Subject: ISO AMT Comment: Response to request for comments The President's Advisory Panel on Federal Tax Reform I would like to thank The President's Advisory Panel on Federal Tax Reform for this opportunity to make my views and individual experience known. · Headaches, unnecessary complexity, and burdens that taxpayers – both individuals and businesses – face because of the existing system. As reported in the Taxpayer Advocate 2004 annual report to congress, section one, page 2, “The Internal Revenue Code (IRC) now consists of substantially more than a million words." There are only 790,871 words in the bible (1611 King James Version), which is much more readable than the IRC. This fact alone demands professional assistance in tax matters. In my attempts at reading the IRC, I came to realize that it's the result of many years of tinkering – at times in the name of tax code simplification, yet on each of these attempts, word count and obfuscation have risen. Taxpayers who use professional assistance assume those professionals both understand tax law and have the taxpayer’s interests at heart. But if that professional assistance fails, it's the taxpayer who pays. In my case, I sued the CPA who masked my AMT liability, and delayed the timely filing of my return. The lawsuit resulted in a substantial settlement, in spite of the fact he wasn't paying his insurance premiums. The CPA never completed my return. The lion's share of this settlement was sent to the IRS. It only covered about 1/5 the Federal AMT liability. The State of California has AMT as well. My home was forced to sell to satisfy that liability. With IRS interests and penalties, I'd expect the settlement to have been consumed by now. · Aspects of the tax system that are unfair. Any tax policy that demands taxation GREATER THAN THE NET VALUE REALIZED in any transaction is flawed. Any collection efforts that are based on such taxation policies are indefensible, and corrupt. In my case, I reported my ISO/AMT liability, after moving to a new CPA and having that number computed. I could have chosen not to report the phantom gain, as some have done. Instead, I reported the liability as required, and was immediately sent to collections. My first Face to face meeting with the IRS was staffed by a collections agent. In that face to face meeting the agent stated “I hope you have relatives with money who are going to die soon.” I have NEVER sought a face to face meeting since then. The fact of the matter is that IRS Collections agents do not set tax policy. Thus, they are a poor choice for a face to face meeting over liabilities resulting from flawed tax policy. · Specific examples of how the tax code distorts important business or personal decisions. Collisions in IRC that can make any decision the wrong one. IRC sec. 422 permits companies to issue ISO's to employees, and if the employees meet sec. 422 holding requirements, they will qualify for the lower long term capitol gain rate. IRC sec. 83 Taxpayers exercising ISO's must claim the fair market value on the date of exercise, even if those taxpayers are legally prevented from selling the stock for an extended period. IRC sec. 56(a)(3) states that the spread between a stock's fair market value and its exercise price is a tax preference for AMT purposes. For a full description of the interplay, see www.taxprophet.com/hot_topic/August_02.shtml · Goals that the panel should try to achieve as it re-evaluates the existing tax system and recommends options for reform. Gentlepeople, kindly remove your foot from my throat. The continuing status of being a tax debtor and the uncertainty of my situation have had a most damaging effect on my ability to generate an income. Homelessness doesn't help either. Charity is out of the question. Does this kind of tax policy/enforcement promote homeownership, saving, job creation, investment and competitiveness in America? NO. I've even considered expatriation. But it seems that as people left the US in the past, rather than fix the underlying problems, congress simply chose to create an expatriation tax. Folks, there will NEVER be a “kinder and gentler IRS”. The IRS has one goal as mandated by the congress that created them. And that is to enforce the tax code. If there is a policy problem that results in unreasonable taxation – all perfectly legal, mind you – the IRS will enforce the letter of the law, not its intent. Congress has come to depend on the ability of the AMT to adequately fund the Federal government's insatiable appetite for funds. Unfortunately, as I have discovered, it can cost 20 years of an individual's efforts, a 20 year marriage, and any further trust that government can be fair and balanced. GOAL 1 Provide IMMEDIATE relief to ISO/AMT victims. GOAL 2 Create “Rule 1” of the IRC - “If any tax liability exceeds the underlying NET income realized, all collections efforts must cease, and an inquiry must be completed by policy makers to understand the nature of the flaw, while inflicting minimal pain on the taxpayer(s) involved.” I would hope that congress has the wisdom to bring some sanity and morality to the IRC, to make the IRC and indeed the entire tax system a more transparent, balanced and fair system to the benefit of both taxpayers and the government. Once again, I would like to thank The President's Advisory Panel on Federal Tax Reform for this opportunity to make my views and individual experience known. Respectfully, Steve Daniels |