Subject: AMT effects on ISO Option exercises Comment: Thank you for looking into what is an extremely egregious situation. The AMT as it affected us due to ISO stock options has forced us into bankruptcy, and due to the extremely large amount of tax it calculates, it may cause us to lose everything we own, including our house. At a minimum, it is forcing us into a Chapter 11, preventing us from a Chapter 13 or Chapter 7, which means our costs are about $15,000-$16,000 instead of $2000 to $3000. Our effective tax rate was over 600% and if nothing is done, it will take us over 70 years to utilize our tax credits. This happened at a Bio-Tech company not a telecom company, so there are some of us in many facets of US industry, not just one. How is this fair or right? We went from thinking we were on our way to having a decent retirement after struggling for 20 years to living the last 5 years under the constant stress of what is going to happen to us and how are we going to survive. There hasn’t been a single day that we haven’t had some issue, be it physical, emotional, stress, or depression to deal with. So far we have been able too stay married and sane, but it has not been easy. Instead of helping our children and parents they are having to help us. Is this the American Dream? Since finding out about the AMT repercussions, almost everything we do has been based on how to deal with it. All we did was exercise my ISO options. How can we owe taxes on something that we never realized? How can the US government and its tax code be responsible for making thousands of people paupers? For those of us that are either on the brink of ruin or over the edge, it would be a big help to us to be able to resolve this equitably. It will not put things right for us because we still will not have any retirement or funds and will have to try to rebuild, but it will at least help us to get started. If we can either take the credits that are due to us more quickly so that we can recover the credits that are due to us or if we can treat the exercise and final sale/resolution of ISO options/stock as a single year occurrence, we can at least have a fair way of dealing with this issue. We have been a middle-income family since we were married almost 25 years ago. We have worked for everything we acquired, and have not been extravagant spenders. In fact since our 2 children started their activities, Ballet and Dance, Ice Hockey and Figure Skating, most of our expendable income has gone for them. I worked at a company, Luminex Corp. that I helped to be successful enough to go public, and was offered ISO stock options as a reward for my efforts. Due to management changes I left the company in July of 2000, and had to exercise my options, but was not aware of the tax implications of the AMT. Everyone including our stockbroker told us to hold on to the stock to get long term gain tax gains as well as I thought the company had a future. What we didn't realize is that the IRS wanted us to pay the taxes on the gain (AMT) even though we did not sell the stock. This would be like paying taxes for the increase (Gain) in value of your land, even though you never sold it. All we have left is the house we have been living in for the last 12 years, as we no longer have any savings or retirement, and both of our vehicles are over 6 years old. Also, since I came from the technology sector, I was out of a job in my industry for over 2.5 years, and worked at whatever jobs I was able to find. I am now working in industry again, but this burden of the AMT is having very serious consequences that are not only affecting ourselves, but is also affecting our children. Instead of being able to pass along some of the fruits of our sacrifices and hard work, we are not able to help our children start their own lives, and in fact are concerned for ours in our later years as our children (17 and 22) are having to help us now. We had to exercise my ISO options in August 2000. The IRS says that due to the AMT, we owed almost $300,000 from that year even though we didn't sell them. Because of what happened with the stock value, if we could treat the exercise and the final result as a single transaction, or if we didn't have to consider the AMT, the amount would be more realistic and manageable. We currently are in bankruptcy and the IRS has put a lien on our house for over $400,000, that if we come out of Bankruptcy (the trustee is trying to say there is no outstanding question about the validity of the AMT so is trying to get the case dismissed), they will seize it. We don't understand how we can owe taxes on a something we never had. The judge just ruled that the IRS claims are such that we cannot file Chapter 13 but have to file 11, which increase our costs to recover from $2000-3000 to $15,000-$16000. If we are already struggling to recover, how is adding $13,000 on top of our debt helping? Your consideration in this issue is greatly appreciated. Please help to make the AMT law apply as it was supposed to, not against normal middle-income citizens. Regards, John Lapaglia |