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Request for Comments #1 (Problems with the current code)
from Business Group
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| Posted: Feb 18, 2005 |
By: Miller, Jim |
File: 021805MillerJim.doc
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| Posted: Mar 08, 2005 |
By: GuardJoyce |
File: 032905GuardJoyce.pdf
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| Posted: Mar 15, 2005 |
By: Ojakli, Ziad |
File: 031505OjakliZiad.doc
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| Posted: Mar 19, 2005 |
By: Halford, Neal |
File: 031905HalfordNeal.doc
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| Posted: Mar 19, 2005 |
By: Belt, Sid |
File: 031905BeltSid.doc
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| Posted: Mar 19, 2005 |
By: Stephenson, Mark |
File: 031905StephensonMark.doc
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| Posted: Mar 19, 2005 |
By: Pelle, Ronald |
File: 031905PelleRonald.doc
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| Posted: Mar 19, 2005 |
By: Donie, Rol |
File: 031905DonieRol.doc
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| Posted: Mar 20, 2005 |
By: Benson, Mitchell |
File: 032005BensonMitchell.doc
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| Posted: Mar 23, 2005 |
By: Eudy, Mike |
File: 032305EudyMichael.doc
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| Posted: Mar 28, 2005 |
By: NATP |
File: 032905MoyDoug.pdf
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| Posted: Mar 28, 2005 |
By: Pickett&Pickett,P.C. |
File: 032905PCPickettPickett.pdf
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| Posted: Mar 28, 2005 |
By: ProfessionalPlanning |
File: 032905Professional.Planning.pdf
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| Posted: Mar 28, 2005 |
By: CookThomas |
File: 032905CookThomas.pdf
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| Posted: Mar 28, 2005 |
By: ColemanTaxService |
File: 032905ColemanTaxService.pdf
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| Posted: Mar 28, 2005 |
By: Pedley Engineering |
File: 032905PedleyPhilip.pdf
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| Posted: Mar 29, 2005 |
By: ARC Medical, Inc |
File: 032905ARCMedical.doc
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| Posted: Mar 29, 2005 |
By: Ford Motor Company |
File: 032905FordMotorCompany.doc
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| Posted: Mar 30, 2005 |
By: Lake Country Racquet & Athletic Club |
File: 033005LakeCountryRacquetAthleticClub.doc
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| Posted: Mar 30, 2005 |
By: MSE Environmental & Safety Inc |
File: 033005MSEEnvironmentalSafety.doc
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| Posted: Mar 30, 2005 |
By: Chagrin Valley Athletic Club |
File: 033005ChagrinValleyAthleticClub .doc
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| Posted: Mar 30, 2005 |
By: Golds Gym |
File: 032905GoldsGym.pdf
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| Posted: Mar 30, 2005 |
By: Mancuso, Anthony |
File: 033005MancusoAnthony.pdf
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| Posted: Mar 30, 2005 |
By: Navy Credit Union |
File: 033005NavyCreditUN.pdf
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| Posted: Mar 30, 2005 |
By: Rutledge, Deas |
File: 033005RutledgeDeas.pdf
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| Posted: Mar 30, 2005 |
By: Ford Motor Company |
File: 033005Ford.pdf
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| Posted: Mar 31, 2005 |
By: Suncoast RV Resort |
File: 033105SuncoastRVResort.doc
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| Posted: Mar 31, 2005 |
By: Video Velocity |
File: 033105VideoVelocity.doc
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| Posted: Apr 03, 2005 |
By: JB's Landscaping and Snow Removal |
File: 040305JBLandscaping.doc
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| Posted: May 05, 2005 |
By: Michael and Laura Aubut |
Subject: ISO AMT
Comment: Submitter Name: Michael and Laura Aubut
Date of Submission: March 17, 2005
Originating Category: Individual
Contact info: aubut@babson.edu
Submitters: Michael and Laura Aubut
Michael and Laura Aubut’s AMT Story / Testimony
During 2000, my (then) fiancée, Laura Perkins, exercised and held ISOs from her company based on advice she received from our accountant. This exercise subjected Laura to the Alternative Minimum Tax (AMT), substantially increasing her 2000 Federal tax liability. Instead of receiving a return of approximately $1,050, Laura owed the IRS $174,272 on what was considered a paper gain. This was a substantial debt given that Laura’s W-2 wages for that year were $84,997. Prior to finding out the magnitude of her 2000 tax liability because of AMT, Laura had exercised more shares in January 2001 and, based on guidance from our tax accountant; she also planned to hold these shares. However, in March 2001, our accountant explained to us the huge tax obligation Laura had for 2000 because of the shares she exercised that year. To pay this debt ($174,272), Laura sold 8000 shares of stock.
After Laura and I wed in September 2001, our accountant again described ways of minimizing our 2001 tax liability based on the January 2001 exercise. Our accountant calculated our approximate 2001 AMT liability as approaching $1 million if we held all the shares exercised in 2001. This liability was greater than the value of all the shares we currently had available to sell. Realizing our only option was to heed our accountant’s advice, we sold the remaining shares of the 2001 exercise. The continued decline in the stock price caused us to realize only 20% of the stock’s original value. Originally, we had planned on selling the shares exercised in 2000 but knew that, due to AMT, this was not an option. The proceeds from the sale of all the 2001 shares were now considered real “income” and would be subject to our actual tax rate instead of being considered for AMT as unrealized gains. This would still create a huge tax amount, but it was one that we could possibly pay by leveraging other assets.
In February 2002, our accountant did the final calculation for our 2001 taxes and determined that our liability was much larger than we could afford. We knew we would have to use the proceeds from the earlier mentioned sale (as this is why we sold them). We also took out multiple margin loans against our balance of shares to pay our anticipated 2001 liability. (We filed an extension in April that resulted in late fees) While we continued working on our taxes throughout the summer we were advised that our liability was ~ $20,000 more than originally filed. We didn’t have any more money to send and at the same time the stock we had margined against was falling through the floor causing us to get weeks of margin calls and eventually the brokers began to sell whatever shares of stock we had left.
To satisfy all of our creditors (that were due to our taxes) we decided to refinance our house. We refinanced through a local bank and even though we expressed our desire to have it go through as quickly as possible it still took them more then a month and a half to finally be ready to settle the new mortgage. (Due to the huge volume of refinancing activity) Once we closed on the new mortgage we filed our final 2001 taxes, paid in full.
While dealing with this financial mess, we planned for, and paid for, our September 2001 marriage. We have now paid our 2000 and 2001 taxes – for a grand total of $294,278 in Federal Taxes, and well over $5,000 in accountant fees to help us understand these complicated provisions of the tax code. This amount greatly exceeds our annual salaries for that timeframe, and we will probably never see the majority of the tax we paid on theoretical stock gains. We live paycheck to paycheck and have to decide which household bills we will to pay late even though my wife has worked for her employer for more than 20 years...
Thank you for your time
Michael and Laura Aubut
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| Posted: May 05, 2005 |
By: Art & Rita Miller |
Subject: ISO AMT
Comment: Miller Family Testimony
President’s Advisory Panel on Federal Tax Reform
Washington, DC
Members of the President’s Advisory Panel, my name is Rita Miller and I am writing on behalf of myself and my husband, Arthur, regarding a huge tax debt that we incurred on phantom gains that were created by the application of the Alternative Minimum Tax.
In November 1997, I took a job in Linthicum, MD as an Administrative Assistant for a start-up Internet security company, VeriSign, Inc., whose headquarters is in Mt. View, CA. We incurred a huge tax debt starting in the year 1999 by exercising Incentive Stock Options (ISOs) I received while working for VeriSign, Inc. We held some of the stock. We didn't realize ANY profit from the exercised, unsold stock. We just took the stock from VeriSign and put it into our newly created stock brokerage account. We have always been in the lower portion of the middle class income bracket. We never owned even one share of stock before. We thought the stock market was for the rich and famous. For that matter we never really ever had a savings account. We raised three sons while just making ends met. But now it looked as though the all-American dream might be coming true for us. We now had a vehicle to change our financial position and the ability to really be able to save for retirement. I am 57 years old and my husband is 59.
We read everything we could about stocks and taxes and everything pointed to exercising and holding the stock for long term capital gains. We enlisted the help of a reputable financial advisor. The advice from the financial advisor was to exercise and hold the stock so as not to incur the higher short-term capital gains rate. And we did – we held the stock. But unbeknownst to everyone, if you exercise and hold onto stock for the long term and carry it over a tax year, a tax called AMT (alternative minimum tax) can apply, and it did. We were taxed on the value of the stock on that particular day we exercised them. On some of those days the stock traded as high as $220. We were taxed as if we sold the stock that day and made a profit. We didn't sell the stock at $220. We didn't receive, as it would appear, the huge profit on those shares of stock, but we were being taxed as if we did. Taxed on "phantom income." As if we had the monetary gains sitting in a bank account somewhere. That was not the case. All other assets, like real estate and stock purchased on the open market, are taxed based on the value at the time of the sale, when you actually receive a profit, not at the time of the purchase. Why aren't we just taxed when, and if, we sell the stock? That then would be a legitimate profit made and a legitimate tax due.
Our total federal taxes due from the years 1999 through 2002 was $448,873. We managed to pay $314,784 by selling whatever shares of stock we had. During the year 2000 when the stock market started to plummet, so did the value of our stock. When we sold the stock the prices ranged from $34 to as low as $9. Keep in mind that the original amount of $448,873 was the tax due based on the stock trading at an average $220 per share. As you can see I didn't sell it for $220 but I'm being taxed as if I did. This is not even to mention the amount that we owed to the state. We negotiated with the IRS and went on a payment plan to pay the remaining $134,089, likewise with the State. We never missed a payment until both my husband and I lost our jobs with in a few months of each other in the year 2002. I was unemployed for over a year, my husband is still unemployed.
We requested an OIC and the IRS rejected it – stating that we had a house, a car and some retirement money and if we sold the house, the car and turned in the retirement, we could pay the "phantom taxes" we owed. We came to realize that after filing subsequent years taxes, the IRS now "owes" us over $125,000 in credits for actual overpayment of taxes. We owe them $124,000. We filed several OICs. The most recent we asked the IRS to accept our credit of $125,000 in payment of our tax debt of $124,000 to bring our tax debt to a "paid-in-full" status. Can you imagine our disbelief when we received the notice that the IRS is rejecting this offer too? The IRS wants us to pay them in full, first. They say that we have a house, a car and retirement funds that could be sold to give them what amounts to an overpayment, then they want to give us back the $125,000 of "overpayment" by allowing us to recover a small portion, approximately $3,000, of the credit per year! My husband and I will have to reach the age of 99 and 97 respectively to recover the entire amount of the overpayment.
A travesty just occurred in our lives that added additional hardship. My husband, who has been unemployed since August 2002 and has spent more than a year of processing for employment with the Department of Defense was just notified that the DoD is withdrawing his offer of employment due to the outstanding IRS debt. They said that the tax issue brought into question his credibility – but we only owe this tax because we were honest enough to report our exercise of the stock options in the first place. At almost 60 years old where is he going to find another opportunity like the one with the DoD? We are hardworking, trustworthy and honest people. We have never avoided paying taxes and have always engaged in honest financial practices. We understand the AMT was put into place to make sure that the very wealthy people paid their fair share of taxes, but it's not working the way it was intended. There has to be some consideration for people like us, those of us that were caught in the AMT trap.
Whenever you tell anyone the details of our situation they are appalled. They say that's impossible. It just couldn't be. Well it did and we have been living a nightmare for over 4 years with daily fear that one day when we open our mailbox there's going to be a letter there from the IRS stating that they are taking our home, the one that we worked all our life for.
We respectfully seek the understanding of the President’s Tax Panel and plead with you to help rectify this wrong.
Arthur and Rita Miller
5954 Ivy League Drive
Catonsville, MD 21228-5783
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| Posted: May 05, 2005 |
By: Leroy Lacy and Janis K. Purl |
Subject: ISO AMT
Comment: Leroy Lacy and Janis K. Purl
Private Citizen
Organization: Reform AMT
Dear Sir/Madam:
This letter is to add testimony to those given by others who are suffering from the AMT issues on incentive stock options. In my case it is devastating and has taken all that I have saved to carry me through retirement and left me in a dire position.
I am a software engineer and have worked for wages all my life. I’ve been continuously employed since I was twelve years old. I’m from a large (5 boys and a girl) poor family. We lived on one income from my father as a technician. I worked my way through high school and College at various jobs to provide me with cloths and transportation and to help supplement the family income.
I have been fortunate enough to work at the state of the art in computer science while at the DOE where I implemented operating systems on supercomputers. My 22 years with DOE at various facilities exempted me from FICA and when I left DOE to work in aerospace, I was quite behind my peers in acquiring Social Security credits. While at various positions in Silicon Valley where I was again working at the state of the art in networking and computer security, there was no real retirement benefits. The work was all consuming and most enjoyable and the years seemed to fly by. When I reached fifty-five, I noticed that I should work carefully to amass a nest egg to carry me through my retirement years. The point was driven home when my grandmother could no longer take care of herself and had no support to help provide comfort until she died. I was her only support as the eldest child (my mother and father died at an early age). She had nothing but Social Security and that was just not sufficient to take care of her. While I had sufficient income to allow her the care she required, it made me aware of the state of risk that I was in. I had never given the fact that I may not be ABLE to work any significant thought and at the age of fifty-five, I did not have many years left to save for a time when I may have to stop working.
I took a position at Exodus Communications as an early employee for a reasonable, but not outstanding salary with stock options. It was explained that if I worked hard and the company prospered, my stock options would become valuable. I liked that idea; I have always been an over achiever. During my tenure at Exodus, I worked harder than I ever have in my life. I worked days at a time and traveled constantly. I have never worked under such stress in my life, but I build a security managed services business for Exodus that was their most profitable service. Eleven group members generated over $15 million in annual revenue. We were the highest producers in the corporation and watched over a world wide network of security services for the Exodus clientele.
The five years at Exodus took a heavy toll on my and my family but we all supported each other and took pride in the fact that we were building a business that anyone could be proud of. We were counting heavily on the value of the stock options to provide us with the retirement income necessary. We built a retirement home in Colorado and purchased a nice home here in Santa Cruz County that we hoped would provide a little estate for our two children after we passed away.
That was not to be; shortly after the company went public, a new set of management was brought in as part of the process of becoming a large corporation. Ellen Hancock and her staff squandered all the value that all the hardworking staff had generated and drove the company into bankruptcy in a very short time. I was not sure what had happened, but as I learned about Enron, Worldcom, and other corporate criminals, it became obvious that I too was a victim of corporate greed. When it became obvious that all the stock options I had purchased had became worthless, I was most disappointed, but we still had our two houses, an IRA, some savings and I still had a good reputation as a leading software development manager. However, that was not to be. In August, after filing two extensions, my CPA and financial advisory informed me that I had a $1.7 million dollar tax bill based on all that worthless Exodus stock. That’s just not possible, I paid over a half million dollars in taxes the year before, how could I owe another 1.7 million based on worthless stock.
I can assure you that you have never experienced a shock like the one I got when the CPA informed me that I REALLY owed the State and Federal government all that money. Many times over what I had left from my time at Exodus or that I could make in my viable working years. Until that day, my biggest problem was with finding a new job to replace the income I had at Exodus. Now that I was 60 and the market was tight, no one wanted to hire me even though I’m still the best in the business.
So here I am at 61 still telling myself that just CAN’T happen to me. There must be some way this is incorrect. I’ve attempted to work out settlements with the IRS and FTB and they now have all the cash and retirement savings I have accumulated during my 50 years of employment and it appears they are about to take the rest of my possessions. I never thought I’d end up as one of those you see on a street corner with a cardboard sign, but I’m not far away from that today. I’ve been looking for work for nearly a year now and living on savings which have just been taking by the IRS. There are tax leans on both houses so I can’t sell them to buy food and pay rent. There are zero balances in my bank accounts and all the monthly bills are coming due.
I feel really bad for my wife who depended on me to provide us with some sort of retirement. The frustrating thing is with this job market, I can’t just say “Oh Well, I’ll just work until I die.” I can’t even find a job with sufficient income to pay medical insurance or rent. I just don’t know what I’m going to do. It’s a mess.
Thanks for your attention. I do hope that some equitable changes can be made in the tax system before we lose our last remaining assets.
Sincerely,
Leroy Lacy
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| Posted: May 05, 2005 |
By: Tony Kadillak |
Subject: ISO AMT
Comment: Statement to the President’s Advisory Panel on Federal Tax Reform
INDIVIDUAL submittal
Respectfully submitted by Tony Kadillak
March 18, 2005
I am yet another unsuspecting victim of the Alternative Minimum Tax. Due to a stock options exercise, I’m being taxed over $1.2 Million on stock that yielded actual capital gains of approximately $125,000. I can’t possibly afford to pay a tax on money I never received, yet the IRS seems unable or unwilling to work out a solution that is in line with the actual capital gain I realized. My story is summarized below.
From May 1997 to April 2001 I worked for Ariba, Inc. of Sunnyvale, California. At just a year out of college, I landed a position at a small company I thought would be a great boost to my career goals of entering into software sales. My compensation package included stock options, equity in the company that represented financial gain should the company go public in the future. Over the course of my employment I was granted two sets of stock options, which I exercised in May 1997 and April 2000. Ariba went public in June of 1999, and rode the .com wave with other companies for the next 18 or so months. Later I would find out that the stock I exercised in 2000 created the greatest financial catastrophe I would ever experience.
Fast forward to March, 2001. The stock market had taken a severe turn for the worse, and I was laid off my job due to massive restructuring in our company from the economic downturn. The stock I exercised was worth a fraction of the value from the year earlier, and my accountant informed me of something called the "Alternative Minimum Tax", and how my previous year's income taxes showed me owing over $1.2 Million dollars because of this tax. "But I haven't sold any of the stock," I said. "And some of the stock hasn’t even vested yet! How could I owe taxes on stock I've never sold, or can’t be sold?" He proceeded to inform me that regardless of the fact that I hadn't sold any stock, the fact that I exercised and held the options triggered this obscure tax, and I was being taxed on the fair market value of the stock on the day I exercised my options.
The day I heard this news was possibly one of the worst days of my life. The stock that triggered this mess was still sitting in an investment account untouched, as it had been for 11 months. However, its value had dwindled to 1/20th the value from the year before, and if I sold the stock then to pay the tax I still would have been $950,000 short. The best advice I received at the time was to throw myself at the mercy of the IRS, and pray that through an Offer in Compromise they would forgive a majority of the tax, take whatever assets I had remaining, and garner my wages for the next five to ten years. "But I never sold the stock, how on Earth can I be taxed on gain I've never seen? I haven’t made a dime off this stock yet!" I kept saying. The only response I got was, "The tax is unfair, and there's nothing we can do about it."
It's been four years now that I've been dealing with this burden. The Offer in Compromise process took almost a full year of my life, and in the end, the IRS rejected my offer. I am hoping that Tax Court will provide some relief, but after 2+ years I still haven’t seen any result. Last year my wife and I moved to New York, and decided to sell our condominium in San Francisco. Unbeknownst to us, the IRS had placed a lien on the property, and we were forced to surrender 100% of the equity in the sale. It was one of the most humiliating experiences of my life. Additionally, we were rejected for numerous apartment rentals in the New York area because of the federal lien. Only after begging a building owner and offering a 4-month security deposit were we able to find a place to live. We’re expecting our first child in September, and I have no idea how we’ll ever cover our basic costs if the IRS starts garnishing my wages.
Every day I live with this tax looming over me like a dark cloud. I can’t make financial decisions without wondering what the IRS is going to do next, and the chances of me ever owning another house seem like a pipe dream. I feel utterly helpless, and don’t know where to turn if my current efforts are unsuccessful. Everybody I’ve spoken to (including the IRS) agrees that this tax doesn’t make any sense, however nobody seems able or willing to do anything about it. I would love to pay my fair share, but I simply can’t fathom how I’m being taxed on money I never saw.
Please act now to correct this injustice – tax people when they sell the stock, not on phantom gain they “receive” upon exercise. Thousands of us deserve the opportunity to piece our lives back together.
Thank you for your consideration.
Tony Kadillak
212-724-3625
tkadillak@mac.com
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