Subject: ISO AMT TAXES UNAMERICAN Comment: To the Tax Panel: Thank you for giving us the opportunity to tell you our story. My name is Jerry Cornelius and I live with my wife, Barbara Cornelius in Richardson, Texas. I own and manage Canyon Creek Art & Frame. In April of 1999, Barbara joined Avanex Corporation and accepted a lower salary in lieu of an Incentive Stock Option grant. She was unfamiliar with ISOs but it was explained to her that someday the company might go public and that the stock could potentially provide a small gain or contribute nicely to a retirement fund. The company went public in February of 2000, and like many companies in same year, did surprisingly well. It was scary and exhilarating all at the same time. The company advised their employees to talk to a financial advisor regarding long-term capital gains, short-term capital gains and AMT. We consulted a tax accountant who told us that we needed to be concerned about the capital gains, but that AMT was only for the very wealthy and we did not qualify. The tax accountant then explained that we should buy as many options as we could and hold it to protect against short-term capital gains. Later that year a coworker mentioned the need to check out the AMT situation and again we inquired with our tax advisor and again he assured us that we had nothing to worry about. We soon discovered that our tax advisor was incorrect and we were truly uninformed about AMT. When we finally discovered the problem, it was too late to sell the stock, as the stock-trading window had closed and before the next open window arrived, the stock price had plummeted. We were taxed on the fair market value of the stock at the time we exercised our options instead of the stock value at the time we were allowed to sell, consequently the money raised by selling all our stocks was a small portion of the tax bill. Our tax bill came to $92,000, more then double Barbara's starting annual income!! In order to pay the bill, we were worried we might have to take out a second mortgage and that we might lose our business. Fortunately for us, during the next open window, we were able to sell all our stock and pay part of the bill. By depleting our savings, we were able to pay the remaining balance. Now, with no savings and the hope of a small retirement fund from their ISO grant gone, we are starting over with retirement planning. We are outraged that the government saw fit to apply a tax to phantom money! We are outraged that we now have NO savings and NO retirement! Please fix this horrible tax!! It is unfair for people to pre-pay taxes on gains they never realized. This tax is wrong and un-American. We urge you to fix it. Sincerely, Jerry & Barbara Cornelius |