Contact: Ron Talley, 888-260-1371 / 202-682-3143/ 703-622-6722 (Cell) rontalley@aol.com

Many companies use stock options as an incentive to attract and motivate employees. Companies give their workers the right to purchase company stock at a small discount from the listed price through Employee Stock Purchase Plans (ESPP) and at a fair market value for Incentive Stock Options (ISO). This symbiosis motivates workers and germinates companies’ shareholder base.

Longstanding Treasury policy held that ISOs and ESPPs were not subject to federal payroll tax withholding. However, IRS proposed regulations seek to reverse 30 years of precedent and practice by imposing payroll tax obligations at the point of exercise of stock options. RMSP is encouraging public comment to the Treasury Department for the following reasons.

First, Congress never intended for this income to be considered taxable. The arrangement hinges on a tax incentive to purchase stock and thereby have a stake in the future productivity of the company. To now assume that these business arrangements are a government revenue stream is tantamount to a tax increase on rank-and-file Americans. This is especially troubling, as no law has changed that validates the IRS’ change in position.

Second, imposition of such a tax will force many workers to sell their stock, or purchase less stock, just to pay the tax due. As stock options are noncash transactions, or paper gains, withholding on the options must be in addition to salary all ready subject to payroll and income tax withholding. In effect, the employee is burdened with producing the money to cover the new tax, thereby serving as total disincentive to exercise stock options.

Willem P. Roelandts, President and CEO of Xilinx, a computer chip manufacturer in San Jose recently cited as one of the top ten companies in the country to work for, says: "New taxes on these employee stock plans may reduce our employees' participation in the plans and would reduce the employees' ability to hold the stock for investment. The proposed withholding taxes would reduce an employee benefit which has instilled a great sense of pride and ownership in all our employees." Mr. Roelandts went on to say, "Many of employees have opted to donate a portion of their shares to a local public school adopted by Xilinx. The IRS proposed rule might prevent some of our employees from being able to continue to make the contributions. It would be a shame to lose the ability to help the children and educators in our community."

To combat the new taxation, RMSP founder Amo Houghton (R-NY) introduced H.R. 2695 which would codify that these qualified stock options should not be subject to payroll tax withholding. This legislation was included in H.R. 3762 the Pension Security Act which passed the House of Representatives on April 11^th.

This workforce protection legislation had the unanimous support of RMSP House members. During House floor debate, Rep. Houghton said, "This bill will preserve the 30 year policy of the IRS, prevent higher taxes, and prevent the depression of employee stock purchases and a reversal of the positive trend in recent years towards greater employee company ownership. (This Pension Reform Act with H.R.3762) will prevent a change of policy that would tend to hurt younger, less affluent employees accumulating stock now, rather than those who have already accumulated stock under existing law."

 Fellow Ways and Means Committee member and Main Street colleague Rep. Nancy Johnson (R-CT) offered the following, "For thirty years, we have tried to include rank-and-file workers in company ownership, and now the IRS is saying, 'Remember those tax-free stock options you were offered as a new employee? Now that you can use them, they're not tax-free anymore.'" "Employee Stock Options offer workers long-term investment tools at an attractive price, so I am very pleased we ensured in the Employee's Retirement Savings Bill of Rights that these tools would not be taxed out of existence," added Rep Mark Foley (R-FL), another House Ways and Means Committee member and Main Street member.

Rep. Tom Davis (R-VA) adds, "Too many people are facing the unenviable prospect of selling their homes, borrowing from family and friends, or frittering away their children's education savings - all because the IRS is intent on taxing them for unrealized 'paper' gains." According to Rep. Davis, "It's just wrong to impose withholding-tax obligation at the point of purchase of a stock."