Subject: ISO AMT Comment: Submission of Comment to The President’s Advisory Panel on Federal Tax Reform by Individual Taxpayers S. & D. Pintner March 17, 2005 Contact phone number: (408) 742-7085 May 5, 2005 To: The President’s Panel on Tax Reform Dear Panel Members, Thank you for taking on the very important task of investigating the tangled web of our current tax system with the goal of implementing a simpler, more equitable system. We respectfully ask that the recommendations you forward to the Treasury Secretary address the extreme difficulty in recovering AMT credits. We are a two-income household (both parents have full-time jobs) with three young children living in California – a high-tax state. As a result of exercising and holding (with the intent to qualify for the long-term capital gains tax rate) Incentive Stock Option (ISO) shares in 2000, we incurred a Federal AMT bill of several times our normal annual income. Luckily, in that year we sought and received sound advice on the AMT implications of that plan. Between doing same-day-sales in 2000 on remaining ISO shares and taking out a loan against a 401(k) retirement account, we were able to meet our AMT obligation on April 15, 2001. Thus, we have not run afoul of the IRS and have not had to worry about losing our home, unlike many others who exercised and held ISOs during that time period. With the large decline in the stock markets since 2000, the shares we still hold are worth a small fraction of their value upon exercise. So, at this point the government is holding our entire gain (representing many years of hard work) from the ISOs in the form of an AMT credit. When we first saw the size of that AMT credit, we thought we would be lucky to finish recovering it before we both died of old age. After filing our last four tax returns, though, we see that unless something changes we will never recover the vast majority of that credit during our lifetimes. Here is how much we’ve recovered, on a percentage basis, for the 2001-2004 tax years. (Note that our tax returns for these years included no other extraordinary events.) Tax Year % of AMT credit recovered 2001 0.56% 2002 0.17% 2003 0.13% 2004 0.00% ___________ Total 0.86% Less than one percent of our AMT credit has been recovered in the four tax years since the credit was established! And the trend down to zero in 2004 does not bode well for future years. Under the current tax law we have very little hope of recovering this interest-free loan to the government. These funds would go a long way toward ensuring that we will be able to afford college educations for our three children. Please find a way to accelerate taxpayers’ ability to recover AMT credits! Thank you for your consideration. Sincerely, /s/ S. Pintner /s/ D. Pintner |