|  Home   |  Site Search   |  Tax News & Views  |

Archer Mulls AMT Relief, Stock Options Limits For Inclusion In House Tax Bill

Wednesday, June 5, 1997

Deloitte & Touche OnLine

Corporate and individual alternative minimum tax relief are high on the list of House Ways and Means Committee Chairman Bill Archer, R-Texas, for inclusion in his tax package to be announced next week, according to a draft of the measure circulating on Capitol Hill.

The proposal would phase out corporate AMT over eight years and institute indexing of AMT for individual taxpayers, according to the draft, which has been circulated to some congressional members and staff but has not yet been made available to the public. The corporate AMT would end in 2005, under the proposal. What is not yet known is how the plan would affect the 90 percent net operating loss limitation under current law.

It also remains to be seen what will happen to the AMT credits against regular corporate income taxes granted under current law. These credits must be booked for financial statement purposes and a corporation could be required to take a big hit on its books if the credits remain unused.

The draft still is being developed by the Ways and Means Committee staff and will not be finalized until next week. Archer plans to meet with committee Democrats on June 6 to discuss his bill

Stock Options Limit Also Expected in Draft: Concern is mounting that a modified version of a bill requiring stock options to be treated the same way for tax and book accounting purposes also will be included in the Archer plan.

The bill (S.576) states that a company can claim stock option pay as an expense for tax purposes only to the extent that the company has also treated that pay as an expense on its books. The measure was offered April 15 by Sen. Carl Levin, D-Mich., and Sen. John McCain, R-Ariz.

Sources closely tracking the progress of the bill warn that the Levin-McCain language will be added to Archer's mark, at least in a modified form. The Ways and Means Committee chairman is expected to release a copy of his proposal as early as June 9 and only then will it definitely be known whether his proposal will include the stock option bill.

The Senate Finance Committee staff said publicly that they oppose the stock option bill, and in response are preparing a legislative response to be offered when McCain and Levin offer the bill on the floor later this year, sources said.

Both the Finance Committee response and the modified language that might be in Archer's proposal are expected to be guided by Internal Revenue Code Section 162(m), which limits the deductibility of executive compensation.

If legislators decided to apply a Section 162(m) approach to the McCain Levin bill, according to a Deloitte & Touche analysis, this could mean one or a combination of the following:

• deductibility of stock options could be limited to a specific value;
• the McCain-Levin bill could apply only to those to whom Section 162(m) applies; and,
• the value of deductible stock options granted or included in a benefit plan could be limited to those approved by shareholders.

"We have heard a huge amount of complaints in recent weeks over the bill," Lindy Paull, Senate Finance Committee chief of staff, told the American Institute of Certified Public Accounts said.

Limiting the scope of the bill by applying a Section 162(m) approach could appease many high-tech companies opposing the bill, sources close to the process said. Often these firms offer stock options to employees because there is not enough cash to pay salaries. If the bill applies only to highly compensated employees, the practices of these businesses might not be affected.