[Federal Register Volume 70, Number 126 (Friday, July 1, 2005)]
[Proposed Rules]
[Pages 38057-38058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-12956]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[REG-142686-01]
RIN-1545-BA26


Application of the Federal Insurance Contributions Act, Federal 
Unemployment Tax Act, and Collection of Income Tax at Source to 
Statutory Stock Options

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document withdraws the notice of proposed rulemaking 
relating to the application of the Federal Insurance Contributions Act 
(FICA), Federal Unemployment Tax Act (FUTA), and Collection of Income 
Tax at Source to incentive stock options and options granted under 
employee stock purchase plans (collectively referred to as ``statutory 
stock options'') that was published on November 14, 2001. This 
withdrawal affects employers that grant these options and employees who 
exercise these options.

FOR FURTHER INFORMATION CONTACT: Paul J. Carlino or Michael Swim, 202-
622-0047 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On November 14, 2001, the IRS and Treasury published proposed 
amendments to 26 CFR part 31 under sections 3121(a), 3306(b), and 
3401(a) of the Internal Revenue Code (Code), and to 26 CFR part 1 under 
section 424 of the Code, that would address the application of the 
FICA, FUTA, and Collection of Income Tax at Source to statutory stock 
options. These proposed amendments to the regulations were published in 
the Federal Register (66 FR 57023).
    The American Jobs Creation Act of 2004 (the AJCA), H.R. 4520, 
Public Law 108-357 (118 Stat. 1418), was enacted on October 22, 2004. 
Section 251 of the AJCA amended sections 3121(a) and 3306(b) of the 
Code to exclude remuneration on account of a transfer of a share of 
stock to any individual pursuant to an exercise of an incentive stock 
option (as defined in section 422(b)) or under an employee stock 
purchase plan (as defined in section 423(b)), or any disposition by the 
individual of such stock, from the definition of wages for FICA and 
FUTA tax purposes, respectively. Section 251 of the AJCA also amended 
sections 421(b) and 423(c) of the Code so that no amount shall be 
required to be deducted and withheld under the Collection of Income Tax 
at Source provisions of the Code with respect to any amount treated as 
compensation under section 421(b) or 423(c), respectively. Because the 
proposed amendments to the regulations are no longer consistent with 
the statutes, the IRS and Treasury are withdrawing the proposed 
amendments to the regulations.
    The statutory amendments made by section 251 of the AJCA apply to 
stock acquired pursuant to statutory stock options exercised after 
October 22, 2004. For guidance applying to stock acquired pursuant to 
statutory stock options exercised on or before October 22, 2004, see 
Notice 2002-47 (2002-2 C.B. 97).

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping

[[Page 38058]]

requirements, Social security, Unemployment compensation.

Withdrawal of Notice of Proposed Rulemaking

    Accordingly, under the authority of 26 U.S.C. 7805, the notice of 
proposed rulemaking (REG-142686-01) that was published in the Federal 
Register on November 14, 2001 (66 FR 57023) is withdrawn.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-12956 Filed 6-30-05; 8:45 am]
BILLING CODE 4830-01-P