(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Senate Bill Would End Stock Option Double Standard

A bi-partisan Senate bill would require companies to treat stock options on their tax returns the same way they treat them on their financial statements. Under current accounting rules, stock options do not have to be shown as an expense on the corporate books, but are allowed as a corporate tax deduction. According to bill co-sponsor Sen. Carl Levin, this "long-standing mismatch" between accounting and tax rules was "exploited by Enron to the hilt," with resulting misleading financial statements.

The measure, S.1940, would not legislate accounting standards for stock options or directly require companies to expense stock option pay. Rather, the measure would essentially state that companies can take a tax deduction or tax credit for stock option expenses only to the extent that the company actually recognizes the same stock option expenses on the company books. Thus, under the bill, if a company declares a stock option expense on its books, then the company can deduct the expense on its tax return. If there is no stock option expense on the company books, there can be no expense on the company tax return.