Subject: My Tax-2000 Rate was 130% from AMT on Stock Option Comment: Dear Honorable Panel Members: My name is Mark Gorokhov and I am writing on behalf of my wife Nadezhda Gorokhova and our family. We appreciate the opportunity to discuss problems we faced due to an outdated and not fair portion of the tax code called Alternative Minimum Tax. In August of 1998 I took a job as a software engineer at Celera Genomics. The offer letter stated that I was granted a stock option (ISO). The essence of employee stock options involves employees sharing in the future growth and success of a company by receiving financial rewards based on future increases in stock price. In 2000 I exercised my Incentive Stock Option. In plain English this mean that I bought my company stock at discounted rate $8.56 while its market value was in $70 - $100 range. I did not have any monetary gain when I exercised my ISO because I did not sell my stocks. However, the tax law required us paying huge AMT tax on this phantom gain. This had dramatic impact on our family. The taxable income we reported on form 1040 in 2000 was less than a total tax we owed to IRS. This was a 130% effective tax rate which significantly exceeded entire our family income. The deadline to pay this huge sum to IRS was April 15, 2001. By that time stock price plunged and we could not pay our tax even we if sell all stocks we acquired. We borrowed all available money from my wife’s and mine retirement investments, from 2nd mortgage and credit cards. Also, we emptied all our assets on bank accounts. In year 2005 we are still paying loans we made to pay tax year 2000. The tax we paid for exercised ISO stocks is a prepayment of tax with a corresponding Minimum Tax Credit that applies against capital gains tax when we sell stocks. Now when the stock price drops we do not have an efficient way to recover the leftover excess pre-payment of tax. Thus we gave the federal government an interest free loan. In 2001 tax return we recovered a modest sum from our AMT tax carry forward. At this pace it would take 50 years to recover the whole sum. In 2002 tax rate was lowered, but AMT rate stayed the same. In 2002 tax return we recovered from our AMT tax carry forward even less than in a previous year. At this pace it would take 150 years to recover the whole sum. In 2003 tax rate was lowered again, but AMT rate stayed the same. In 2003 and 2004 tax returns we recovered $0 from our AMT tax carry forward. At this pace we NEVER recover the whole sum of credit we gave to a government. We ask for your help to change the outdated AMT tax law and help us to recover the AMT tax we paid in year 2000. Sincerely, Mark Gorokhov 11109 Flanagan Lane Germantown, MD 20876 Tel: 301-916-2434 Email: gorokhmn@yahoo.com |