Subject: Washington State AMT Horror Story ! Comment: Dear Honorable Chairman's Mack & Breaux, Please find our testimony submitted to the Oversight sub-Committee last June. Your Panel's support of ISO-AMT reform is desperately needed. Statement from Magnus Christerson To the House Committee on Ways and Means, Subcommittee on Oversight Washington, D.C. June 2004 In 2000 I had worked and accumulated stock options in my high-tech company for the last 7 plus years. I still very much believed in our company, so I decided to hold for 12 months and to pay long term capital gains tax on my gain. Of course, as many others, I got hit by the stock market crash and the bizarre, complicated AMT law. When I exercised, I had accumulated options worth about $500,000. This was the foundation for a good retirement (or so I thought). The value of them dropped to $50,000 by April 1, at which time I received my 2000 tax filing from my tax advisor. To my huge surprise I had to pay about $200,000 in additional tax, based on a stock option valuation at the time of exercise of $500,000. for stock that was never sold and now valued at $50,000. I was convinced that my tax advisor had made a simple error. But it was no error! The stock’s value at tax time was only $50,000, so even selling and giving up everything I had rightfully earned by working very hard over the last 7 years, I still owed an additional $150,000 to the IRS. So not only was my hard earned retirement savings gone, but in addition I suddenly had a debt of $150,000. What a country to encourage hard work, I thought!!! We had about 10 days to come up with the extra $150,000 we suddenly owed the US government. We could not sell the house in that short time, nor even take out a second mortgage. We could delay the payment and start paying interest on our "debt". I panicked as I simply did not have the assets to pay our IRS bill. What happened? Well, my wife had her retirement savings in some funds and stock. After much debate, she "agreed" to give up her retirement savings to pay our tax bill. I did not look like a genius to her . . . so we liquidated her assets to come up with the cash to pay the IRS. Of course, we did not get the best value for her retirement savings because the stock market was pretty much at its low point. Now, we're still not really sure what happened to the retirement savings we thought we had. I guess we should be lucky we still have our house!? I have always looked at myself as a very conservative, buy and hold type investor. Specifically, I stayed away from speculation in the .com economy. Sure, my firm is in high tech, but we had been around for 20 years, and had been profitable for as long as I had been there. I thought I was safe. But I was not. The AMT tax took not only all of my retirement savings away, but could very well have put me in personal bankruptcy had it not been for my wife who saved me from this fantasy debt. So my plea to the people that set the laws in this country is to change this bizarre tax, specifically how ISOs are valued under the AMT (as opposed to in the regular tax code). I also ask that you make this change retroactive to 2000 and put me and my wife back on the retirement track we thought we were on until this hit us. I'm not sure how many people did not have my luck (huh!) and now sit in personal bankruptcy because of this complicated tax law. Magnus Christerson - Kirkland, Washington |