Levin, McCain, Fitzgerald and Durbin Introduce "Ending the Double Standard for Stock Options Act"

[Washington, DC] – U.S. Senators Carl Levin (D-MI), John McCain (R-AZ), Peter Fitzgerald (R-IL), and Dick Durbin (D-IL), today unveiled legislation which aims to plug a corporate tax loophole and would require companies to deduct the cost of stock options from their earnings.

"Our bill would require companies to treat stock options on their tax returns the same way they treat them on their financial statements," said Durbin. "It will put an end to the flagrant abuses that we have seen from companies like Enron who used their stock options as part of an elaborate shell game."

The bankruptcy of the Enron Corporation has brought to light a serious problem in how some U.S. corporations use stock options to avoid paying taxes and overstate earnings. Current accounting rules allow option compensation to be kept off a company's books. Enron reportedly failed to pay any U.S. taxes four out of the last five years, a period during which it earned $1.8 billion in income, in part due to $600 million in stock option tax deductions which were never reported as an expense on its financial statements. Had the law required Enron to report this deduction on its books, its stockholders would have learned the company's income was one-third less than the $1.8 billion it disclosed.

The Levin-McCain-Fitzgerald-Durbin bill would not legislate accounting standards for stock options or directly require companies to expense stock option pay, but it would require companies to treat stock options on their financial statements the same way they treat them on their tax returns. The bill would require companies to tell the U.S. government and its stockholders the same thing – whether employee stock options are, in fact, an expense and, if so, how much of an expense against company earnings.

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