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Finally a reason to smile again


Thanks to the patient determination and diligent efforts of many volunteers over an eight-year period, victims of the alternative minimum tax (AMT) trap finally have some tax relief – especially those who exercised incentive stock options!

Angela Hartley is a single mother who was financially devastated when she exercised her incentive stock options, followed by the “dot com” crash of 2000 and 2001. “I lost my house and all my life savings because the AMT imposed a prepayment tax based on the value of stock I purchased when I invested in my company by exercising incentive stock options. When the value of the stock later plummeted, the tax laws still required me to pay AMT tax on that inflated value. Those prepayments then became ’AMT credits’ that were in essence a lifetime interest-free loan to the U.S. government. It’s all rather complex, but I do know that I didn’t have any debt forgiven, because in a sane tax environment, there was no debt to begin with. In fact, the government had my money for years without paying interest and penalties when I finally get the credit back.”

Angela is a volunteer in a grassroots organization called Reform AMT. She and other volunteers made several trips to Washington, D.C. to explain to Congress why AMT Relief was necessary. Another grassroots organization spearheading the effort for AMT relief was the Coalition For Tax Fairness, headquartered in Washington, D.C..

According to Michael Gray, CPA, who writes a monthly newsletter called Michael Gray, CPA’s Option Alert, four major relief provisions were included in tax legislation that was part of the Federal “bailout” package enacted on Friday, October 3.

1. Unpaid liabilities for federal AMT incurred before 2008 from the exercise of an incentive stock option and related penalties and interest are abated or canceled, with an offsetting reduction of minimum tax credit carryovers.

2. The refundable minimum tax credit percentage for minimum tax credits that are more than three years old has been increased from 20% to 50%, enabling victims of the “dot com” crash of 2000 and 2001 who paid the AMT to recover those credit carryover amounts over two years, starting with their 2008 income tax returns.

3. A previous phaseout of the refundable minimum tax credit that prevented high income taxpayers from using it has been eliminated, effective starting 2008.

4. Each year, one-half of interest and penalties paid before October 3, 2008 relating to an AMT for the exercise of an incentive stock option will be added to the refundable minimum tax credit for 2008 and 2009, so all of the penalties and interest will be recovered.

After eight painful years, Angela has a reason to smile again.

Michael Gray’s CPA firm helps employees with tax planning for employee stock options. You can subscribe to his free newsletter and find articles, questions and answers relating to employee stock options at his web site,



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