Enron Collapse May Lead To Repeal Of US Stock Option Tax Breaks

by Mike Godfrey, Tax-News.com, Washington

08 February 2002

According to a report in the Wall Street Journal on Thursday, lawmakers leading the investigation into the collapse of former energy trading giant, Enron Corp, are set to repeal a tax law which encourages US companies to issue stock options, arguing that the organisation's financial dealings clearly show that the incentive is open to abuse.

The Senate Governmental Subcommittee on Investigations, chaired by Democrat Senator Carl Levin, has argued that the current law which allows businesses to claim tax deductions for stock options while not counting them as expenses on annual financial statements, needs to be changed following the Enron debacle.

He, and Republican Senator John McCain, plan to introduce legislation next week which will deny the tax benefits of stock option expenses if they are not relected on company books.

According to an analysis by the Citizens for Tax Justice group, between 1996 and 2000 Enron issued nearly $600 million in stock options, and the ensuing tax deductions helped to greatly reduce the company's federal liability.

'This is much broader than Enron, but Enron just dramatizes the problem you have when your books do not accurately reflect your financial position,' Senator Levin told the WSJ.

However, the bipartisan initiative has its critics. Many industry sectors, including technology and publishing, have made heavy use of stock options as both employee incentives and compensation, and Mark Bohannon, General Counsel at the Software and Information Industry Association, professed himself baffled by Senator Levin's response to the crisis.

'When you look at the Enron situation, stock options were completely irrelevant,' he told the WSJ, referring to the company's slide into bankruptcy. 'If this is the motivation for bringing legislation, we're quite puzzled.'

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