A bill to amend the Internal Revenue Code of 1954 with respect to the income tax treatment of incentive stock options.

Amends the Internal Revenue Code to create a category of incentive stock options for employees, who would not be required to pay tax at the time such an option is exercised and would receive capital gains treatment on the proceeds of any subsequent sale of such stock. Denies the employer any deduction with respect to such stock either at the time of option exercise or at the time of subsequent sale.

Requires the issuance of any such option, with shareholder approval, at 100 percent of fair market value. Accepts any stock later determined to be undervalued if issued with a good faith effort to make such issue at not less than fair market value. Allows exercise of such option up to ten years after issuance, and in any sequence.

Limits long-term capital gain treatment to the sale of incentive stock held by the employee at least two years after the grant of the option and one year after exercise. Subjects any such stock sold within two years after option grant to ordinary income treatment.

Requires an employee to remain an employee continuously from grant to three months prior to exercise. Prohibits the employee from owning more than ten percent of the voting power or value of the stock of the company unless the option price is at least 110 percent of fair market value.