Subject: The AMT Trap - Bad Laws Victimizing Good People Comment: Dear Panelist, Please accept my testimony which was we submitted to the Ways & Means Committee last week. To Honorable Chairman William M. Thomas and House Ways and Means Committee - Tax Reform Hearing June 21, 2005 By way of introduction my name is Michael Hansen. My wife, two daughters and myself live in Lakewood, Illinois. In July I will be 54 years old. The son of an auto mechanic I put myself through school and have worked hard and played fair my entire life. All in all, I was living the American Dream - up until I stepped on the IRS landmine in the form of the AMT treatment of ISOs back in 2000. Now I owe the government more than $750,000, my bank account was seized, there is a lien on my house and my wages are garnished. As a model taxpayer I always had my taxes professionally prepared - same tax CPA for 16 years. Prudently, I consulted this firm BEFORE exercising my options in 2000. We agreed on an options exercise strategy and I followed it. What an incredible shock it was when in early 2001 my CPA informed me that I owed far more money in taxes than I realized in dollars! At that time (Mar 2001), this same accountant - and I swear this is true - took me into his private office and told me the following " I'll deny that this conversation ever happened but this AMT treatment of ISO options is totally unfair. I'll give you a tax return that treats the ISOs based on the money you really made, I just can't sign it". My response to Mr. Joyce was "you charged me $7,200 for tax advice including exercising my options and tax preparations and now your best advice is to commit a felony?" He responded that "if you pay on what you realize you'll never get audited." I told him that I had no intention of doing anything like filing a false return and that furthermore I was no longer a client of his firm! I immediately started seeking a tax lawyer - that took a considerable amount of time. I was stunned when the first several firms I contacted had NO IDEA SUCH TREATMENT WAS IN THE TAX CODE! I contacted the office of my Congressman, Don Manzullo - they hadn't yet heard of the AMT/ISO problem - my neighbor who was our State Representative actually scoffed at me claiming that what I was talking about was unconstitutional! Even practicing lawyers I knew through my church hadn't heard of anything like what I was describing. Finally, I did find a tax lawyer who knew of this area of the tax code. He had my return once again prepared and filed per the code. At that time I owed the IRS $650,000 - worse yet, the remaining stock that I had was unsellable as it would have generated an even worse tax problem (or to put it another way, I was in the 170% tax bracket)!!! Then came 9/11/01 - my unsellable stock kept decreasing in value. I finally was able to sell some to pay off the State of Illinois and, to date, $30,000 to my tax lawyer. The real laugh here is that the State of Illinois owes me roughly $28,000 per the perversion in the tax law - money that I'll never see! Sure, my tax attorney and I tried the OIC route. The figure that the IRS suggested that they might accept is "only" equal to 100% of my gross wages for FOUR YEARS! That's some "Effective Tax Administration"! Now I am strongly considering a bankruptcy. If you can't assure me of some REAL legislative relief I'll have to go that route because I fear if I wait to file the new bankruptcy legislation will not help my struggle to return to a normal life. Even though I have paid well over $150,000 towards my 2000 Federal Tax bill the interest and penalties increase faster than I could ever match - much yet repay in full. Please don't think that I'm some sort of millionaire - even when money was plentiful I didn't buy a "McMansion", Rolex watches or jewelry, an Aspen ski chalet, etc, etc. I did however get my eyes fixed, supplied food and housing for a single mother with 3 children so she could attend school for 3 years (she's now a respiratory therapist!) and helped start a new church that I'm proud to say is now the spiritual home to more 400 families. Of course, there is much more to my story - and the stories of thousands of honest Americans who face this monstrosity of the tax code with integrity and courage. However, I also ask relief not only for the victims of the AMT/ISO trap, but for the many good and decent IRS employees who have little choice but to enforce the law as it is written - if our positions were reversed, I'd resign, but I haven't "walked a mile in their shoes". So Congressmen, stand tall, right this wrong! We love our country, always pulled more than our own weight and played fair - now is the time for our government to play fair with us! Sincerely, Michael C. Hansen Illinois 16th Congressional District |