Statement of Senators Levin and McCain on Stock Option Tax Deductions

Wednesday, November 6, 2013

WASHINGTON – Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., released the following statement today.  Levin and McCain serve as the chairman and ranking member of the Senate Permanent Subcommittee on Investigations.

“Over the past few years, the Permanent Subcommittee on Investigations has brought public attention to a number of inequitable special-interest tax loopholes with the intent of having them closed. One such loophole, which addresses corporate stock options, allows a company to report stock option compensation expenses one way on its financial statements and in another to the IRS for tax purposes. Nowhere else in the tax code can compensation costs produce a tax deduction several times larger than that same expense shown on its corporate books.

“For example, when Twitter goes public later this week, the company may avail itself of this existing tax loophole. Under this loophole, the company will be able to take an estimated $154 million tax deduction for a stock option compensation expense which its own books show cost Twitter only $7 million.

“This tax deduction, which is 20 times larger than the actual business expense, is not unique to Twitter. Stock option data the IRS provided to the Subcommittee shows that in the most recent seven years for which data exists, corporate stock option tax deductions taken as a whole far exceeded the expenses shown on corporate books. Specifically, the IRS data shows that, in nearly every year from 2004 to 2010, corporations as a whole took U.S. tax deductions for stock options that were tens of billions of dollars greater than the expenses shown on their financial statements. The excess tax deductions totaled nearly $20 billion in 2010, the latest year for which data is available. The IRS data also shows that a small fraction of the corporations took the bulk of those deductions, typically 250 corporations out of the tens of thousands analyzed by the IRS each year.

“Given the deficit and damaging sequester cuts facing this country, this corporate stock option tax deduction is the kind of tax loophole that ought to be closed. The Joint Committee on Taxation has estimated that ending this tax break would raise $23 billion for the U.S. Treasury.”