Letter to a Congressman or Senator

The Honorable {Congressman, Senator}[Recipient's Name]
[Recipient's Address]

[Date]

Dear Senator/Congressman/Congresswoman,

I am writing to ask for your support and would appreciate your taking a moment to read this letter.

I feel compelled to increase your awareness about an issue which is causing devastation amongst your constituents; the inequitable taxation of individuals via the Alternative Minimum Tax (AMT) code of 1986. This has become a particularly critical issue for many Americans this tax season.

[Explain how AMT has affected you and your family and what hardships it has created.]

Myself, along with many of my co-workers, friends and family, now find ourselves in this dreadful situation. Several of us are on the verge of declaring bankruptcy and others are forced to sell assets (including their children’s college, savings, cars, refinancing or selling of homes, 401k/IRA pension plans liquidation etc.) to help pay the taxes.

This tax payment actually becomes a credit, yet in many instances one that can never be recovered by the taxpayer. In essence, the taxpayer can lose all their investment money, and also other assets, simply to create a tax credit in their IRS account.

This practice of requiring the payment of taxes when stock is purchased is misguided and can lead to dangerous economic consequences. Forcing people into bankruptcy does not serve the interests of the IRS, nor does it serve the common good for honest, hard working Americans.

The Honorable Sam Johnson has introduced HR 3385 to help solve this problem. Your vote is needed, now, to circumvent the damage being caused by the existing law.

We respectfully ask for your support of HR 3385 and for your efforts to further investigate the disastrous consequences of the Alternative Minimum Tax.

Sincerely,

[Name]
[Address]

Letter to a Corporation

[Recipient's Name]
[Recipient's Title]

[Date]
[Coporation Name]
[Corporation Address]

Dear Sir [or Madam],

I am writing on behalf of the Reform AMT Organization.

We feel compelled to increase your awareness about a tax issue that is causing unintended, but significant financial hardships, some of which may be affecting your employees right now. This situation is due to an inequitable tax consequence caused by the Alternative Minimum Tax (AMT) code of 1969. Thousands of Americans have been affected; many have been forced to bankruptcy, or worse, due to the effect of this tax.

Our organization represents the many victims of this tax, both silent and vocal.

From 1991 through late 2000, the U.S. economy enjoyed tremendous growth, and high technology companies in particular performed exceedingly well. Because of the tight labor market during that period, and in order to retain employees with essential skills, many firms issued Incentive Stock Options (ISOs). Such stock options have proven very valuable as a recruiting and retention tool.

Under the current laws regarding the AMT, a taxpayer is required to pre-pay capital gains taxes on ISOs when they are purchased by the employee. This pre-payment is usually 28% of the difference between the fair market value and the option strike price, and the payment is held by the IRS as a "Minimum Tax Credit" to be applied in future years.

The burdensome nature of this tax occurs through the manner in which the Minimum Tax Credit is applied. The Minimum Tax Credit can only be applied to the extent that an employee's ordinary income tax liability exceeds his/her AMT liability. This works fine when an ISO is exercised and the stock is later sold for more than it was worth at the time of exercise. In this case, an employee's ordinary income tax liability is significantly greater than his/her AMT liability and the Minimum Tax Credit reduces the amount of tax due. If the increase in value is great enough, the entire amount of the credit can be used.

However, when the stock is sold for less than its value at the time of exercise, the amount of AMT paid by the employee is more, in some cases substantially more than is ultimately paid in ordinary income taxes. In this case, the employee has prepaid far more than is ultimately owed - and it may take years, even decades to recover what has now become a gross overpayment.

We and many of our co-workers now find ourselves in this dreadful situation. We owe an amount in taxes that is equivalent to our gross income, and in all-too-frequent cases multiple times our gross annual income for 2000. Since our companies’ stock has fallen so much within the past year, even if we were to sell ALL of our shares, we would still not have enough money to pay our taxes. Several of us are on the verge of declaring bankruptcy and others are forced to sell assets (including their children’s college savings, cars, refinancing or selling of homes, liquidating 401k/IRA pension plans, etc.) to pay the AMT due.

This practice of requiring the payment of taxes when stock is purchased is misguided and economically counterproductive. Forcing productive employees into bankruptcy does not serve the interests of the IRS, nor does it make the concept of stock options very attractive to potential workers.

Using the best information available at the time, most employees faithfully chose not to sell shares of their employers in 2000. This choice was simple: they took the time-honored advice of 'holding' based on the tax laws concerning advantageous long-term capital gain rates. These lower rates encourage long-term capital investments, by employees, in their employers.

Lower tax rates for long-term holdings is obviously good socioeconomic policy. ISO recipients, by definition some of the most productive workers in America, should be able to avail themselves of this sound tax policy, just like any other investor.

The Honorable Sam Johnson has introduced HR 3385 to help solve this problem. We respectfully ask for your support of HR 3385 and would greatly appreciate a written response from your office regarding your stance on this issue.

Sincerely,

Congressional Committee
Taxpayers for AMT Reform