Senators Ask Bush To Stop IRS Taxing Stock Options

by Mike Godfrey, Tax-News.com, New York

10 June 2002

The US Senate Republican High Tech Task Force (HTTF) wants President Bush to reverse an IRS ruling that would force employees to pay payroll taxes on the purchase of stock options through qualified incentive stock options and employee stock purchase plans (ESPPs). In a letter to the President, members of the HTTF Force wrote that the IRS is imposing this tax increase by act of rule, not by act of law.

"On January 1, 2003, these regulations will take effect and impose a large, new tax burden on a system that was designed to save and build ownership equity in their employer," the senators wrote. "We are writing to request that you direct the Secretary of Treasury to act promptly to stop this tax grab."

Citing recent stock market declines, the senators pointed out that employees could be taxed on income that may never be received. In addition to harming employees, they said that the cost of administering these new taxes will be so burdensome that employers are likely to stop offering stock programs of this kind.

"Mr. President, your leadership last year to reduce the tax burden on all Americans produced the largest tax cut in a generation," the senators wrote. "Please do not let IRS bureaucrats reverse your hard-won gains."

In November, 2001, the IRS issued proposed regulations clarifying that FICA and FUTA taxes would be imposed on the entire spread at purchase/exercise of ESPP/ISO shares. Despite a public hearing in March, at which many organisations voiced opposition to the proposals, the IRS is sticking to its intention of applying the taxes after this year.

The HTTF was established in May, 1999 and renewed in January 2001 in the new Congress by Republican Leader Trent Lott. It says its mission is to act as the Republican leadership’s outreach effort to the technology community and to advise the Republican caucus on technology issues during the 107th Congress. According to the Information Technology Industry Council’s High Tech Voting Guide, HTTF Members had an average voting score of 96% in the 106th Congress and have an average lifetime voting score of 92%.

The Task Force advocates legislation that: 'unleashes the potential of technology to spur economic growth and personal freedom, maximize the interaction between technology leaders and Senators', and sponsors events and discussions to enhance Senators' understanding of the issues affecting today's technology industry.

Trent Lott asked Senator George Allen, who entered the Senate in 2001, to serve as chairman of the Senate Republican High Tech Task Force. Under his leadership as Governor from 1994 to 1998, Virginia attracted an unprecedented $8 billion in investment from the high-tech industry, making it the third fastest growing high-technology State behind California and Texas -- adding 50,300 technology jobs to its economic base.

Members of the HTTF who sent the letter include George Allen, Senators Wayne Allard (Co.), Robert Bennett (Ut.), Sam Brownback (Ks.), Conrad Burns (Mt.), Susan Collins (Me.), Gordon Smith (Or.), and John Warner (Va.), as well as Senators Judd Gregg (R-NH) and Mitch McConnell (R-Ky.).

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