< Back to H.R. 5088 (107th Congress, 2001–2002)

Text of the Executive Accountability Act of 2002

This bill was introduced on July 10, 2002, in a previous session of Congress, but was not enacted. The text of the bill below is as of Jul 10, 2002 (Introduced).

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HR 5088 IH

107th CONGRESS

2d Session

H. R. 5088

To amend the Internal Revenue Code of 1986 to encourage more responsible corporate governance.

IN THE HOUSE OF REPRESENTATIVES

JULY 10, 2002

Mr. MATSUI (for himself, Mr. GEPHARDT, Ms. PELOSI, Mr. RANGEL, Mr. NEAL of Massachusetts, and Mr. DOGGETT) introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To amend the Internal Revenue Code of 1986 to encourage more responsible corporate governance.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ‘Executive Accountability Act of 2002’.

SEC. 2. PERFORMANCE-BASED COMPENSATION EXCEPTION TO $1,000,000 LIMITATION ON DEDUCTIBLE COMPENSATION NOT TO APPLY IN CERTAIN CASES.

    (a) IN GENERAL- Paragraph (4) of section 162(m) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

        ‘(G) CERTAIN FACTORS NOT PERMITTED TO BE TAKEN INTO ACCOUNT IN DETERMINING WHETHER PERFORMANCE GOALS ARE MET- Subparagraph (C) shall not apply if, in determining whether the performance goals are met, any of the following are taken into account:

          ‘(i) Cost savings as a result of changes to any qualified employer plan (as defined in section 4972(d)).

          ‘(ii) Excess assets of such a plan or earnings thereon.

          ‘(iii) Any excess of the amount assumed to be the return on the assets of such a plan over the actual return on such assets.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 3. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF CORPORATE INSIDERS IF CORPORATION FUNDS DEFINED CONTRIBUTION PLAN WITH EMPLOYER STOCK.

    (a) IN GENERAL- Subpart A of part I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

‘SEC. 409A. DENIAL OF DEFERRAL FOR FUNDED DEFERRED COMPENSATION OF CORPORATE INSIDERS IF CORPORATION FUNDS DEFINED CONTRIBUTION PLAN WITH EMPLOYER STOCK.

    ‘(a) IN GENERAL- If an employer maintains a defined contribution plan to which employer contributions are made in the form of employer stock and such employer maintains a funded deferred compensation plan--

      ‘(1) compensation of any corporate insider which is deferred under such funded deferred compensation plan shall be included in the gross income of the insider or beneficiary for the 1st taxable year in which there is no substantial risk of forfeiture of the rights to such compensation, and

      ‘(2) the tax treatment of any amount made available under the plan to a corporate insider or beneficiary shall be determined under section 72 (relating to annuities, etc.).

    ‘(b) FUNDED DEFERRED COMPENSATION PLAN- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘funded deferred compensation plan’ means any plan providing for the deferral of compensation unless--

        ‘(A) the employee’s rights to the compensation deferred under the plan are no greater than the rights of a general creditor of the employer, and

        ‘(B) all amounts set aside (directly or indirectly) for purposes of paying the deferred compensation, and all income attributable to such amounts, remain (until made available to the participant or other beneficiary) solely the property of the employer (without being restricted to the provision of benefits under the plan), and

        ‘(C) the amounts referred to in subparagraph (B) are available to satisfy the claims of the employer’s general creditors at all times (not merely after bankruptcy or insolvency).

      Such term shall not include a qualified employer plan.

      ‘(2) SPECIAL RULES-

        ‘(A) EMPLOYEE’S RIGHTS- A plan shall be treated as failing to meet the requirements of paragraph (1)(A) unless--

          ‘(i) the compensation deferred under the plan is paid only upon separation from service, death, or at a specified time (or pursuant to a fixed schedule), and

          ‘(ii) the plan does not permit the acceleration of the time such deferred compensation is paid by reason of any event.

        If the employer and employee agree to a modification of the plan that accelerates the time for payment of any deferred compensation, then all compensation previously deferred under the plan shall be includible in gross income for the taxable year during which such modification takes effect and the taxpayer shall pay interest at the underpayment rate on the underpayments that would have occurred had the deferred compensation been includible in gross income when deferred.

        ‘(B) CREDITOR’S RIGHTS- A plan shall be treated as failing to meet the requirements of paragraph (1)(B) with respect to amounts set aside in a trust unless--

          ‘(i) the employee has no beneficial interest in the trust,

          ‘(ii) assets in the trust are available to satisfy claims of general creditors at all times (not merely after bankruptcy or insolvency), and

          ‘(iii) there is no factor (such as the location of the trust outside the United States) that would make it more difficult for general creditors to reach the assets in the trust than it would be if the trust assets were held directly by the employer in the United States.

    ‘(c) CORPORATE INSIDER- For purposes of this section, the term ‘corporate insider’ means, with respect to a corporation, any individual who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to such corporation.

    ‘(d) OTHER DEFINITIONS- For purposes of this section--

      ‘(1) PLAN INCLUDES ARRANGEMENTS, ETC- The term ‘plan’ includes any agreement or arrangement.

      ‘(2) 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.’

    (b) CLERICAL AMENDMENT- The table of sections for such subpart A is amended by adding at the end the following new item:

‘Sec. 409A. Denial of deferral for funded deferred compensation of corporate insiders if corporation funds defined contribution plan with employer stock.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts deferred after the date of the enactment of this Act.

SEC. 4. INCLUSION IN INCOME OF CERTAIN DEFERRED AMOUNTS OF INSIDERS OF CORPORATIONS WHICH EXPATRIATE TO AVOID UNITED STATES INCOME TAX.

    (a) IN GENERAL- Part II of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically included in gross income) is amended by adding at the end the following new section:

‘SEC. 91. UNREALIZED GAIN ON STOCK OPTIONS OF INSIDERS OF CORPORATIONS WHICH EXPATRIATE TO AVOID UNITED STATES INCOME TAX.

    ‘(a) IN GENERAL- In the case of a corporate insider of any expatriate corporation, the gross income of such insider (for the taxable year during which such corporation becomes an expatriate corporation) shall include as ordinary income the net unrealized built-in gain on options held by such insider to acquire stock in such corporation or in any member of the expanded affiliated group which includes such corporation. Proper adjustments shall be made in the amount of any gain or loss subsequently realized with respect to such options for any amount included in gross income under the preceding sentence.

    ‘(b) DEFINITIONS- For purposes of this section--

      ‘(1) CORPORATE INSIDER- The term ‘corporate insider’ means, with respect to a corporation, any individual who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to such corporation.

      ‘(2) EXPATRIATE CORPORATION-

        ‘(A) IN GENERAL- The term ‘expatriate corporation’ means the acquiring corporation in a corporate expatriation transaction.

        ‘(B) CORPORATE EXPATRIATION TRANSACTION- For purposes of this paragraph--

          ‘(i) IN GENERAL- The term ‘corporate expatriation transaction’ means any transaction if--

            ‘(I) a nominally foreign corporation (referred to in this subparagraph as the ‘acquiring corporation’) acquires, as a result of such transaction, directly or indirectly substantially all of the properties held directly or indirectly by a domestic corporation, and

            ‘(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation.

          ‘(ii) LOWER STOCK OWNERSHIP REQUIREMENT IN CERTAIN CASES- Subclause (II) of clause (i) shall be applied by substituting ‘50 percent’ for ‘80 percent’ with respect to any nominally foreign corporation if--

            ‘(I) such corporation does not have substantial business activities (when compared to the total business activities of the expanded affiliated group) in the foreign country in which or under the law of which the corporation is created or organized, and

            ‘(II) the stock of the corporation is publicly traded and the principal market for the public trading of such stock is in the United States.

          ‘(iii) PARTNERSHIP TRANSACTIONS- The term ‘corporate expatriation transaction’ includes any transaction if--

            ‘(I) a nominally foreign corporation (referred to in this paragraph as the ‘acquiring corporation’) acquires, as a result of such transaction, directly or indirectly properties constituting a trade or business of a domestic partnership,

            ‘(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former partners of the domestic partnership or related foreign partnerships (determined without regard to stock of the acquiring corporation which is sold in a public offering related to the transaction), and

            ‘(III) the acquiring corporation meets the requirements of subclauses (I) and (II) of clause (ii).

          ‘(iv) SPECIAL RULES- For purposes of this subparagraph--

            ‘(I) a series of related transactions shall be treated as 1 transaction, and

            ‘(II) stock held by members of the expanded affiliated group which includes the acquiring corporation shall not be taken into account in determining ownership.

          ‘(v) NOMINALLY FOREIGN CORPORATION- The term ‘nominally foreign corporation’ means any corporation which would (but for this subparagraph) be treated as a foreign corporation.

      ‘(3) NET REALIZED BUILT-IN GAIN- The term ‘net unrealized built-in gain’ means, with respect to options to acquire stock in any corporation, the amount which would be required to be included in gross income were such options exercised.

      ‘(4) EXPANDED AFFILIATED GROUP- The term ‘expanded affiliated group’ means an affiliated group (as defined in section 1504(a) without regard to section 1504(b)).’

    (b) CLERICAL AMENDMENT- The table of sections for such part II is amended by adding at the end the following new item:

‘Sec. 91. Certain deferred amounts of insiders of corporations which expatriate to avoid United States income tax.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to corporate expatriation transactions completed after September 11, 2001, and to taxable years ending after such date.

SEC. 5. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO DEFERRED COMPENSATION PAID BY CORPORATION AFTER MAJOR DECLINE IN STOCK VALUE OR CORPORATION DECLARES BANKRUPTCY.

    (a) IN GENERAL- Section 4999 of the Internal Revenue Code of 1986 (relating to golden parachute payments) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

    ‘(c) TAX TO APPLY TO DEFERRED COMPENSATION PAID AFTER MAJOR STOCK VALUE DECLINE OR BANKRUPTCY-

      ‘(1) IN GENERAL- For purposes of this section, the term ‘excess parachute payment’ includes severance pay, and any other payment of deferred compensation, which is received by a corporate insider after the date that the insider ceases to be employed by the corporation if--

        ‘(A) there is at least a 75-percent decline in the value of the stock in such corporation during the 1-year period ending on such date, or

        ‘(B) such corporation becomes a debtor in a title 11 or similar case (as defined in section 368(a)(3)(A)) during the 180-day period beginning 90 days before such date.

      Such term shall not include any payment from a qualified employer plan.

      ‘(2) CORPORATE INSIDER- For purposes of paragraph (1), the term ‘corporate insider’ means, with respect to a corporation, any individual who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to such corporation.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply with respect to cessations of employment after the date of the enactment of this Act.