Subject: Even the former communist Soviet Union would not treat it's citizens as unfairly as the AMT tax code does on US stock option holders!
Comment: Dear Honorable Tax Panel Members, please aid us in resolving this insidious application of AMT. We are enclosing our previously submitted testimony for the "Simplification Hearing" before the Ways & Means Oversight Subcommittee.
Statement of Elena Breyter
To House Ways and Means Committee, Subcommittee on Oversight
Washington, D.C. June 2004
Dear Members of the Committee. My name is Elena Breyter. I appreciate the opportunity to tell you about the hardship I've suffered due to unintended consequences of the AMT laws. In 1989 my family came to the USA as a refugee from the former USSR with four suitcases and $350. All these years we worked very hard to become a middle-class family. In 2000 I exercised incentive stock options I was granted for my contribution toward success of the software development company "VERITAS.” Being an absolute novice in the tax treatment of stock options, I relied on our financial adviser who told me to keep the stock for one year before selling it. Unfortunately, in 2001 the stock market crashed and the value of the stock tumbled with it. Nevertheless, when we filed our 2000 taxes we were shocked to discover that we owed $70,000 state taxes and $250,000 federal taxes due to the AMT treatment of ISOs. It was more than 3 times my family income. Even in the former Soviet Union the communist government would never take away so much money, and I would have never thought that such thing was possible in the USA.
Lucky for me, the stock I kept still had some value, so I was able to sell it in 2001 and to use the proceedings to pay this enormous tax bill in full. My financial adviser told me that this was sort of "prepayment" for our future taxes and would be applied as a credit toward our next taxes. He told us to consider it as an interest-free loan to the government. We were sure that when the time would come, the government would give it back to us.
My next shock came in April 2002 when I discovered that since the stock sale in 2001 generated the income, I had to pay taxes on that sale in the amount of $230,000. It was absolutely devastated to find out that even though I had $320,000 in the AMT credit I could only use $45,000 toward my 2001 tax bill. To pay our 2001 taxes we had to deplete all our assets and savings – including kids’ college money, to take a second mortgage and to borrow significant amounts from various sources.
I do not want to burden you with the details of my emotional devastation including the wreckage of my family. After all our hard work for all these years we ended up in an even worse position than when we arrived in 1989 - we lost everything we'd earned; we are working to pay off huge financial debt, and we have huge useless tax credit that we may never completely recover in our lifetime, since, according to the current tax laws, we can only get around $5,000 a year.
I respectively ask the Committee to correct these disastrous and unintended consequences of AMT treatment of ISO.