Subject: ISO AMT Comment: My Story I started working for a California based company in November 1998. I live and work from my home in Dayton, Ohio. As part of my compensation package, I received incentive stock options (ISOs) in the company. In March 2000, I exercised my vested ISOs (2,455 shares) by paying $30,000. The market value was $370,000. By March 2001, the stock price had dropped from $159 to $60 per share. You can only image the horror as I did my taxes. Our joint Federal AGI was $100,000 and we owed taxes of $133,000! Thanks to outdated tax laws, we were in the 133% Tax bracket! To pay the tax, I had to sell all the stock by March 2001 (at $60.00 a share). This was just enough to cover the AMT taxes and pay off the loan I used to exercise the stock. The gain to my family was zero! In April 2001, I sent the IRS a check for $102,000 (tax amount minus withholdings). This was the entire net proceeds from the sale of the ISOs plus my life savings. Now for the best part: the $102,000 check I sent the IRS in 2001 is treated as income, which places me in the AMT tax bracket. I had to pay AMT in 2001 on the money I used to pay the AMT in 2000! The government taxed me on income that I didn't receive! The next year, I not only don't get a refund, but I couldn’t use the tax credit and I had to pay taxes on the money used to create the tax credit. This never ending tax spiral has affected every finical decision we have made over the last 4 years. As of today, I have close to a $90,000 tax credit and $314,000 loss that I won't be able to fully recover until 2105. I am 43 years old and a father of two (8 and 11 years of age). I was planning on using the ISOs to build a college fund for my children. But thanks to a complex, antiquated tax law, those dreams have vanished and my family sits on the edge of financial ruin. My frustrations Please forgive my sarcasm, but during the past 5 years, AMT has dominated our finical life. There is no way out under current tax laws. I spoken with dozens of CPA’s and countless Certified Finical Planners, their only advice has been to seek legislative change. I written and called my Congressman (Mike Turner). The last verbal response from his aid was to seek a tax attorney. By the way, a tax attorney needs about $60,000 to take the case, sounds like a losing proposition to me (and this is torte reform?) I have written and called my Senators (George Voinovich and Mike DeWine). They sent me to Tax Payer Advocate Office. The Tax Payer Advocates Office could not help. They can not negotiate with the IRS on matters of un-fair tax laws. My wife and I wrote letters the President and Vice President in 2001. In August of 2003, my wife received a letter from the department of the Treasury stating our case has been transferred to the Accounts Management Center. A few weeks later she received a call from the IRS. They apologized for the length of time it’s taken to respond to her letter, however, the IRS can only enforce the laws, they can not change them. I keep hearing about “taxing the rich”, but from my experience, tax laws are designed to prevent you from becoming “rich”. Recommendations My first recommendation is simple. Change the tax code so that a Tax credit can be used to pay taxes. Not just reduce AMT taxes. The tax credit I carry is real money. I paid it to the government; the government owes me a credit; let me use it to pay my tax bill. Second, change the treatment of ISO under AMT tax laws. This can be done in one of 2 ways. Allow the use of AMT capital loss carry-overs to be used as an offset against AMT capital gains, without the $3,000 limitation (I.O.W. allow paper losses to offset paper gains). Or better yet, stop taxing paper gains on ISO’s. Corporations now expense ISO; the corporations are now taxed upon the gain; employees are taxed again at the point of exercise; and the share holders (including employees) only get lower earnings. I would happy to provide any details regarding my situation to the panel. I welcome your comments and feedback. Please help! God Bless America, Monte A. Simmons 4017 Brazoria Place Dayton, OH 45440 |