Stark Introduces House Version of Levin-McCain Options Bill

Fortney Stark (D-CA) has introduced the House version of the "Ending the Double Standard for Stock Options Act," a bill that mirrors the Senate bill of the same title (S. 1940) introduced by Senators Carl Levin (D-MI) and John McCain (R-AZ). The bill has two principal provisions:

1. Companies cannot claim a tax deduction for options unless they have previously recognized an expense on their income statement for those options.
2. The research and development tax credit for compensation paid as options can only be claimed to the extent that the company takes a tax deduction for options exercises that year.

The bill would mean that companies would have to find a way to expense options that is consistent with generally accepted accounting principles, such as SFAS 123, prior to the time that options exercises generate a tax deduction for the company. The company's deduction could not exceed the charge to income it had shown for those options in prior years. The bill does not explain how deductions taken for option exercises would be matched to previously declared expenses.

Observers give the bills more of a chance than when they were introduced in 1998, but still predict an uphill battle. Meanwhile, Senator Lieberman (D-Ct) has indicated he will oppose requiring companies to account for options on their income statements, but may propose legislation that would encourage employers to provide broader options while setting stricter limits on how executives could exercise options.