Senators blast stock option 'loophole'

Top Senate investigators are slamming a “loophole” they say allows companies to reap huge tax benefits on relatively small stock option perks.

Sens. Carl LevinCarl Levin'Nuclear option' for Supreme Court nominees will damage Senate McCain's Supreme Court strategy leads to nuclear Senate The Fed and a return to banking simplicity MORE (D-Mich.) and John McCainJohn McCainA Cabinet position for Petraeus; disciplinary actions for Broadwell after affair Meet Trump’s ‘mad dog’ for the Pentagon Wrestling mogul McMahon could slam her way into Trump administration MORE (R-Ariz.) argued Wednesday that this tax workaround available to companies that provide compensation by way of stock options is unfair and, given the ongoing effort to replace sequester cuts and overhaul the tax code, should be eliminated. The two lead the Senate’s permanent subcommittee on Investigations.

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Specifically, the two are blasting a tax provision that allows companies to claim deductions for compensation by way of stock options that vastly exceeds the amount of stock option compensation the company actually reports on its financial statements.

As an example, they pointed to the upcoming public offering of stock in Twitter. According to the pair, the company could claim a $154 tax deduction under its newly formed stock options, while only reporting $7 million in actual stock option compensation.

The two noted that Twitter is not the only company to avail itself of this particular tax perk. Rather, they said IRS data showed that from 2004 to 2010, companies reaped “tens of billions of dollars” in tax benefits that were not reflected in their actual financial statements. However, the data also showed that only a “small fraction” of the companies that could take advantage of this tax benefit did so — roughly 250 out of tens of thousands that could.

Given that a relatively narrow number of companies are taking advantage of a tax loophole they argue is unfair, the two contended it should be scrapped, potentially in any upcoming tax reform package. The Joint Committee on Taxation estimated that eliminating the tax break would raise $23 billion in revenue for the government.