Corporations Reap Tax Windfalls on Stock Options

From Web CPA:

Corporations that issued stock options to their executives claimed tax deductions that were collectively $52 billion larger than the expenses shown on their books in 2008, according to newly released data.

Senate Permanent Subcommittee on Investigations Chairman Carl Levin, D-Mich., highlighted the IRS data Wednesday. “Current stock option accounting and tax rules are out of kilter, lead to corporations reporting inconsistent stock option expenses on their financial books versus their tax returns, and often produce huge tax windfalls for companies that pay their executives with large stock option grants,” he said in a statement.

IRS data from 2008 shows that U.S. companies reduced their taxes by billions of dollars by claiming $52 billion more in stock option tax deductions than the stock option expenses shown on their books, Levin noted. The figures from prior years are $48 billion in excess stock option tax deductions in 2007; $61 billion in 2006; and $43 billion in 2005.

To address the mismatch between the treatment of stock options on companies’ books and tax returns, Levin and Sen. John McCain, R-Ariz., have introduced S. 1491, the Ending Excessive Corporate Deductions for Stock Options Act. This legislation would curb excessive corporate tax deductions for stock options, by requiring that the corporate tax deduction for stock option compensation be no greater than the expense shown on corporate financial reports filed with the Securities and Exchange Commission.