Legislation Would Aid Employee Stock Holders<@VM>GAO: IRS Could Do Better On Program Control

A bill introduced this month by Rep. Amo Houghton, R-N.Y., would exclude the difference between the exercise price and the fair market value of stock offered through incentive stock options or employee stock purchase plans from employment withholding taxes.

The bill would clarify existing law to prevent attempts to change policy on taxing stock options, which are currently subject to a moratorium.

Industry officials praised the legislation. "Incentive stock options and employee stock purchase plans ... create individual ownership and equity in companies and are valuable to boosting our economy," said Harris Miller, president of the Information Technology Association of America in Arlington, Va. "We support keeping the stock purchased through these wealth-creating vehicles free from withholding taxes at the time of exercise."The Internal Revenue Service has adequately used appropriations for its business systems modernization program, but it still needs to improve controls over the program, according to a Government Accounting Office report released Aug. 17.

The report, "Results of Review of IRS Spending for Business Systems Modernization," is the product of a GAO study of IRS expenditures for fiscal 1999 and 2000, relating to the tax agency's business systems modernization program.

"There were no instances we identified in which IRS internal controls failed to assure that expenditures against (Information Technology Investment Account) appropriations were for business systems modernization. However, we recently reported that, despite important progress, IRS has yet to fully implement the capabilities needed to effectively manage the business systems modernization program," the report said, referring to a May 8 GAO report, "IRS Modernization: Continued Improvement in Management Capability Needed to Support Long-Term Transformation."

That report voiced concern over projects that were proceeding past critical milestones without certain management controls in place.

GAO was tasked by the Senate and House appropriations subcommittees to:

? Determine if the IRS used Information Technology Investment Account appropriations only to fund its business systems modernization costs;

? Determine to what extent other appropriations were used for modernization;

? Review internal controls over this account.

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