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.

Senator Sees Big Reporting Gap In Stock Options

Senator Carl Levin of Michigan has discovered what he calls a “huge gap in stock option reporting” that is costing the government billions in lost revenue. Levin is teaming up with Senator John McCain to propose a bill that will prevent this from happening in the future. Check out the Associated Press story on this new development below.

A multibillion-dollar gap between what public companies book as expenses for their executives' stock options and what they report to the IRS under two sets of rules is costing the Treasury billions in lost revenue, a key senator says.

Companies continue to report deductions for stock options to the Internal Revenue Service that far exceed what they are accounting and disclosing to shareholders as hits against their bottom line, Sen. Carl Levin, D-Mich., said Wednesday. He released new IRS data showing that the total gap for corporations in 2008 was $52 billion.

To close the gap, Levin and Sen. John McCain, R-Ariz., have proposed legislation that would require that the tax deduction for stock options not exceed the expense for options reported in financial statements.