Subject: Bad Tax Policy (ISO-AMT) Stifles Small Business Expansion Comment: Bill Bullock Individual President’s Advisory Panel on Federal Tax Reform Washington, D.C. Bad Tax Policy (ISO-AMT) Stifles Small Business Expansion Although Congress has responded to many of the corporate fraud problems brought to light by incidents at WorldCom and others and the relationships between corporations and Investment Banks Congress has not yet addressed the impact on taxpayers who subsequently faced excessively high AMT bills with no means of satisfying their debts. I was an employee of WorldCom and this is my story. Smith Barney (who had obvious conflicts of interest because it owned a great deal of WorldCom stock and had a "too cozy" relationship with WorldCom executives while managing the employee stock program) urged me and other employees to hold our WorldCom stock at all costs. Smith Barney did not offer us diversification and collaring strategies; in fact it actually discouraged such practices. Jack Grubman, Smith Barney’s now infamous former telecom analyst, constantly barraged us with reports. Even as the stock slid with other telecoms (long before the massive fraud and lack of regulation about Corporate/Banking relationships became known), Smith Barney and WorldCom inundated us with information encouraging us to continue holding our WorldCom stock and simply borrow against it with margin loans. I was originally a UUNET employee and that was who granted incentive stock options to me. MFS bought UUNET and then WorldCom bought MFS. I exercised options for a dollar or so even though WorldCom stock was trading significantly higher than that. I didn’t know about the AMT and followed the advice I received to hold the stock for a year to pay a lower capital gains tax. Of course, the rest is history. The stock started to fall along with the tech market, but eventually crashed completely due to the fraudulent activities that are now legendary. I never saw any money from the stock and now I have spent years dealing with the IRS which wants to collect over $240,000 (taxes, penalties, interest from 1999) on money I never had. The “gain” was simply in my account as WorldCom stock. Between tech layoffs and job searches, I have managed to earn enough money to pay untold thousands in "legitimate" taxes and have had the IRS take my refunds every year. So far, I’ve paid about $70,000 or so towards this bill, which was originally about $165,000, but with mounting penalties and interest, I still owe much more than I did originally. So many taxpayers were caught in the AMT/ISO trap, but the government makes so much noise, continues to prosecute, and passed regulations to supposedly punish the evildoers and protect the taxpaying citizenry, but the government seems to have missed this point. Many of us are now suing WorldCom and/or Smith Barney, but it would really help if the government provided some AMT relief for victims of corporate fraud. The way the AMT is interacting with ISOs is squashing innovation. Along with some other ex-uunet'ers, I recently founded a startup. Our tech jobs proved unstable, our 401(k)s were wiped out and all other accounts were liquidated. Luckily, with the appreciation of our homes and low interest rates we were able to borrow against our last assets to start a business in June 2003. Money is tight and the road is rough but we continue to strive to build a company to give people jobs which would actually increase the tax base far beyond what would be taken in by ruining us. However, so many facing AMT/ISO problems can’t start their own business. You can't borrow money when the IRS puts liens on your credit report and it's hard to concentrate with the knocks at the door to receive the latest registered mail from the IRS constantly threatening to seize all you have left. Quite frankly, it seems un-American. The AMT is crushing a very innovative segment of American society by devastating these (more often than not) technology-savvy folks who are caught in a situation that was not their fault. Will they want to try again? Will they be able to? Congress should amend the law to afford relief to individuals who, like me, not only lost their investments, but their jobs as a result of corporate fraud and still face huge AMT liabilities or who have useless credits on their AMT account. Again, it just seems plain wrong, and defies common sense and fairness, to ask victims of fraud to pay a tax on a future capital gain that will, most likely, never materialize. Paying tax on money you never made is just wrong, is it not? I am currently being told by an IRS agent (who has come to my house to tell me such news), that they are going to seize my home. I have met with them and nothing changed. They seem unwilling, or unable, to work anything out that would allow me to keep my home and not disrupt my business as we work out of the home as well. All I got were flippant comments like, “didn’t it seem to good to be true?” etc. alluding to the stock gains of the tech bubble. Actually, I agree. It did seem too good to be true which is why I was positioning to sell the stock before the bottom fell out. My only option seems to be selling my home, completely disrupting my family and business, and/or accepting a payment plan that allows me a “living wage” that is nowhere near the realities of even renting an apartment in the greater Washington, DC area. Thank you for your consideration. Bill Bullock Reston, Virginia |