Posted: Jul 12, 2005 By: Stuart Rogers

Subject: For the year 2000 I paid, in effect, $60k in taxes for money I never had ! ISO-AMT

Comment: Dear Mr. Mack & Mr. Breaux, please consider my circumstances while reviewing my testimony submitted last year to the Ways & Means Oversight Committee.


Statement from Stuart Rogers
To the House Committee on Ways and Means, Subcommittee on Oversight
Washington, D.C. June 2004


I moved to San Francisco from Boston at age twenty-three. Three years later, when the company I was working for merged with a larger firm, I received incentive stock options. It was a surreal experience. I worked very hard for my company; my wife and I went from worrying about rent and college loans to thinking we might some day potentially be able to afford purchasing our 1st home.



My knowledge of financial planning was zip. We were, however, given advice by the company directors, and their advice was basically this: exercise your options as soon as possible to begin the two-year vesting process that will reduce the tax rate to twenty percent. That two-year period, to a large extent, determined how I dealt with the options.
Like most of my co-workers, I heeded this advice. I called up Smith Barney and exercised our options.

Needless to say, we were never formally warned about the AMT at work. Thinking back, I believe it is because none of the company directors knew about it — I mean really understood it. A few of my coworkers escaped the mess because they went out and got financial planners. Had I sensed any smidgen of risk or danger, I would have done the same. We just had no idea because the concept of AMT as it applies to ISO’s is so unintuitive. Of course, I knew I would have to pay tax on the shares I sold, but it never occurred to me to think I would have to pay tax on shares I didn’t sell.

The formula was inconceivable: pay roughly thirty-five percent tax on the difference between the strike price and the shares at the time of exercise. It made no difference that the shares were worthless when I had to pay the tax—all that mattered was how much they had been worth at one point. For the year 2000 I paid, in effect, 60k in taxes for money I never had.

In the process of paying that tax bill, my wife and I lost a huge portion of our savings, as did many of my co-workers, several of whom were in their thirties and forties with families. I didn’t sleep right for months afterwards. So many ideas about what our future looked like had changed. The AMT does, indeed, serve a legitimate purpose, but what happened to me and so many other honest, hard-working people should not be repeated.

Stuart Rogers
Brooklyn, NY – 11th Congressional District