IRS to suspend collection of options tax

http://www.tmcnet.com/usubmit/2008/08/30/3626393.htm

(Gazette, The (Cedar Rapids, IA) (KRT) Via Acquire Media NewsEdge) Aug.
30--The Internal Revenue Service has agreed to suspend collection of
alternative minimum tax on incentive stock options, Sen. Chuck Grassley
said Friday.



The suspension of collection efforts will give Congress time to ease
the burden on affected taxpayers, according to Grassley, R-Iowa,
ranking Republican on the Senate Finance Committee and former committee
chairman.



Alternative minimum tax is an alternate tax calculation system
targeting high-income Americans that ensnares more people each year
because it is not indexed for inflation. Incentive stock options are a
type of employee stock option with a tax benefit, when exercised, of
not having to pay ordinary income tax. Instead, the options are taxed
at a capital gains rate. However, they involve more risk for the option
holders because they must keep the options longer in order to qualify
for the lower capital gains rate.

The application of alternative minimum tax to income from incentive
stock options is widely regarded as unfair because it left thousands of
taxpayers with huge tax bills on income they never actually realized.
Most of the taxpayers had stock options on shares of the technology
companies at which they were employed. They exercised the options just
before the technology bubble burst in 2001 and 2002, causing the price
of tech shares to plummet. But the IRS calculates the income based on
the value of the shares at the time they were exercised rather than at
the time they were sold. That left many taxpayers with huge tax bills
without stock profits they could use to pay the IRS.



Among the victims of the tax were many employees of telecommunications
companies operating in Cedar Rapids, such as McLeodUSA, now part of
PAETEC, and MCI, now Verizon Business

Ron Speltz of Ely, a McLeodUSA executive who now works at PAETEC, and
his wife, June, crusaded nationally to correct the tax code, working
with the Coalition for Tax Fairness and other groups. Their efforts
were rewarded by a legislative fix in the Tax Relief and Health Care
Act of 2006 that provided gradual refunds of previous payments. But the
legislative fix did not stop the IRS from trying to collect the
original tax, penalties and interest.



"These families are facing the garnishments of wages, foreclosures of
homes, seizures of retirement accounts, and all the other tools
available to the IRS to settle uncollected tax debts," said a letter to
IRS Commissioner Douglas Shulman cosigned by Grassley and 26 other
members of Congress.



In the letter, Grassley wrote "there is now a very broad bipartisan
consensus to abate all interest and penalties attributable to ISO AMT
liabilities and permit taxpayers to apply the full amount of their
future refundable credits toward the entirety of their ISO AMT
liabilities." He wrote that there is strong commitment in both houses
of Congress to enact legislation to accomplish those goals this year.



-- Contact the writer: (319) 398-8317 or david.dewitte@gazcomm.com



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