HTTF opposes payroll tax on options

In a letter to the President, members of the Senate Republican High Tech Task Force wrote that the IRS is imposing this tax increase by act of rule, not by act of law. "On January 1, 2003, these regulations will take effect and impose a large, new tax burden on a system that was designed to save and build ownership equity in their employer," the Senators wrote. "We are writing to request that you direct the Secretary of Treasury to act promptly to stop this tax grab."

Citing recent stock market declines, the Senators pointed out that employees could be taxed on income that may never be received. In addition to harming employees, they stated that the cost of administering these new taxes will be so burdensome that employers are likely to stop offering stock programs of this kind.

"Mr. President, your leadership last year to reduce the tax burden on all Americans produced the largest tax cut in a generation," the Senators wrote. "Please do not let IRS bureaucrats reverse your hard-won gains."

High Tech Task Force members who sent the letter included Senator George Allen (VA), HTTF chairman, Senators Wayne Allard (CO), Robert Bennett (UT), Sam Brownback (KS), Conrad Burns (MT), Susan Collins (ME), Gordon Smith (OR), and John Warner (VA), as well as Senators Judd Gregg (R-NH) and Mitch McConnell (R-KY).

June 5, 2002

The Honorable George W. Bush
The President
The White House
Washington, D.C. 20500

Dear Mr. President:

On January 1, 2003, the Internal Revenue Service is planning to impose a $23 billion tax increase on workers and businesses throughout the country. Amazingly, the IRS is imposing this tax increase by act of rule, and not by act of law.

We are writing to request that you direct the Secretary of Treasury to act promptly to stop this tax grab. The Treasury Department and the IRS have taken the position in proposed regulations that payroll taxes should be collected on the purchase of company stock by employees through qualified incentive stock options and employee stock purchase plans. On January 1, 2003, these regulations will take effect and impose a large, new tax burden on a system that was designed to encourage employees to save and the build ownership equity in their employer.

If these rules are implemented, employees will be forced to pay taxes on "income" that has never been taxed before. In fact, these regulations would impose taxes on amounts that, in a falling stock market, may never actually be realized as compensation by the employee. Further, the costs of complying with these new tax mandates will only serve to discourage employers from offering such plans.

Finally, the American Payroll Association, which has some degree of expertise in this area, believes that this rule will be challenged in court as invalid on grounds that it is inconsistent with the tax code, case law, and legislative history. This litigation will cause big compliance problems for the government, and a great deal of disruption for taxpayers.

Mr. President, your leadership last year to reduce the tax burden on all Americans produced the largest tax cut in a generation. Please do not let IRS bureaucrats reverse your hard-won gains.

Sincerely,
George Allen
Wayne Allard
Robert Bennett
Sam Brownback
Conrad Burns
Susan Collins
Gordon Smith
John Warner
Judd Gregg
Mitch McConnell