to willful neglect, 
there shall be paid (upon notice and demand by the Secretary 
and in the same manner as tax) by the person failing to so file 
the statement, $1 for each such statement not so filed, but the 
total amount imposed on the delinquent person for all such 
failures during the calendar year shall not exceed $1,000.
  (b) Failure to Report Tips.--In the case of failure by an 
employee to report to his employer on the date and in the 
manner prescribed therefor any amount of tips required to be so 
reported by section 6053(a) which are wages (as defined in 
section 3121(a)) or which are compensation (as defined in 
section 3231(e)), unless it is shown that such failure is due 
to reasonable cause and not due to willful neglect, there shall 
be paid by the employee, in addition to the tax imposed by 
section 3101 or section 3201 (as the case may be) with respect 
to the amount of tips which he so failed to report, an amount 
equal to 50 percent of such tax.
  (c) Returns by Exempt Organizations and by Certain Trusts.--
          (1) Annual returns under section 6033(a)(1) or 
        6012(a)(6).--
                  (A) Penalty on organization.--In the case 
                of--
                          (i) a failure to file a return 
                        required under section 6033(a)(1) 
                        (relating to returns by exempt 
                        organizations) or section 6012(a)(6) 
                        (relating to returns by political 
                        organizations) on the date and in the 
                        manner prescribed therefor (determined 
                        with regard to any extension of time 
                        for filing), or
                          (ii) a failure to include any of the 
                        information required to be shown on a 
                        return filed under section 6033(a)(1) 
                        or section 6012(a)(6) or to show the 
                        correct information,
                there shall be paid by the exempt organization 
                $20 for each day during which such failure 
                continues. The maximum penalty under this 
                subparagraph on failures with respect to any 1 
                return shall not exceed the lesser of $10,000 
                or 5 percent of the gross receipts of the 
                organization for the year. In the case of an 
                organization having gross receipts exceeding 
                $1,000,000 for any year, with respect to the 
                return required under section 6033(a)(1) or 
                section 6012(a)(6) for such year, in applying 
                the first sentence of this subparagraph, the 
                amount of the penalty for each day during which 
                a failure continues shall be $100 in lieu of 
                the amount otherwise specified, and, in lieu of 
                applying the second sentence of this 
                subparagraph, the maximum penalty under this 
                subparagraph shall not exceed $50,000.
                  (B) Managers.--
                          (i) In general.--The Secretary may 
                        make a written demand on any 
                        organization subject to penalty under 
                        subparagraph (A) specifying therein a 
                        reasonable future date by which the 
                        return shall be filed (or the 
                        information furnished) for purposes of 
                        this subparagraph.
                          (ii) Failure to comply with demand.--
                        If any person fails to comply with any 
                        demand under clause (i) on or before 
                        the date specified in such demand, 
                        there shall be paid by the person 
                        failing to so comply $10 for each day 
                        after the expiration of the time 
                        specified in such demand during which 
                        such failure continues. The maximum 
                        penalty imposed under this subparagraph 
                        on all persons for failures with 
                        respect to any 1 return shall not 
                        exceed $5,000.
                  (C) Public inspection of annual returns and 
                reports.--In the case of a failure to comply 
                with the requirements of section 6104(d) with 
                respect to any annual return on the date and in 
                the manner prescribed therefor (determined with 
                regard to any extension of time for filing) or 
                report required under section 527(j), there 
                shall be paid by the person failing to meet 
                such requirements $20 for each day during which 
                such failure continues. The maximum penalty 
                imposed under this subparagraph on all persons 
                for failures with respect to any 1 return or 
                report shall not exceed $10,000.
                  (D) Public inspection of applications for 
                exemption and notice of status.--In the case of 
                a failure to comply with the requirements of 
                section 6104(d) with respect to any exempt 
                status application materials (as defined in 
                such section) or notice materials (as defined 
                in such section) on the date and in the manner 
                prescribed therefor, there shall be paid by the 
                person failing to meet such requirements $20 
                for each day during which such failure 
                continues.
                  (E) No penalty for certain annual notices.--
                This paragraph shall not apply with respect to 
                any notice required under section 6033(i).
          (2) Returns under section 6034 or 6043(b).--
                  (A) Penalty on organization or trust.--In the 
                case of a failure to file a return required 
                under section 6034 (relating to returns by 
                certain trusts) or section 6043(b) (relating to 
                terminations, etc., of exempt organizations), 
                on the date and in the manner prescribed 
                therefor (determined with regard to any 
                extension of time for filing), there shall be 
                paid by the exempt organization or trust 
                failing so to file $10 for each day during 
                which such failure continues, but the total 
                amount imposed under this subparagraph on any 
                organization or trust for failure to file any 1 
                return shall not exceed $5,000.
                  (B) Managers.--The Secretary may make written 
                demand on an organization or trust failing to 
                file under subparagraph (A) specifying therein 
                a reasonable future date by which such filing 
                shall be made for purposes of this 
                subparagraph. If such filing is not made on or 
                before such date, there shall be paid by the 
                person failing so to file $10 for each day 
                after the expiration of the time specified in 
                the written demand during which such failure 
                continues, but the total amount imposed under 
                this subparagraph on all persons for failure to 
                file any 1 return shall not exceed $5,000.
                  (C) Split-interest trusts.--In the case of a 
                trust which is required to file a return under 
                section 6034(a), subparagraphs (A) and (B) of 
                this paragraph shall not apply and paragraph 
                (1) shall apply in the same manner as if such 
                return were required under section 6033, except 
                that--
                          (i) the 5 percent limitation in the 
                        second sentence of paragraph (1)(A) 
                        shall not apply,
                          (ii) in the case of any trust with 
                        gross income in excess of $250,000, in 
                        applying the first sentence of 
                        paragraph (1)(A), the amount of the 
                        penalty for each day during which a 
                        failure continues shall be $100 in lieu 
                        of the amount otherwise specified, and 
                        in lieu of applying the second sentence 
                        of paragraph (1)(A), the maximum 
                        penalty under paragraph (1)(A) shall 
                        not exceed $50,000, and
                          (iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                In addition to any penalty imposed on the trust 
                pursuant to this subparagraph, if the person 
                required to file such return knowingly fails to 
                file the return, such penalty shall also be 
                imposed on such person who shall be personally 
                liable for such penalty.
          (3) Disclosure under section 6033(a)(2).--
                  (A) Penalty on entities.--In the case of a 
                failure to file a disclosure required under 
                section 6033(a)(2), there shall be paid by the 
                tax-exempt entity (the entity manager in the 
                case of a tax-exempt entity described in 
                paragraph (4), (5), (6), or (7) of section 
                4965(c)) $100 for each day during which such 
                failure continues. The maximum penalty under 
                this subparagraph on failures with respect to 
                any 1 disclosure shall not exceed $50,000.
                  (B) Written demand.--
                          (i) In general.--The Secretary may 
                        make a written demand on any entity or 
                        manager subject to penalty under 
                        subparagraph (A) specifying therein a 
                        reasonable future date by which the 
                        disclosure shall be filed for purposes 
                        of this subparagraph.
                          (ii) Failure to comply with demand.--
                        If any entity or manager fails to 
                        comply with any demand under clause (i) 
                        on or before the date specified in such 
                        demand, there shall be paid by such 
                        entity or manager failing to so comply 
                        $100 for each day after the expiration 
                        of the time specified in such demand 
                        during which such failure continues. 
                        The maximum penalty imposed under this 
                        subparagraph on all entities and 
                        managers for failures with respect to 
                        any 1 disclosure shall not exceed 
                        $10,000.
                  (C) Definitions.--Any term used in this 
                section which is also used in section 4965 
                shall have the meaning given such term under 
                section 4965.
          (4) Notices under section 506.--
                  (A) Penalty on organization.--In the case of 
                a failure to submit a notice required under 
                section 506(a) (relating to organizations 
                required to notify Secretary of intent to 
                operate as 501(c)(4)) on the date and in the 
                manner prescribed therefor, there shall be paid 
                by the organization failing to so submit $20 
                for each day during which such failure 
                continues, but the total amount imposed under 
                this subparagraph on any organization for 
                failure to submit any one notice shall not 
                exceed $5,000.
                  (B) Managers.--The Secretary may make written 
                demand on an organization subject to penalty 
                under subparagraph (A) specifying in such 
                demand a reasonable future date by which the 
                notice shall be submitted for purposes of this 
                subparagraph. If such notice is not submitted 
                on or before such date, there shall be paid by 
                the person failing to so submit $20 for each 
                day after the expiration of the time specified 
                in the written demand during which such failure 
                continues, but the total amount imposed under 
                this subparagraph on all persons for failure to 
                submit any one notice shall not exceed $5,000.
          (5) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any 
        failure if it is shown that such failure is due to 
        reasonable cause.
          (6) Other special rules.--
                  (A) Treatment as tax.--Any penalty imposed 
                under this subsection shall be paid on notice 
                and demand of the Secretary and in the same 
                manner as tax.
                  (B) Joint and several liability.--If more 
                than 1 person is liable under this subsection 
                for any penalty with respect to any failure, 
                all such persons shall be jointly and severally 
                liable with respect to such failure.
                  (C) Person.--For purposes of this subsection, 
                the term ``person'' means any officer, 
                director, trustee, employee, or other 
                individual who is under a duty to perform the 
                act in respect of which the violation occurs.
          (7) Adjustment for inflation.--
                  (A) In general.--In the case of any failure 
                relating to a return required to be filed in a 
                calendar year beginning after 2014, each of the 
                dollar amounts under paragraphs (1), (2), and 
                (3) shall be increased by such dollar amount 
                multiplied by the cost-of-living adjustment 
                determined under section 1(f)(3) determined by 
                substituting ``calendar year 2013'' for 
                ``calendar year 1992'' in subparagraph (B) 
                thereof.
                  (B) Rounding.--If any amount adjusted under 
                subparagraph (A)--
                          (i) is not less than $5,000 and is 
                        not a multiple of $500, such amount 
                        shall be rounded to the next lowest 
                        multiple of $500, and
                          (ii) is not described in clause (i) 
                        and is not a multiple of $5, such 
                        amount shall be rounded to the next 
                        lowest multiple of $5.
  (d) Annual Registration and Other Notification by Pension 
Plan.--
          (1) Registration.--In the case of any failure to file 
        a registration statement required under section 6057(a) 
        (relating to annual registration of certain plans) 
        which includes all participants required to be included 
        in such statement, on the date prescribed therefor 
        (determined without regard to any extension of time for 
        filing), unless it is shown that such failure is due to 
        reasonable cause, there shall be paid (on notice and 
        demand by the Secretary and in the same manner as tax) 
        by the person failing so to file, an amount equal to $1 
        for each participant with respect to whom there is a 
        failure to file, multiplied by the number of days 
        during which such failure continues, but the total 
        amount imposed under this paragraph on any person for 
        any failure to file with respect to any plan year shall 
        not exceed $5,000.
          (2) Notification of change of status.--In the case of 
        failure to file a notification required under section 
        6057(b) (relating to notification of change of status) 
        on the date prescribed therefor (determined without 
        regard to any extension of time for filing), unless it 
        is shown that such failure is due to reasonable cause, 
        there shall be paid (on notice and demand by the 
        Secretary and in the same manner as tax) by the person 
        failing so to file, $1 for each day during which such 
        failure continues, but the total amounts imposed under 
        this paragraph on any person for failure to file any 
        notification shall not exceed $1,000.
  (e) Information Required in Connection With Certain Plans of 
Deferred Compensation, Etc..--In the case of failure to file a 
return or statement required under section 6058 (relating to 
information required in connection with certain plans of 
deferred compensation), 6047 (relating to information relating 
to certain trusts and annuity and bond purchase plans), or 
6039D (relating to returns and records with respect to certain 
fringe benefit plans) on the date and in the manner prescribed 
therefor (determined with regard to any extension of time for 
filing), unless it is shown that such failure is due to 
reasonable cause, there shall be paid (on notice and demand by 
the Secretary and in the same manner as tax) by the person 
failing so to file, $25 for each day during which such failure 
continues, but the total amount imposed under this subsection 
on any person for failure to file any return shall not exceed 
$15,000. This subsection shall not apply to any return or 
statement which is an information return described in section 
6724(d)(1)(C)(ii) or a payee statement described in section 
6724(d)(2)(Y).
  (f) Returns Required Under Section 6039C.--
          (1) In general.--In the case of each failure to make 
        a return required by section 6039C which contains the 
        information required by such section on the date 
        prescribed therefor (determined with regard to any 
        extension of time for filing), unless it is shown that 
        such failure is due to reasonable cause and not to 
        willful neglect, the amount determined under paragraph 
        (2) shall be paid (upon notice and demand by the 
        Secretary and in the same manner as tax) by the person 
        failing to make such return.
          (2) Amount of penalty.--For purposes of paragraph 
        (1), the amount determined under this paragraph with 
        respect to any failure shall be $25 for each day during 
        which such failure continues.
          (3) Limitation.--The amount determined under 
        paragraph (2) with respect to any person for failing to 
        meet the requirements of section 6039C for any calendar 
        year shall not exceed the lesser of--
                  (A) $25,000, or
                  (B) 5 percent of the aggregate of the fair 
                market value of the United States real property 
                interests owned by such person at any time 
                during such year.
        For purposes of the preceding sentence, fair market 
        value shall be determined as of the end of the calendar 
        year (or, in the case of any property disposed of 
        during the calendar year, as of the date of such 
        disposition).
  (h) Failure to Give Notice to Recipients of Certain Pension, 
Etc., Distributions.--In the case of each failure to provide 
notice as required by section 3405(e)(10)(B), at the time 
prescribed therefor, unless it is shown that such failure is 
due to reasonable cause and not to willful neglect, there shall 
be paid, on notice and demand of the Secretary and in the same 
manner as tax, by the person failing to provide such notice, an 
amount equal to $10 for each such failure, but the total amount 
imposed on such person for all such failures during any 
calendar year shall not exceed $5,000.
  (i) Failure to Give Written Explanation to Recipients of 
Certain Qualifying Rollover Distributions.--In the case of each 
failure to provide a written explanation as required by section 
402(f), at the time prescribed therefor, unless it is shown 
that such failure is due to reasonable cause and not to willful 
neglect, there shall be paid, on notice and demand of the 
Secretary and in the same manner as tax, by the person failing 
to provide such written explanation, an amount equal to $100 
for each such failure, but the total amount imposed on such 
person for all such failures during any calendar year shall not 
exceed $50,000.
  (j) Failure to File Certification With Respect to Certain 
Residential Rental Projects.--In the case of each failure to 
provide a certification as required by section 142(d)(7) at the 
time prescribed therefor, unless it is shown that such failure 
is due to reasonable cause and not to willful neglect, there 
shall be paid, on notice and demand of the Secretary and in the 
same manner as tax, by the person failing to provide such 
certification, an amount equal to $100 for each such failure.
  (k)  Failure to Make Reports Required Under Section 1202.--
  In the case of a failure to make a report required under 
section 1202(d)(1)(C) which contains the information required 
by such section on the date prescribed therefor (determined 
with regard to any extension of time for filing), there shall 
be paid (on notice and demand by the Secretary and in the same 
manner as tax) by the person failing to make such report, an 
amount equal to $50 for each report with respect to which there 
was such a failure. In the case of any failure due to 
negligence or intentional disregard, the preceding sentence 
shall be applied by substituting ``$100'' for ``$50''. In the 
case of a report covering periods in 2 or more years, the 
penalty determined under preceding provisions of this 
subsection shall be multiplied by the number of such years. No 
penalty shall be imposed under this subsection on any failure 
which is shown to be due to reasonable cause and not willful 
neglect.
  (l) Failure to File Return With Respect to Certain Corporate 
Transactions.--In the case of any failure to make a return 
required under section 6043(c) containing the information 
required by such section on the date prescribed therefor 
(determined with regard to any extension of time for filing), 
unless it is shown that such failure is due to reasonable 
cause, there shall be paid (on notice and demand by the 
Secretary and in the same manner as tax) by the person failing 
to file such return, an amount equal to $500 for each day 
during which such failure continues, but the total amount 
imposed under this subsection with respect to any return shall 
not exceed $100,000.
  (m) Alcohol and Tobacco Taxes for Penalties for Failure to 
File Certain Information Returns.--with respect to alcohol and 
tobacco taxes, see, generally, subtitle E.
  (n) Failure to Make Reports Required Under Sections 3511, 
6053(C)(8), and 7705.--In the case of a failure to make a 
report required under section 3511, 6053(c)(8), or 7705 which 
contains the information required by such section on the date 
prescribed therefor (determined with regard to any extension of 
time for filing), there shall be paid (on notice and demand by 
the Secretary and in the same manner as tax) by the person 
failing to make such report, an amount equal to $50 for each 
report with respect to which there was such a failure. In the 
case of any failure due to negligence or intentional disregard 
the preceding sentence shall be applied by substituting 
``$100'' for ``$50''.
  (o) Failure to Provide Notice Under Section 83(i).--In the 
case of each failure to provide a notice as required by section 
83(i)(6), at the time prescribed therefor, unless it is shown 
that such failure is due to reasonable cause and not to willful 
neglect, there shall be paid, on notice and demand of the 
Secretary and in the same manner as tax, by the person failing 
to provide such notice, an amount equal to $100 for each such 
failure, but the total amount imposed on such person for all 
such failures during any calendar year shall not exceed 
$50,000.

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