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The Employee Ownership Update

Corey Rosen

January 25, 2002

(Corey Rosen)

State Laws Do Not All Conform to New Tax Rules

Many state laws do not conform in whole or in part to the retirement and ESOP provisions of the new tax bill. This could cause significant problems for companies and employees that exceed the contribution limits under old law. Some plans could even be disqualified under state law, making contributions taxable. Efforts are now underway to reform state laws in time to avoid the problems. California, for instance, is considering legislation to conform (SB 657). But the costs of conformity will be substantial for already strapped states. In California, for instance, conformity will cost over $40 million per year. Companies should consult with their advisors carefully on this issue to plan strategy for 2002. While most, and very possibly all, states will confirm eventually, this may not all happen in a timely fashion.

Other states where these issues could be a concern include Alabama, Arizona, Arkansas, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maine, Massachusetts, New Jersey, New Mexico, North Carolina, Pennsylvania, South Carolina, West Virginia, and Wisconsin.

Grassley Bill Would Provide AMT Relief

Senator Charles Grassley (R-IA), ranking Republican on the Senate Finance Committee, has introduced legislation (S. 1831) that would provide for tax relief for incentive stock options exercised in 2000. The bill would allow employees to pay the alternative minimum tax based on the value of the shares as of April 15, 2001 or the date sold, if earlier. The relief would be gradually reduced for taxpayers making over $53,000 for single taxpayers, $84,270 for heads of households, and $106,000 for married taxpayers filing jointly.

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