Posted: May 05, 2005 By: Michael Jennings

Subject: ISO-AMT

Comment:





Michael Jennings Individual with ReformAMT.org

3/17/05

New Albany, IN
mej@kainx.org

















































I began to work for VA Linux Systems in 1999. Their IPO in

December 1999 was the largest in the history of the US

stock market, and the plummet the stock price made

afterward is probably equally well-known. But around IPO

time, and for over a year afterward, the market outlook

was still very positive. Being the naive 23-year-old I was

at the time, I took the advice of others on how to handle

stock options. Toward the end of December 2000, I exercised

a large amount of ISO's(6250 to be exact) at my strike

price of $1.00 per option. The market value that

particular day happened to be $32.50/share, so according to

AMT, I made over $200,000 that day and owed around $80,000

in taxes. I sold a relatively small amount of shares, just

enough to make $18,000, which was gifted to my parents

during December and January. As my accountant and

stockbroker advised, I held onto the remaining shares to

sell at a later date.

Unfortunately, by the time I sold the remaining shares from

That exercise, the stock value and my strike price were

Frighteningly similar. I then had (and still have) no way

to pay off such an enormous tax debt. Thus far I have paid

around $40,000 toward that liability, yet I still owe over

$69,000. My annual income for the past 2 tax years

COMBINED doesn't even total $69,000!Not counting AMT, my

tax liability for the 2000 tax year was approximately

$19,000, almost exactly what I paid in withholdings that

year. With AMT, my original liability (minus withholdings)

was $59,571. Thanks to interest and penalties, the amount

I currently owe is about $10,000 more.

The original premise behind AMT was to keep captains of

industry from postponing tax liability through the use of

stock options. The fact that so many honest, hardworking

taxpayers like myself who have always done their best to

pay their taxes in full and on time are now owing taxes

greater than their annual incomes should be a clear

indicator that the current system is unfair and no longer

working as its creators hoped. I am forced to pay enormous

amounts of taxes on money I never actually made!

I acknowledge that stocks are assets and that tax is owed

on any profit made from them. But no real profit is made

from the exercise of stock options; in fact, exercising

stock options COSTS money! And even with the AMT tax

credit, the interest and penalties I accrue per

year far exceed the annual credit. This means that the

amount I owe is growing faster than the credit I get in

return, so I will NEVER be able to pay off this debt or

recoup this credit! This is clearly an unintentional, but

VERY REAL, consequence of the AMT laws as they currently

exist.

These laws have destroyed my formerly-excellent credit

rating and forced me to amass a debt of taxes and credit

which now well exceeds $100,000. My annual income for tax

years 2002 and 2003 were about $18,000 and $27,000

respectively. Obviously, this is a burden I can never

overcome without help. My only hope of having a financial

future, buying a house, or succeeding in life is a massive

overhaul of the AMT laws and a refund of the taxes I was

unfairly required to pay.



Thank you for your time and attention to my plight.

Michael Jennings

New Albany, IN
mej@kainx.org