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By Michael Gray

Report On AMT Reform Public Hearing

Representative Zoe Lofgren, co-sponsor of HR 1487 (repeal of AMT for incentive stock option preference) held a public "town hall" meeting about the issue of the alternative minimum tax at the San Jose City Council chambers today.

Representative Robert Mitsui, a senior member of the House Ways and Means Committee, also attended the meeting. Don Hollenbeck of the Internal Revenue Service provided information about what taxpayers can do now about their situations.

Many people shared their tales of woe from last year's stock market disaster. Employee stock options and the stock market crash made a deadly combination. Many people had their savings for retirement and education wiped out, and are afraid they will lose their homes. Some have suffered emotional distress to the extent they have become suicidal.

One taxpayer said, "225 years ago, my ancestors fought the British because of unfair taxes. If they had known where we would end up, I'm not sure they would have bothered."

Representatives Lofgren and Mitsui stressed that (1) more cosponsors are needed to move the relief legislation forward; and (2) more people who have suffered as a result of the AMT who work outside of high technology companies must speak out to make it clear this is not a regional issue.

One financial advisor made a good suggestion: the AMT credit should be made refundable and should be recovered when the underlying stock is sold. Under the current law, it can be impossible to recover the federal AMT credit, especially if the stock value goes down.

Several taxpayers said they suffered from the AMT and were unable to sell the stock to use the "escape hatch" because they had lock outs, had made Section 83(b) elections for unvested stock, or had stock of companies that were not traded on a stock exchange.

An enrolled agent suggested renaming the alternative minimum tax the "mandatory maximum tax."

The focus for the AMT reform effort is the web site, www.reformamt.org. Over 300 people in 26 states have registered with the group supporting AMT repeal relating to incentive stock options.

In her closing remarks, Representative Lofgren said that the results suffered by so many taxpayers for 2000 clearly weren't intended when Congress enacted the alternative minimum tax. Our current tax system for employee options is not what the American Dream is supposed to be. The people who shared their stories were willing to pay their taxes, but not on phantom income that wasn't actually received. If these people were victims of floods or fires, the government would clearly have extended a helping hand. Their loss is no less real. The reform of the Bankruptcy rules is compounding the situation, because most Silicon Valley residents won't qualify for bankruptcy under the new rules and income taxes are non-dischargeable. There is no comparable proposal for relief from the AMT in the Senate, at this time.

Please continue to write your representatives in the House of Representatives and the Senate for tax reform relating to employee stock options. For more ideas for tax reform, see the April 20, 2001 issue of ESOAA Option Alert. Be sure to tell them about any hardships you have suffered under the current rules.

IRS Circular 230 Disclosure:

As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

Consult with a tax advisor

For our readers who aren’t tax advisors, this newsletter is intended to alert you about tax issues that could affect you. It is not a substitute for advice from a professional tax advisor. You will find that getting advice from a qualified advisor is a worthwhile investment. We intend to eventually publish a directory of ESOAA members who are committed to helping clients with employee stock option issues.

Tax advisors should view the newsletter as an alert to become aware of issues relating to employee stock options for further research and study.

(Michael Gray is the co-author of Employee Stock Options – A Strategic Planning Guide for the 21st Century Optionaire. You can order the book at http://www.amazon.com or http://www.barnesandnoble.com/ or buy it at Stacey’s Books.)

P.S.

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