[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]





                   SECOND IN A SERIES OF HEARINGS ON
                      THE ALTERNATIVE MINIMUM TAX

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 22, 2007

                               __________

                           Serial No. 110-28

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                RICHARD E. NEAL, Massachusetts, Chairman

LLOYD DOGGETT, Texas                 PHIL ENGLISH, Pennsylvania
MIKE THOMPSON, California            THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
ALLYSON Y. SCHWARTZ, Pennsylvania    JOHN LINDER, Georgia
JIM MCDERMOTT, Washington            PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois
EARL BLUMENAUER, Oregon

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisories of March 15 and March 19, 2007, announcing the hearing     2

                               WITNESSES

Margaret L.N. Rauh, Individual Taxpayer, accompanied by Jay 
  Primack, Moriarty & Primack, P.C., Certified Public 
  Accountants, Springfield, Massachusetts........................    10
Joel Campbell, Individual Taxpayer, accompanied by Art Auerbach, 
  Goodman and Company, LLP, Certified Public Accountants, McLean, 
  Virginia.......................................................     7
Joseph W. Walloch, President and CEO, Walloch & Associates, 
  Redlands, California, on behalf of the American Institute of 
  Certified Public Accountants...................................    15
David A. Lifson, President-Elect, New York State Society of 
  Certified Public Accountants, New York, New York...............    21
Michael K. Day, Sr., President, Baltimore County Professional 
  Fire Fighters Association, Cockeysville, Maryland, on behalf of 
  the International Association of Fire Fighters.................    11
Jon A. Nixon, CPA, Partner, Katzman Weinstein and Co., LLP, 
  Bethpage, New York.............................................    26

                       SUBMISSIONS FOR THE RECORD

Angela Hartley, letter...........................................    46
Brian Hanrahan, letter...........................................    47
Brian Lent, letter...............................................    48
Coalition for Tax Fairness, statement............................    49
Cong Trinh, letter...............................................    50
Craig Chesser, New York, NY, statement...........................    51
Dan Taylor, statement............................................    52
David W. Moyle, statement........................................    54
Deborah Watson, letter...........................................    55
Eric Delore, letter..............................................    56
Gerald Marx, letter..............................................    57
Hans Lachman, letter.............................................    59
Heather Youskauskas, letter......................................    60
Herman Bluestein, letter.........................................    63
Jeff Damir, letter...............................................    64
Jeffery Chou, statement..........................................    65
Kelly Baird, statement...........................................    65
Kevin R. Frank, statement........................................    66
Larisa and John Bickel, statement................................    67
Leroy Lacy, statement............................................    67
Lisa Szturma, letter.............................................    68
Mark Flatman, letter.............................................    70
Michael & Jennifer Carrobis, statement...........................    71
Michael F. Abidi, letter.........................................    71
Michael G. Parkin, letter........................................    73
Michael M. Marino, letter........................................    74
Michael Powers, letter...........................................    75
Michael Sullivan, letter.........................................    76
Mike Brown, statement............................................    77
Mike Wertheim, statement.........................................    78
Miller family, statement.........................................    79
National Potato Council, letter..................................    82
Nina Doherty, letter.............................................    83
Paul M. Sander, letter...........................................    85
Rich Verjinski, letter...........................................    86
Robert M. Korte, letter..........................................    87
Ron Speltz, June, Alison, Sydney, Angela and Sawyer, letter......    88
Sally Foster, letter.............................................    89
Sheila Weaver, letter............................................    91
Todd Keen, statement.............................................    92
Tom Schrepel, letter.............................................    93
William David Kebschull, statement...............................    94

 
                   SECOND IN A SERIES OF HEARINGS ON
                      THE ALTERNATIVE MINIMUM TAX

                              ----------                              


                        THURSDAY, MARCH 22, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 1100, Longworth House Office Building, Hon. Richard E. 
Neal (Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
March 15, 2007
SRM-2

            Neal Announces Second in a Series of Hearings on

                      the Alternative Minimum Tax

    House Ways and Means Select Revenue Measures Subcommittee Chairman 
Richard Neal (D-MA) announced today that the Subcommittee on Select 
Revenue Measures will hold a hearing on the Alternative Minimum Tax 
(AMT). The hearing will take place on Thursday, March 22, 2007, in Room 
B-318, Rayburn House Office Building, beginning at 10:00 a.m.
      
    The Subcommittee will examine the impact of the AMT on American 
families. In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The basic structure of the AMT was enacted in 1969 after it was 
disclosed by the Treasury Department that approximately 155 rich 
families, some of whom were millionaires, did not pay any income taxes. 
The AMT was designed to ensure that even the richest among us could not 
use exclusions, deductions, or credits to avoid all tax liability. 
Today, many decades later, the AMT has strayed from its original goal. 
Without Congressional action, the AMT is estimated to affect more than 
23 million taxpayers in 2007.
      
    There are two main reasons for the increasing number of taxpayers 
who will be subject to the AMT. First, the tax cuts under the regular 
income tax that were enacted as part of the ``Economic Growth and Tax 
Relief Reconciliation Act of 2001'' (P.L. 107-16), the ``Jobs and 
Growth Tax Relief Reconciliation Act of 2003'' 
(P.L. 108-27), and the ``Working Families Tax Relief Act of 2004'' 
(P.L. 108-311), have narrowed significantly the differences between 
regular and AMT tax liabilities for middle and higher income 
individuals. Second, regular income tax brackets are indexed for 
inflation, but the AMT thresholds are not. This has, over time, reduced 
further the differences between regular income tax liabilities and AMT 
liabilities at lower income levels.
      
    Under current law, taxpayers filing joint returns with no 
dependents could be subject to the AMT at income levels as low as 
$75,395 for the 2007 taxable year. This assumes that temporary 
protections for personal non-refundable credits and the higher 
exemption levels are not extended for the current tax year. By 2016, if 
the 2001 and 2003 tax cuts are extended, tax experts estimate that the 
number of taxpayers paying the AMT will increase to more than 48 
million.
      
    In announcing the hearing, Chairman Neal said, ``This AMT was 
originally designed to catch millionaires who were avoiding their tax 
liability through the use of excessive deductions. Today, that system 
has gone seriously awry. This year a family of four earning $66,000 
could be hit by the AMT. This was not meant to be. The AMT is a 
bipartisan problem and we must work together to find a bipartisan 
solution.''

FOCUS OF THE HEARING:

      

    This hearing will examine the impact of the AMT on individual 
taxpayers, particularly middle-income taxpayers who were never intended 
to be subject to this tax.

      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      

    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Committee Hearings'' 
(http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the 
hearing for which you would like to submit, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, completing all informational 
forms and clicking ``submit'' on the final page, an email will be sent 
to the address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
April 5, 2007. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.

      

FORMATTING REQUIREMENTS:

      

    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.

      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.

      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.

      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.

      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.

      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    [The revised advisory follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
March 19, 2007
SRM-2 Revised

              Location Change for Subcommittee Hearing on

                    Thursday, March 22, 2007, on the

                        Alternative Minimum Tax

    House Ways and Means Select Revenue Measures Subcommittee Chairman 
Richard Neal (D-MA), today announced that the Subcommittee hearing on 
the Alternative Minimum Tax, previously scheduled for Thursday, March 
22, 2007, at 
10:00 a.m., in Room B-318 Rayburn House Office Building, has been moved 
to 1100 Longworth House Office Building.
      
    All other details for the hearing remain the same. (See Advisory 
No. SRM-2, dated March 15, 2007.)

                                 

    Chairman NEAL. Let me call this meeting to order. Could I 
urge all to take their seats.
    This is the second hearing of the Subcommittee on Select 
Revenue Measures, and again, our topic today will be the 
alternative minimum tax (AMT).
    We have all seen those commercials where the parents tell 
the kids that this year, they will finally get to go to 
Disneyland. Imagine the followup conversation where the parents 
deliver the bad news that AMT took away their trip to see 
Mickey. This is the real life consequence.
    There are real economic consequences for middle class 
working families who are told they owe more in taxes than they 
previously had thought.
    Two weeks ago we heard from Treasury, the Taxpayer 
Advocate, and two think tanks about the problems with AMT.
    Today we will hear from tax practitioners and from families 
who have been impacted by AMT. They will tell us that the AMT 
means no contribution for retirement, no savings for college, 
and no trip to Disney this year.
    After these hearings, it is my intention to confer with 
Chairman Rangel and with our Republican counterparts, Mr. 
McCrery and Mr. English, about what would be the best approach 
for the Committee in tackling this problem.
    It is also our intention to confer with Secretary Paulson 
as Treasury must be a partner in any long term solution to fix 
AMT.
    As I stated at our last hearing, this is a bipartisan 
problem. It is balanced in its geography, and it needs a 
bipartisan solution. It is a tax increase threatening 23 
million Americans this year, and it will hit almost 30 million 
taxpayers by 2010, including virtually all families of four 
earning between $75,000 to $100,000.
    The annual patch just keeps getting more difficult and 
certainly more expensive each year. Long term solutions seem 
even more difficult, if not impossible.
    St. Francis acknowledged that we should ``start by doing 
what is necessary, then do what is possible, and suddenly, you 
are doing the impossible.''
    That is what I am committed to do, and I do not accept the 
notion that it is too hard to try. Many Members of this 
Committee know the pain and confusion of AMT. We are very 
fortunate today to hear some firsthand accounts from hard 
working families who have also been victimized by AMT. Their 
testimony will illuminate and inform us on this issue. I hope 
it will inspire us to action as well.
    Let me welcome our witnesses today. From Loudoun County 
Virginia, we have Mr. Joel Campbell, a father of two and an 
unfortunate victim of the AMT for the last several years.
    From Chicopee, Massachusetts, and a constituent, Ms. 
Margaret Rauh. Maggie is an experienced CPA and will tell us 
how her family will pay AMT this year, if Congress fails to 
act.
    From Baltimore, Maryland, we have Mr. Michael Day, the 
President of the Baltimore County Professional Fire Fighters, 
Local 1311, of the International Association of Fire Fighters. 
Mr. Day is a father of three and represents the rank and file 
fire fighter, many of whom have been hit by AMT. He has been a 
fire fighter in Baltimore County since 1985.
    We are also pleased to welcome our witnesses representing 
the tax practitioner groups today. Mr. David Lifson, the 
incoming President of the New York State Society of CPAs. New 
York State has the dubious honor of having one of the highest 
AMT participation rates in the nation, and I am sure that Mr. 
Lifson has many clients who are also unhappy with this honor.
    Representing the American Institute of CPAs, Mr. Joe 
Walloch, who is a CPA from Redlands, California. Of the 23 
million potential taxpayers to be hit by AMT in 2007, more than 
4 million of them are estimated to live in California.
    Finally, from Long Island, New York, we have Mr. Jon Nixon, 
a CPA, who will address the AMT problem for his clients, many 
of which are small businessowners.
    I look forward to your testimony today, and let me 
recognize my friend and the Ranking Member, Mr. English, for 
his opening statement.
    Mr. ENGLISH. Thank you, Mr. Chairman. I thank you for your 
openness to a discussion and a dialog on this important issue. 
I have been an opponent of the AMT going back to my earliest 
years in Congress, and it is my privilege to cochair the Zero 
AMT Caucus.
    We think that repeal of the AMT has got to be a priority. I 
particularly look forward to the opportunity to hear from 
today's panel on the broad effects of the individual side of 
the AMT.
    I understand that much of today's testimony will cover the 
effect of the AMT on families and individuals, and my hope is 
that we will have the opportunity to highlight and spend some 
time today on the effect that the individual AMT has on the 
economy and particularly the most dynamic sector of the 
economy, on small business.
    In our last hearing, I was pleased that the Subcommittee 
was able to probe and explore the unintended consequences of 
the individual AMT. I also hope that this panel will have an 
opportunity to explore the consequences of the corporate AMT 
and its drag on the American economy.
    This week, I think it is particularly important to keep in 
mind that the individual AMT not only affects families, as we 
have so often heard from witnesses before the Committee, both 
last week and today, the individual AMT also impacts on the 
owners of some of the most effective job creating drivers in 
the American economy. These taxpayers can and are being hit by 
the growing monster that is the AMT.
    As a result, these small businessowners are denied many 
pro-growth tax preferences which have passed this Congress on a 
bipartisan basis, which enable their businesses to thrive and 
expand.
    Among the preferences that small businessowners affected by 
the denied individual AMT are accelerated depreciation on 
capital equipment, the research and development (R&D) tax 
credit, the work opportunity tax credit, the low income housing 
tax credit, the employer provided child care credit, and a 
panoply of other Congressionally created incentives.
    The impact of losing these preferences perhaps even 
unexpectedly can be devastating for these vital employers.
    Any attempt to redistribute the burden of an AMT fix 
disproportionately onto small businessowners, in my view, is 
moving in the wrong direction.
    Such a move would continue to ensnarl small businesses in 
an unintended and unfair tax situation that stumps growth.
    To reiterate my comments from last week's hearing, tax 
increases masquerading as reform is what gives this legislative 
process a bad name.
    I hope that we can deal with this problem without doing 
this purely as a tax shift, and Mr. Chairman, I will just note 
I was discouraged to learn this morning that apparently at 
least one proposal that has been considered by the Budget 
Committee would not even have a patch this year for the budget. 
That would make our efforts on this panel very, very difficult.
    My hope is that we can continue the dialog that you have 
created, that I think is very much to your credit, and find a 
middle ground for dealing with this problem.
    I thank the panelists for taking time out from their busy 
lives to join us today.
    Chairman NEAL. Thank you, Mr. English.
    Without objection, any other members wishing to insert 
statements as part of the record may do so.
    Ms. SCHWARTZ. Mr. Chairman, if I may, the Budget Committee 
did pass a budget last night at about 1:00 in the morning. Just 
for Mr. English's information, we did include a statement that 
said at least a 1 year patch.
    The idea was to give this Committee an opportunity to 
potentially create a longer fix, a more permanent fix, but it 
does include language that very specifically says there will be 
a patch for at least 1 year.
    Mr. ENGLISH. Will the gentlelady yield? Is there anything 
for pay-go in that budget?
    Ms. SCHWARTZ. As you know, we have a pay-go rule, and the 
Budget Committee did abide by the pay-go rule, so there are 
offsets for everything that we did.
    Mr. ENGLISH. There is no offset for a patch, as I 
understood it.
    Ms. SCHWARTZ. I do not think there is a specific offset in 
there, but there is no question--this is not an opportunity to 
discuss the budget right now, but I would be happy to sit down 
with you at a different point. I did not want to take the time 
in this hearing. I did want to just correct that for the 
record, that we actually will be doing it or it is our 
intention to do at least 1 year.
    Mr. ENGLISH. If the gentlelady would yield, I do not think 
there is anything to correct. If there is not room in the 
budget for the patch, $50 billion, then that is a serious 
problem that will affect how this Committee goes forward.
    I yield back.
    Mr. BLUMENAUER. Mr. Chairman?
    Chairman NEAL. The gentleman from Oregon, Mr. Blumenauer.
    Mr. BLUMENAUER. There is both the patch and there is a 
reserve fund that gives our Committee an opportunity to do its 
job, so there is running room if the Committee on Ways and 
Means steps forward as our leadership on both sides of the 
aisle has indicated an interest in doing, that the budget will 
allow for that.
    Chairman NEAL. I thank the gentleman.
    Written statements by the witnesses will also be inserted 
into the record as well.
    Let's begin with Mr. Campbell. Thank you for being here.

STATEMENT OF JOEL CAMPBELL, INDIVIDUAL TAXPAYER, ACCOMPANIED BY 
      ART AUERBACH, GOODMAN AND COMPANY, CERTIFIED PUBLIC 
                 ACCOUNTANTS, McLEAN, VIRGINIA

    Mr. CAMPBELL. Mr. Chairman, distinguished Members of the 
House Committee on Ways and Means on Select Revenue Measures, I 
really want to thank you for the opportunity to appear before 
you today.
    My name is Joel Campbell. I am a taxpayer. I am a resident 
of Loudoun County in Northern Virginia, which you might know is 
recognized as one of the fastest growing counties in the 
country.
    I appreciate this chance to share a middle class taxpayer's 
perspective on the AMT. I, in fact, and my family have been 
caught in this trap for each of the past 4 tax years, paying on 
average $1,000 in AMT.
    My family of four lives in a rapidly growing area, as I 
said, where our assessed values on our homes are increasing at 
double digit percentages every year. This has caused big 
increases in our real property tax, which we pay for our 
property.
    The increasing taxes we pay there plus the increases in 
state income tax and local personal property tax, none of which 
are deductible, is the underlying cause of my family being 
subjected to the AMT.
    This is, of course, on top of the loss of what you might 
consider normal middle class tax deductions for things like 
college tuition and others, which are phased out for our family 
based on our adjusted gross income.
    In addition, the tax cuts enacted by Congress have lowered 
the regular tax, and that is an additional factor in my being 
subject to the AMT.
    In sort, the lower tax rates really have not provided any 
relief to my family, no real benefit in that regard.
    As I am sure you are all aware, any incremental dollars 
coming into middle class households impact the family as well 
as the community. I have one child in college, another who will 
be attending college in the very near future. Therefore, any 
additional dollars we receive into our household truly have 
great value.
    With the average U.S. citizen attempting to fund education 
for their children, retirement for themselves, and provide 
health care for the family, all of which are increasing faster 
than income or inflation, any loss of disposable income is a 
grave cause for concern.
    The desire of all working persons is to increase their 
earnings, live the American dream. However, the AMT seems to be 
a disincentive to having increased earnings. As earnings 
increase, so do state and local income taxes. Added to that, 
your tendency to move to a nicer neighborhood in a newer home 
that increases your real property tax, each of which added 
together increase your chances of being subject to the AMT.
    This can also have a marked effect on the economy. As with 
any budget, when revenue is lost, spending has to come under 
the microscope.
    From statistics that I have seen, if there is no action by 
Congress, by the year 2010, more than 80 percent of households 
with incomes between $100,000 and $200,000 and almost half of 
those with incomes between $75,000 and $100,000 will pay the 
AMT.
    Because of these items identified as tax preferences, these 
households, like mine, will be looking at their spending 
patterns as I have done, to determine where the additional 
revenues are going to be coming from to finance the simple 
every day household expenses.
    Because I have been hit by this tax, it has caused my 
family to take a closer look at the items that are considered 
add backs to regular income, and therefore, increase the 
likelihood of being subject to the AMT.
    I believe some adjustments should be made for rising 
medical costs, which currently have an increased threshold 
under the AMT, perhaps even an allowance for a personal 
exemption should be extended to the AMT calculations, as this 
tax seems to impact larger families more than others.
    Those who live in high tax jurisdictions also will face a 
higher likelihood of facing the AMT, without the normal benefit 
of claiming these increased deductions, these expenses as 
deductions.
    The 2006 tax year and the next 2 tax years is the timeframe 
Congress set for marriage penalty relief. However, all of this 
relief only causes a regular lower tax and increases the chance 
of being subject to the AMT. By 2010, married couples will have 
a greater chance than single individuals of being hit by the 
AMT.
    Some coordinated reform to assist middle class families 
like mine needs to be achieved to increase the incentive to get 
ahead and provide a better future for our families. If more tax 
dollars are taken, where are we supposed to get the money to 
educate our children and save for retirement?
    Perhaps indexing the exclusions for inflation will allow us 
to keep pace and not be penalized for earning more.
    Ladies and gentlemen, I thank you for the opportunity to 
share my views with you today.
    [The prepared statement of Mr. Campbell follows:]
 Prepared Statement of Joel Campbell, Individual Taxpayer, accompanied 
      by Art Auerbach, Goodman and Company, LLP, Certified Public 
                     Accountants, McLean, Virginia
    Mr. Chairman and members of the House Ways and Means Subcommittee 
on Select Revenue Measures, I thank you for the opportunity to appear 
before you today. I am, Joel Campbell, a taxpayer and resident of 
Loudoun County in Northern Virginia.
    I appreciate the chance to share a middle class taxpayer's 
perspective on the alternative minimum tax. I have been ``caught'' by 
the alternative minimum tax each tax year for the past 4 years. I have 
paid on average about $1,000 each of those years in alternative minimum 
tax.
    My family of four lives in a rapidly growing area where the 
assessed values on our homes have been increasing at double digit 
percentages. This has caused big increases in the real property tax 
assessed against the property. The increasing real estate tax plus the 
amounts paid for the state income tax and the local personal property 
tax, none of which are deductible for the alternative minimum tax, is 
the cause of my being subject to the AMT. This is of course on top of 
the loss of middle class deductions for things like college tuition 
payments based on AGI. In addition, the tax cuts enacted by the 
Congress have lowered the regular tax and that is an additional factor 
in my being subject to AMT. In short, the lower tax rates have really 
not provided me or my family with much of a benefit.
    As I am sure you are aware, any incremental dollars coming into a 
middle class household impacts the family as well as the community. I 
have one child in college and another who will be attending college in 
the near future. Thus any additional dollars coming into our household 
have a great value. With the average citizen attempting to fund 
education for their children, retirement for themselves and provide 
health care for the family, all of which are increasing faster than 
income or inflation, any loss of disposable income is a cause for 
concern. The desire of all working persons is to increase their 
earnings; however, the AMT seems to be a disincentive to having 
increased earnings. As earnings increase, so do state and local income 
taxes. Additionally, there is the tendency to move to a larger home and 
thus increase real property tax and all this increases the chances of 
being hit by the AMT.
    This can also have a marked effect on the economy, as with any 
budget, when revenue is lost, spending has to come under the 
microscope. From statistics that I have seen, if there is no action by 
Congress, more than 80% of the households with incomes between $100,000 
and $200,000 and almost half of those with incomes between $75,000 and 
$100,000 will pay the AMT by 2010. Because of those items identified as 
``tax preferences'' these households will be looking at their spending 
patterns, as I have done, to determine where the additional revenues 
are going to be coming from to finance simple household expenses.
    Because I have been ``hit'' by this tax, it has caused me to take a 
closer look at those items that are considered ``add backs'' to regular 
income and thus increase the likelihood of being subject to AMT. I 
believe some adjustment should be made for rising medical (these 
currently have an increased threshold for the AMT), taxes and mortgage 
interest (where home equity loans create greater scrutiny). Perhaps 
even an allowance for personal exemptions should be extended to the 
AMT, as this tax seems to impact larger family units more than others. 
Thus those who live in high tax jurisdictions will face a greater 
likelihood of facing the AMT, without the normal benefit of claiming 
these increased expenses as deductions.
    For the 2006 and the next 2 years is the timeframe for achieving 
some marriage penalty relief in the tax cut world. However, all this 
relief only causes a lower regular and increases the chances of being 
subject to the AMT. By 2010 married couples will have a greater chance 
than single individuals of being hit by the AMT.
    Some coordinated reform to assist the middle class needs to be 
achieved to increase the incentive to get ahead and move forward in 
planning. If more tax dollars are taken, where are we supposed to get 
the money to educate our children and save for our retirement? Perhaps 
indexing the exclusions for inflation would allow us to keep pace and 
not be penalized by earning more.
    I again thank you for the opportunity to share my views with you.

                                 

    Chairman NEAL. Thank you, Mr. Campbell.
    Mrs. Rauh.

     STATEMENT OF MARGARET L.N. RAUH, INDIVIDUAL TAXPAYER, 
ACCOMPANIED BY JAY PRIMACK, MORIARTY & PRIMACK, P.C., CERTIFIED 
         PUBLIC ACCOUNTANTS, SPRINGFIELD, MASSACHUSETTS

    Ms. RAUH. Good morning and thank you for letting me address 
the Subcommittee today. My name is Maggie Rauh. I am a wife, a 
mother of three, and work full time as a certified public 
accountant.
    I have a Master's in taxation and have been working in the 
tax field for over 17 years.
    During my career, I have worked with clients from all 
different backgrounds and income levels. Many of these clients 
have been in an AMT position when filing their individual 
income tax returns. Generally, the clients in AMT were in the 
highest tax bracket.
    I was able to keep them out of AMT with some planning. When 
explaining to the affected clients why the tax applied to them, 
there was always a logical explanation. They had large itemized 
deductions or exercised some incentive stock options. Now, that 
reasoning does not apply.
    Throughout the year, I am in the habit of projecting my 
income tax liability to ensure that we get a substantial 
refund. With three young children, saving is often impossible. 
We use our tax refund as our forced savings plan. The refunds 
usually go to our extra's, which often include a new computer 
or possibly a vacation to Disney World.
    In February, I projected our refund for 2007 and was 
dumbfounded when I saw that we were going to be in AMT. Our 
refund would be decreased by over $1,300. Our projected income 
is the same, approximately $75,000 total. We do not itemize our 
deductions. We use the standard deduction for married couples 
and have five personal exemptions, one for each child and my 
husband and myself. There is no planning to be done to avoid 
the AMT we will pay. Our tax bracket will go from 15 percent to 
26 percent.
    The AMT exemption was increased by the Tax Increase 
Prevention and Reconciliation Act of 2005, but only through the 
end of 2006.
    I will be in AMT solely because the exemption is no longer 
increased.
    As a CPA, I understand the purpose behind AMT and why it 
was implemented, but I suggest that what is happening to my 
family and to millions of others shows the AMT no longer serves 
its intended purpose.
    Thank you for letting me address the Subcommittee today.
    [The prepared statement of Ms. Rauh follows:]
    Prepared Statement of Margaret L.N. Rauh, Individual Taxpayer, 
accompanied by Jay Primack, Moriarty & Primack, P.C., Certified Public 
                Accountants, Springfield, Massachusetts
    Good morning. Thank you for letting me address the Subcommittee 
today. My name is Maggie Rauh. I am a wife, a mother of three and work 
full time as a certified public accountant. I have a Master's in 
taxation and have been working in the tax field for over 17 years.
    During my career, I have worked with clients from all different 
backgrounds and income levels. Many of these clients have been in an 
Alternative Minimum Tax position when filing their individual income 
tax returns. Generally, the clients in AMT were in the highest tax 
bracket. I was able to keep them out of AMT with some planning. When 
explaining the tax to clients, there was always a logical reason--large 
itemized deductions or incentive stock options being exercised.
    But that is no longer the case. Throughout the year, I am in the 
habit of projecting my income tax liability, to ensure that we get a 
substantial refund. With three young children, savings is often 
impossible. We use our tax refund as our ``forced'' savings plan. The 
refunds usually go for our ``extras''--a new computer or our vacation 
to Disneyworld.
    In February, I projected our refund for 2007 and was dumbfounded 
when I saw that we were going to be in AMT. Our refund would be 
decreased by over $1,300. Our projected income is the same--
approximately $75,000. We do not itemize our deductions. We use the 
standard deduction for married couples and have 5 personal exemptions, 
one for each child, myself and my husband. There is no planning to be 
done to avoid the AMT we will have to pay. Our tax bracket will go from 
15% to 26%.
    The AMT exemption was increased by the Tax Increase Prevention and 
Reconciliation Act of 2005, but only through 2006. I will be in AMT 
solely because the exemption is no longer increased.
    As a CPA, I understand the purpose behind AMT and why it was 
implemented. What is happening to my family, and millions of others, 
was not the intention.

                                 

    Chairman NEAL. Thank you, Mrs. Rauh.
    Mr. Day.

 STATEMENT OF MICHAEL K. DAY, SR., PRESIDENT, BALTIMORE COUNTY 
PROFESSIONAL FIRE FIGHTERS ASSOCIATION, COCKEYSVILLE, MARYLAND, 
  ON BEHALF OF THE INTERNATIONAL ASSOCIATION OF FIRE FIGHTERS

    Mr. DAY. Good morning, Chairman Neal, Ranking Member 
English, and distinguished Members of the Subcommittee.
    My name is Michael Day. I am a fire fighter and President 
of the Baltimore County Professional Fire Fighters, Local 1311, 
of the International Association of Fire Fighters (IAFF).
    I am pleased to appear before you here today representing 
the more than 280,000 professional fire fighters and emergency 
personnel from every state in the nation who comprise the IAFF.
    Since 1985, I have served the people of Baltimore County, 
Maryland as a fire fighter and paramedic. Just as importantly, 
I am married, have a mortgage, and have three children.
    As a fire fighter who has served his community and who pays 
his taxes every year, I would like to give you a fire fighter's 
perspective on what I call the ``un-American tax,'' or as you 
know it, the AMT.
    Mr. Chairman, it is that time again, tax time, and fire 
fighters like me are rolling up their sleeves to fill out their 
forms at their kitchen tables to pay Uncle Sam by April 17th.
    When I first heard the words ``alternative minimum tax,'' I 
figured with the word ``minimum'' and ``tax'' together, if 
anything, taxpayers would fork over less to Uncle Sam, not 
more. I figured that the AMT would be anything but a tax 
increase. That it would target anyone but fire fighters, and 
that it would impact anyone but middle class Americans. 
Unfortunately, I was dead wrong.
    Next year, the AMT will hit me, a married fire fighter and 
father of three with a tax increase. Ask yourself, was the AMT 
created to affect people like me? Do you consider a fire 
fighter married with three kids well off? I am just trying to 
serve my community, raise my family, pay my mortgage, and make 
ends meet.
    The AMT has got it wrong. It is up to you to get it right. 
If ignored, the AMT could also target my fellow brothers and 
sisters in my fire house and the other stations across the 
country.
    The AMT could punish taxpayers like me for honoring the 
fundamental American values of family and hard work. The more I 
learn about it, the more today's AMT seems not only unfair but 
un-American.
    As a fire fighter, when you respond on a call, you never 
know what to expect. In some ways, the AMT reminds me of a fire 
call. Each time we pay Uncle Sam, we never know what to expect. 
There is a difference. As fire fighters, we spend years 
training for the real thing so we are prepared for when the 
emergency strikes.
    As taxpayers, we are not trained to pay the AMT. We spend 
long enough trying to learn the rules of the regular income tax 
so we can pay what we owe and pay it on time.
    If you thought the regular tax rules were tough, with the 
AMT, there is a whole new second set of rules, a whole new can 
of worms. Fire fighters are great at multi-tasking, but having 
two completely different sets of rules for paying Uncle Sam is 
overly demanding even for us.
    The AMT was not even designed to affect us in the first 
place, but penalizes us just the same. Every year, the rules of 
the game change under the AMT, but the penalties for breaking 
them stay the same. The AMT puts the word ``code'' in ``tax 
code.''
    In the fire service, if something is not working, we fix 
it. Broken or malfunctioning equipment puts our lives and our 
neighbors' lives in jeopardy.
    The AMT was created in the 1960s to make sure that wealthy 
taxpayers did not escape taxes using tax shelters, and were 
required to pay their fair share. Fire fighters, at least this 
one, I know, do not have Swiss bank accounts to avoid paying 
their taxes.
    Over the past four decades, the AMT has unintentionally 
evolved from a tax on the wealthiest few and has now invaded 
middle class households living paycheck to paycheck, making 
checkbooks across the country that much harder to balance every 
month.
    While I fully believe we all must pay our fair share, 
especially during times of record deficits and strained 
budgets, I feel compelled to note that over the past 7 years, 
Congress has seen fit to pass $1.8 trillion in tax cut 
giveaways to the wealthiest Americans, all while the AMT and 
its middle class punch was ignored and put off year after year.
    It was only through the band-aids at the 11th hour that 
middle class taxpayers were rescued, only temporarily, from the 
AMT, only to be thrown back in its path a year later.
    At the same time, the AMT has become a crutch for the 
Federal Government. I, for one, do not believe fire fighters 
and other hard working Americans should be left to prop up 
misguided fiscal policies that have largely benefited the 
wealthiest taxpayers.
    It is broken, and we are asking you to fix it. Thank you 
very much.
    [The prepared statement of Mr. Day follows:]
Prepared Statement of Michael K. Day, Sr., President, Baltimore County 
  Professional Fire Fighters Association, Cockeysville, Maryland, on 
        behalf of the International Association of Fire Fighters
    Good morning Chairman Neal, Ranking Member English, and 
distinguished Members of the Subcommittee. My name is Michael Day and I 
am a fire fighter and President of the Baltimore County Professional 
Fire Fighters, Local 1311 of the International Association of Fire 
Fighters. I am pleased to appear before you today representing the more 
than 280,000 professional fire fighters and emergency personnel from 
every state in the nation who comprise the IAFF.
    Since 1985, I have served the people of Baltimore County, Maryland 
as a fire fighter and paramedic. I currently hold the rank of Fire 
Specialist, responsible for in-station training and fire protection 
services. In 2000, I was elected President of Local 1311, which 
represents the 1200 professional fire fighters who protect Baltimore 
County.
    Just as importantly, I am married, have a mortgage, and have three 
children. I also serve my community as Chairman of the Baltimore County 
Health Care Review Committee, as a Trustee on the Baltimore County 
Employees Retirement System, and on the Executive Board of the 
Baltimore Port Council.
    As a fire fighter who has served his community and his Nation for 
22 years and who pays his taxes every year, I am honored and grateful 
for the opportunity to appear before you today to give you a fire 
fighter's perspective on what I call the un-American tax, or as you 
know it, the alternative minimum tax.
    Mr. Chairman, it's that time again, tax time, and fire fighters 
like me are rolling up their sleeves to fill out forms at their kitchen 
tables to pay Uncle Sam by April 17th. When I first heard the words 
``alternative minimum tax,'' I figured that with the words ``minimum'' 
and ``tax'' together, if anything, taxpayers would fork over less to 
Uncle Sam, not more. I figured that the AMT would be anything but a tax 
increase; that it would target anyone but fire fighters; and that it 
would impact anyone but middle-class Americans. Unfortunately, I was 
dead wrong.
    Next year the AMT will hit me, a married fire fighter and father of 
three, with a tax increase. Ask yourself, was the AMT created to affect 
people like me? Do you consider a fire fighter, married with three 
kids, well off? I am just trying to serve my community in Baltimore 
County, Maryland, raise my family, pay my mortgage, and make ends meet 
like everybody else. The AMT has got it wrong, and it's up to you to 
get it right. If ignored, the AMT could also target my fellow brothers 
and sisters in my fire house and in other stations across the country. 
The AMT could punish taxpayers like me for honoring the fundamental 
American values of family and hard work. The AMT punishes you once for 
raising a family and then again depending on where you choose to raise 
your family. The more I learn about it, the more the alternative 
minimum tax seems to me more like a fire fighter tax and a middle class 
tax. The more I learn about it, the more today's AMT seems not only 
unfair, but un-American.
The AMT is one fire we should not have to fight
    As a fire fighter, when you respond to a call, you never know what 
to expect. Riding on that rig, on your way to that fire emergency, you 
know it could always be your last. You and your crew are willing to 
sacrifice everything for the sake of the families in your community. In 
some ways, the AMT reminds me of a fire call. Each time we pay Uncle 
Sam, we never know what to expect. But there is a difference. As fire 
fighters, we spend years training for the real thing and then when 
emergency strikes, we rise to the occasion and do what we were trained 
to do: run into burning buildings and save lives. As taxpayers, we are 
not trained to pay the AMT. We spend long enough trying to learn the 
rules of the regular income tax so we can pay what we owe and pay it on 
time. If you thought the regular tax rules were tough, with the AMT 
there is a whole new second set of rules, a whole new can of worms. 
Fire fighters are great at multi-tasking, but having two completely 
different sets of rules for paying Uncle Sam is overly demanding, even 
for us.
    Together fire fighters and other middle-income taxpayers confront 
the same unknown, unpredictable AMT: a complex tax that wasn't even 
designed to target us in the first place, but penalizes us all the 
same. Every year the rules of the game for you may change under the 
AMT, but the penalties for breaking them stay the same. The AMT truly 
puts the word code in ``tax code.'' Under the AMT, we never know what 
kind of tax increase Uncle Sam may smack us with next. What is worse is 
that the AMT has the potential to engulf more and more taxpayers every 
year, unless Congress acts. It's hard to believe, Mr. Chairman, but the 
alternative minimum tax gives even the word tax a bad name.
The AMT is broken, and Congress must fix it
    In the fire service, if something isn't working, we fix it. Broken 
or malfunctioning equipment puts our lives and our neighbors' lives in 
jeopardy. We fix our trucks, our equipment, our stations, to protect 
ourselves so we can best protect our community. The AMT was created in 
the sixties to make sure that wealthy taxpayers did not escape taxes 
using tax shelters, and were required to pay their fair share. Fire 
fighters, at least the ones I know, do not have Swiss bank accounts to 
avoid paying their taxes. And not too many fire fighters I know try to 
incorporate in the Bahamas to get a tax break. Over the past four 
decades, the AMT has unintentionally evolved from a tax on the 
wealthiest few and has now invaded middle-class households living 
paycheck to paycheck, making checkbooks all across this country that 
much harder to balance every month.
    While I fully believe we all must pay our fair share, especially 
during times of record deficits and strained budgets, I feel compelled 
to note that over the past 7 years Congress has seen fit to pass $1.8 
trillion in tax cut giveaways to the wealthiest Americans, all while 
the AMT and its middle class punch was ignored and put off year to 
year. For 6 years we have celebrated tax cuts and turned a blind eye to 
the AMT. It was only through band-aids at the eleventh hour that 
middle-income taxpayers were rescued--only temporarily--from the AMT, 
only to be thrown back into its path a year later. Some have openly 
taken a ``wait-and-watch'' attitude toward the AMT. This irresponsible 
approach turns its back on the middle class and does the utmost 
disservice to the American people.
    The AMT has transformed into a tax on the very people it sought to 
protect. Congress created the AMT to protect the middle class from 
paying more than their fair share while the upper class gamed the 
system to dodge their fair share. Now, almost 40 years later and after 
6 years of tax cuts, what once protected the middle class, has come 
back to haunt it. No more eleventh-hour band-aids. No more charades. 
The AMT is broken, and Congress must act now to permanently fix it.
The AMT strains the monthly budgets of middle-class families
    If Congress fails to act, millions more taxpayers will know all too 
well the taxpayer's nightmare that is the alternative minimum tax. Only 
after completing a 16-line worksheet, 10 pages of instructions, and a 
55-line form, I come to find out the AMT would stick me with a higher 
tax bill next year if Congress does not act. Again, I have to ask why? 
Why is the AMT targeting me?
    Two calculations, two sets of forms, two sets of rules, but one 
reality: the AMT would take a bigger bite out of my fire fighter salary 
than the regular income tax. The AMT could take away the money I earn 
by working day in and day out at the fire station to support my family, 
to save for my children's college education, and to put away for my own 
retirement. It would force me as a middle-class fire fighter to work 
more to keep my own money. It makes saving money that much harder. It 
makes paying bills that much harder. It makes saving for retirement 
that much harder. It makes providing for my children that much harder. 
And it makes living on a fire fighter's salary--$32,500 to start in 
Baltimore County--that much harder.
    And I am not alone. Fire fighters are disproportionately affected 
by the AMT because it targets our demographic: married, middle class 
taxpayers with kids in high-tax states. The AMT penalizes us not only 
for raising a family, but it also disadvantages us depending on where 
you raise your family. With increasing health insurance expenses as a 
result of hazardous and strenuous work conditions and with increasing 
homeland security responsibilities, fire fighters especially do not 
have room in their monthly budgets for a tax increase.
    Moreover, fire fighters in Baltimore County, like those in many 
other jurisdictions across the country, get incentive pay for 
additional fire and homeland security training and education. So, the 
more skills we develop to better protect their community, the more 
susceptible we are to AMT.
    The AMT has become a crutch for the Federal budget, but I don't 
believe fire fighters and other hard working Americans should be left 
to prop up misguided fiscal policies that have largely benefited the 
wealthiest taxpayers. The AMT may be expensive for the Federal 
Government to fix, but it is even more costly for fire fighters and the 
middle class who are accidentally affected by it. Today's AMT is unjust 
and un-American. It must be permanently fixed for the sake of working 
families like mine.
Conclusion
    Mr. Chairman, tax day is just over 3 weeks away. Thousands of fire 
fighters like me are wading through shoeboxes full of receipts and 
gearing up to pay for the privilege to live in this great Nation. We 
understand our duty as citizens to pay our taxes. We pay them. We pull 
our own weight. We sacrifice our fair share. In return, all we ask of 
our government is to give us a fair shake. Everyone agrees that the AMT 
is no fair shake. Today's AMT defies its own original purpose: to 
ensure that wealthy Americans pay their fair share in taxes. Today's 
AMT requires permanent action, not piecemeal reaction. The Congress 
should act now to permanently reform this un-American tax once and for 
all.

                                 

    Chairman NEAL. Thank you, Mr. Day.
    Mr. Walloch.

 STATEMENT OF JOSEPH W. WALLOCH, PRESIDENT AND CEO, WALLOCH & 
  ASSOCIATES, REDLANDS, CALIFORNIA, ON BEHALF OF THE AMERICAN 
           INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

    Mr. WALLOCH. Chairman Neal, Ranking Member English, and 
distinguished Members of the Subcommittee, the American 
Institute of Certified Public Accountants (AICPA) thanks you 
for the opportunity to appear before you today.
    I am Joe Walloch, incoming Chair of the AICPA Individual 
Tax Technical Resource Panel, President of Walloch & 
Associates, CPAs in Redlands, California, and Professor of 
Advanced Taxation at the University of California, Riverside.
    The AICPA is the national professional organization of 
CPAs, with over 330,000 members. Our members advise clients on 
Federal, state and international tax matters, and prepare 
income tax returns for millions of American families.
    CPAs provide services to small and medium sized family 
businesses, as well as America's largest businesses. It is from 
this broad base of experience that we offer our comments today 
on the AMT.
    While an estimated 4 million taxpayers were subject to AMT 
in 2006, it is projected that in 2007, absent a change in law, 
23 million individual taxpayers, or about 26 percent of 
individual filers who pay income tax, are likely to be subject 
to the AMT.
    Although the AMT was originally intended to be a tax on the 
wealthy, among the categories of taxpayers projected to be 
hardest hit by AMT are 89 percent of families of married 
couples with two or more children with modest incomes between 
$75,000 and $100,000.
    Married taxpayers will be almost 15 times as likely as 
single taxpayers to pay AMT in 2007.
    A case in point is the Klaassen family. In 1994, David and 
Margaret Klaassen of Marquette, Kansas, had a large family of 
10 children, and thus, were entitled to 12 exemptions for 
regular tax purposes. Their adjusted gross income for the year 
amounted to $83,000.
    The Klaassens are not wealthy, nor do they use tax shelters 
to reduce their income tax. However, they were assessed an AMT 
of $1,085 because the AMT calculation does not allow them to 
claim (1) their 12 personal exemptions; (2) their Kansas state 
income tax of over $3,000; and (3) a portion of medical 
expenses of their large family, including more than $2,000 of 
out-of-pocket medical expenses for treatment of their son's 
cancer.
    The convoluted mathematics of the AMT eliminates all of 
their personal exemptions to which they were otherwise entitled 
each year. The AMT has cost the Klaassen family in excess of 
$25,000 over 10 years.
    The AMT has become a penalty on large families.
    The Klaassens also lost their state income tax deduction. 
The loss of the state income tax deduction for AMT represents a 
major inequity between high income tax states, including 
California and New York, and low or no income tax states, 
including Texas and Florida.
    In another case, Aaron Law had adjusted gross income of 
$62,000, but had zero regular tax, primarily because of 
substantial unreimbursed employee business expenses. He paid 
these job related expenses with the reasonable expectation that 
he would be entitled to a tax deduction.
    These legitimate job related expenses are classified as 
miscellaneous deductions, and as such, are not deductible for 
the AMT.
    Mr. Law was assessed an AMT of $7,267 as a result. The loss 
of job related costs for AMT impacts many American families, 
including police officers, fire fighters, teachers, and nurses.
    The Tax Court Judge stated ``However unfair this statute 
may seem, the Court must apply the law as written, the proper 
place for consideration of petitioner's complaint is the halls 
of Congress.''
    Another example of how families are affected by the AMT is 
the loss of the credit for hybrid cars and other energy 
efficient vehicles. Thus, a taxpayer may buy a hybrid car for 
personal use believing that they will be entitled to a tax 
credit of up to $3,400.
    However, if they are subject to the AMT, they will receive 
no tax benefit for the hybrid vehicle. Therefore, the credit 
created to promote the purchase of a ``green car'' and reduce a 
citizen's ``carbon footprint'' is wasted, and that taxpayer 
responding to this presumed incentive feels cheated because of 
AMT.
    Due to the AMT complexity, increasing AMT impact on 
unintended taxpayers and AMT compliance and enforcement 
problems, the AICPA supports the outright repeal of the 
individual AMT. However, we recognize that repealing the AMT 
would generate a new set of problems given the large loss of 
tax revenue to the Federal Government.
    If repeal is not possible, we urge Congress to consider the 
AICPA's baker's dozen of recommended solutions presented in our 
written testimony, which we believe would reduce or eliminate 
most of the complexity and unfair impact of the AMT as 
currently imposed.
    Our recommendations include solving the problems presented 
in these examples, including eliminating personal exemptions, 
state income taxes, medical expenses, and miscellaneous 
itemized deductions, including job related costs as AMT 
preferences, as well as allowing all personal credits against 
the AMT.
    Thank you, Chairman Neal, Ranking Member English, and 
distinguished Subcommittee Members, for the opportunity to 
share these views with you.
    [The prepared statement of Mr. Walloch follows:]
 Prepared Statement of Joseph W. Walloch, President and CEO, Walloch & 
 Associates, Redlands, California, on behalf of the American Institute 
                    of Certified Public Accountants
    Mr. Chairman and Members of the House Ways and Means Subcommittee 
on Select Revenue Measures, the American Institute of Certified Public 
Accountants thanks you for the opportunity to appear before you today. 
I am Joseph W. Walloch, Incoming Chair of the AICPA Individual Income 
Tax Technical Resource Panel; and the President and CEO of Walloch & 
Associates, CPAs, Redlands and San Bernardino, California.
    The AICPA is the national, professional organization of certified 
public accountants comprised of approximately 330,000 members. Our 
members advise clients on Federal, state, and international tax matters 
and prepare income and other tax returns for millions of Americans. 
They provide services to individuals, not-for-profit organizations, 
small- and medium-sized businesses, as well as America's largest 
businesses. It is from this broad base of experience that we offer our 
comments today on the alternative minimum tax.
    The primary reasons for the burgeoning AMT problem are that 
marginal tax rates have been reduced substantially over the past 
several years while the AMT rates have remained the same, and the AMT 
exemption has not been indexed for inflation. This latter factor has 
been ameliorated somewhat with the patchwork increases that have been 
enacted on a year-by-year basis, but this doesn't seem to be a 
satisfactory way to deal with the problem.

SIMPLIFYING THE INDIVIDUAL ALTERNATIVE MINIMUM TAX
Present Law
Background
    Our tax laws give special treatment to certain types of income and 
allow special deductions for certain expenses. These laws enable some 
taxpayers with substantial economic income to significantly reduce or 
eliminate their regular tax. The alternative minimum tax (AMT) was 
created to ensure that all taxpayers pay a minimum amount of tax on 
their economic income.
Complexity of AMT
    The AMT is one of the tax law's most complex components. In fact, 
the AMT is a separate and distinct tax regime from the ``regular'' 
income tax. Internal Revenue Code \1\ sections 56 and 57 create AMT 
adjustments and preferences that require taxpayers to make a second, 
separate computation of their income, expenses, allowable deductions 
and credits under the AMT system. Taxpayers who own businesses must 
also track each of the annual supplementary schedules used to compute 
these necessary adjustments and preferences for many years to calculate 
the treatment of future AMT items and, occasionally, receive a credit 
for them in future years. Calculations governing AMT credit carryovers 
are complex and contain traps for unwary taxpayers.
---------------------------------------------------------------------------
    \1\ All references to ``section'' numbers refer to Internal Revenue 
Code section numbers.
---------------------------------------------------------------------------
    Often, taxpayers cannot calculate AMT directly from information 
reported on their regular tax return, which makes the computations 
extremely difficult for taxpayers preparing their own returns. 
Including adjustments and preferences from pass-through entities also 
contributes to AMT complexity. This complexity also affects the IRS's 
ability to meaningfully audit compliance with the AMT.
Burgeoning Impact of the AMT
    Although most sophisticated taxpayers are aware of the AMT and that 
they may be subject to its provisions, the majority of middle-class 
taxpayers has never heard of the AMT and are unaware that it may apply 
to them. Unfortunately, the number of taxpayers facing potential AMT 
liability is expanding exponentially due to ``bracket creep'' and 
classifying as ``tax preferences'' the commonly used personal and 
dependency exemptions, standard deductions, and itemized deductions for 
taxes paid, some medical costs, and miscellaneous expenses.
    While approximately 4 million taxpayers were subject to AMT in 
2006, it is projected that in 2007, absent a change in law, 23.4 
million individual taxpayers--or about 26 percent of individual filers 
who pay income tax--are likely to be subject to the AMT.\2\ Among the 
categories of taxpayers hardest hit, 89 percent of married couples with 
adjusted gross incomes between $75,000 and $100,000 and two or more 
children are expected to owe AMT.\3\
---------------------------------------------------------------------------
    \2\ Greg Leiserson & Jeffrey Rohaly, The Individual Alternative 
Minimum Tax: Historical
Data and Projection updated November 2006, table 1 (November 10, 2006) 
(available at www.taxpolicycenter.org or on Lexis/Nexis at 2006 TNT 
219-50).
    \3\ Id. at table 3.
---------------------------------------------------------------------------
    Married taxpayers will be almost 15 times as likely as single 
taxpayers to pay AMT in 2007.\4\
---------------------------------------------------------------------------
    \4\ Id.
---------------------------------------------------------------------------
    By 2010 the number of AMT filers is projected to grow to 32.4 
million.\5\ Among taxpayers with incomes between $100,000 and $200,000, 
a staggering 80 percent are expected to be subject to the AMT.\6\
---------------------------------------------------------------------------
    \5\ Id. at table 1.
    \6\ Id. at table 3.
---------------------------------------------------------------------------
    Even more notable, the AMT is projected to affect a higher 
percentage of taxpayers with incomes between $75,000 and $100,000 (50 
percent) than taxpayers making more than $1 million (39 percent).\7\ 
According to these projections, approximately 5.7 million taxpayers 
will pay AMT in 2010 simply because they lose the benefit of personal 
exemptions under the AMT.\8\
---------------------------------------------------------------------------
    \7\ Id.
    \8\ Leonard E. Burman, William G. Gale & Jeffery Rohaly, The AMT: 
Projections and Problems, Tax Notes, July 7, 2003, pp. 105-106 
(available at www.taxpolicycenter.org).
---------------------------------------------------------------------------
    As IRS National Taxpayer Advocate Nina Olson pointed out in her 
March 7, 2007 testimony on the individual AMT before this committee:

          The burden that the AMT imposes is substantial. In dollar 
        terms, it is estimated that each AMT taxpayer will owe, on 
        average, an additional $6,782 in tax in 2006. In terms of 
        complexity and time, taxpayers often must complete a 16-line 
        worksheet, read 10 pages of instructions, and complete a 55-
        line form simply to determine whether they are subject to the 
        AMT. Thus, it is hardly surprising that 77 percent of AMT 
        taxpayers hire practitioners to prepare their returns.

    Given these estimates, Congress should review information and 
studies available from the Joint Committee on Taxation, the 
Congressional Research Service, the Treasury Department, the National 
Taxpayer Advocate, and the Office of Management and Budget. These 
information sources document not only how recent tax changes interact 
with the AMT, but also the rapidly expanding number of taxpayers who 
will be paying AMT unless modifications are enacted soon.
Examples of Families Affected by the AMT
    A case in point is the Klaassen family.\9\ In 1994, Mr. and Mrs. 
Klaassen of Marquette, Kansas had a large family of 10 children and 
thus were entitled to 12 exemptions for regular tax purposes. Their 
adjusted gross income for the year amounted to $83,056.
---------------------------------------------------------------------------
    \9\ Klaassen, et al. v. Commissioner, 99-1 USTC paragraph 50,418 
(10th Cir. 1999).
---------------------------------------------------------------------------
    The Klaassens are not wealthy nor do they use tax shelters to 
reduce their income tax. However, they were assessed an AMT of $1,085 
because the AMT calculation does not allow them to claim: (1) their 12 
personal exemptions; (2) their state and local taxes of $3,264; and (3) 
some of the otherwise deductible medical expenses of their large 
family, including $2,076 dollars out-of-pocket medical expenses for 
treatment of their son's cancer.
    As a result of their growing family, in 1995, the Klaassens claimed 
13 exemptions, 14 in 1996 and 1997, and 15 in 1998, 1999, 2000, and 
2001. In 2002 and 2003, their total personal exemptions fell to 14. 
Their joint AGI for each of these tax years was well below the 
threshold amount established by section 151(d)(3)(C) which would 
otherwise reduce the total exemption amount they could claim. Despite 
this fact, the convoluted mathematics of the AMT has effectively 
eliminated the total exemption amount to which they were entitled each 
year. In this manner, the AMT has become a penalty on large families 
solely because of their size. It is in this very manner that the AMT 
has cost the Klaassen family in excess of $25,000 over the past 10 
years.\10\
---------------------------------------------------------------------------
    \10\ Statement of David R. Klaassen, Simplification of the Tax 
System, Hearing Before the Subcommittee on Oversight of the House 
Committee on Ways and Means, 108th Congress, 2nd Session, June 15, 
2004, Serial 108-68.
---------------------------------------------------------------------------
    In another case, Mr. Aaron Law had adjusted gross income of $62,659 
but had a zero regular tax primarily because of substantial 
unreimbursed employee business expenses related to his job. These 
legitimate unreimbursed employee business expenses are classified as 
miscellaneous deductions and as such are not deductible for the AMT. 
Mr. Law was assessed an AMT of $7,267 because he paid job related 
expenses. Tax Court Judge Couvillion stated, ``However unfair this 
statute may seem . . . the court must apply the law as written . . . 
the proper place for consideration of petitioner's complaint is the 
halls of Congress, not here.'' \11\
---------------------------------------------------------------------------
    \11\ Aaron Douglas Law v. Commissioner, T.C. Summary Opinion 2003-
159.
---------------------------------------------------------------------------
    Another example of how families are affected by the AMT occurs with 
regard to the alternative motor vehicle credit (section 30B) and the 
credit for alternative fuel refueling property (section 30C), neither 
of which offset AMT. This includes the credit for hybrid and other 
energy efficient vehicles. Thus, a taxpayer may buy a hybrid car 
believing that they will be entitled to a tax credit of up to $3,400. 
However, if they are subject to the AMT, they will receive no tax 
benefit for the hybrid vehicle. Therefore, the credit created to 
promote the purchase of a ``green car'' and reduce a citizen's ``carbon 
footprint'' is wasted, and the taxpayer responding to this incentive 
feels cheated because of AMT.
    For additional examples of the impact of AMT on families, see pages 
6-7 of IRS National Taxpayer Advocate Olson's March 7, 2007, testimony 
before this Committee.
Compliance Issues
    Because AMT brackets and exemptions are not indexed annually, 
taxpayers with adjusted gross incomes below $75,000 (some much lower) 
will soon be subject to AMT. AMT was not created to target these lower-
middle-income taxpayers. Apart from the fairness issue, this situation 
creates potentially serious compliance and administration problems. 
Because many, if not most, of these taxpayers have no idea that they 
may be subject to the AMT--or even that there is an AMT--we anticipate 
that large numbers of taxpayers required to file Form 6251 and pay the 
AMT will fail to do so. This will require an enormous extra enforcement 
burden for the IRS.
    Most of these now non-compliant taxpayers who, in good faith, filed 
their tax returns the way they always have might be first made aware of 
this new tax obligation through IRS notices assessing the proper AMT. 
Thus, taxpayers may well be faced with penalties and interest on this 
``surprise'' tax several years after the returns are, in their view, 
properly and timely filed.
ALTERNATIVE SOLUTIONS
    Due to the increasing complexity, increasing impact on unintended 
taxpayers, and compliance problems, the AICPA supports repealing the 
individual AMT altogether. However, we recognize that simply 
eliminating the AMT would generate a new set of problems given the 
large loss of tax revenue that would accompany such a move.
    If repeal is not possible, we urge Congress to consider the 
following alternative solutions, which we believe would reduce or 
eliminate most of the complexity and unfair impact of the AMT as 
currently imposed:

     1.  Increase and index for inflation the AMT brackets and 
exemption amounts, and eliminate phase-outs.
     2.  Eliminate the standard deduction and personal and dependency 
exemptions as adjustments to regular taxable income in calculating AMT.
     3.  Eliminate miscellaneous itemized deductions as an adjustment 
to regular income tax so that middle income taxpayers are able to 
deduct such items as employee business expenses for AMT.
     4.  Eliminate the AMT medical expense adjustment so that middle 
income taxpayers are allowed the same amount of medical expenses for 
both regular tax and AMT.
     5.  Eliminate state and local income, and other taxes as an 
adjustment.
     6.  Allow tax credits enacted to promote important public goals--
such as the low-income tax credit, tuition tax credits, etc.--to be 
credited against AMT liabilities.
     7.  Exempt all taxpayers with regular tax AGIs under $100,000 from 
AMT.
     8.  Have only one AMT tax rate and set that rate to below the 
third lowest regular tax rate of 25 percent.
     9.  Require the impact of AMT on future tax legislation, i.e., 
whether the intended tax benefits of any change are negated by the AMT 
regime, to be reported with the revenue impact of proposed legislation.
    10.  Allow a minimum tax credit for all AMT, not just AMT 
attributable to deferral preferences in order to place the individual 
AMT on parity with the corporate AMT.
    11.  Liberalize the capital loss limitation rules when calculating 
AMT associated with incentive stock option (ISO) transactions (e.g., 
specifically allow a negative basis adjustment for ISO differences to 
be ordinary rather than capital loss).
    12.  Eliminate the definition of ``qualified housing interest'' and 
allow all deductible residence interest as a deduction for AMT.
    13.  Exclude AMT from the estimated tax penalty.

HOW THE ALTERNATIVES CONTRIBUTE TO SIMPLIFICATION AND FAIRNESS
    AMT was created to promote overall fairness, but it now creates 
hardships and complexity for many taxpayers who have not used ``tax 
preferences'' to lower their taxes. Unaware of these rules and 
completing their returns without professional assistance, these 
taxpayers file unwittingly inaccurate returns, causing confusion, 
errors, and increased revenue collection costs. The impact of inflation 
on unindexed AMT tax brackets and exemptions brings more lower-income 
taxpayers into the AMT regime.
    The AMT adds another layer of complexity to the existing set of 
limits and controls on itemized deductions and the use of personal and 
dependency exemptions. Itemized deductions are already reduced by: (1) 
the 2 percent of AGI miscellaneous itemized deduction disallowance; (2) 
the 7.5 percent of AGI medical expense disallowance; (3) the $100 and 
10 percent of AGI casualty loss disallowance; (4) the 50 percent 
disallowance for business meals and entertainment; and the 20 percent 
to 50 percent of AGI limitation on charitable contributions; and (5) 
the overall 3 percent of AGI adjustment. Similarly, the phaseout of 
personal and dependency exemptions already affects high-income 
taxpayers.
    State income taxes vary considerably. Many taxpayers become subject 
to AMT solely because they live in high tax states (particularly 
California, New York, the District of Columbia), but a similarly 
situated taxpayer in Texas, a state which imposes no income tax, would 
not be subject to AMT. Paying high state taxes is not a ``tax dodge'' 
that the AMT was originally created to circumvent.
    Allowing regular tax credits--enacted to promote important tax 
policy goals--to offset AMT tax liability retains the incentives 
intended when the credits were created, simplifies compliance, and 
increases the perception of fairness.
    Increasing and indexing for inflation the AMT brackets and 
exemption amounts will subject fewer lower- and middle-income taxpayers 
to the AMT and its associated problems, and return the AMT to its 
original purpose--ensuring that high-income taxpayers pay a minimum 
amount of tax on their economic income.
CONCLUSION
    Repealing the individual AMT altogether would eliminate all the 
compliance and enforcement problems associated with it. However, if 
outright repeal is not possible, adjusting its impact with the proposed 
alternative solutions would at least return the AMT to fulfilling its 
original purpose and relieve the disillusionment of the many taxpayers 
who do not see themselves as wealthy and believe they are being 
punished unfairly.
    Simplification of the tax laws is a high priority of the AICPA. We 
have worked closely with the American Bar Association and the Tax 
Executives Institute to jointly identify specific proposals for 
simplification. Similarly, we have released a study entitled, 
Understanding Tax Reform: A Guide to 21st Century Alternatives, 
September 2005.\12\ Our study discusses how many of the goals of tax 
reform can be achieved by modifying the current income tax system 
through significant simplifications. Some of the more important 
proposals to reduce administration and compliance costs are discussed.
---------------------------------------------------------------------------
    \12\ Available online at http://www.aicpa.org/taxreform/.
---------------------------------------------------------------------------
    The IRS released updated statistics in February 2006 indicating 
that the tax gap is about $345 billion. We believe tax simplification 
can play a significant role in helping to reduce the overall tax gap, 
as simplification would (1) result in fewer errors on tax returns and 
(2) reduce taxpayer susceptibility to the marketing of abusive tax 
shelters.
    Thank you for the opportunity to share these views with you.

                                 

    Chairman NEAL. Thank you very much, Mr. Walloch.
    Mr. Lifson.

 STATEMENT OF DAVID A. LIFSON, PRESIDENT-ELECT, NEW YORK STATE 
  SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS, NEW YORK, NEW YORK

    Mr. LIFSON. Mr. Chairman, Ranking Member English, and 
distinguished Members of the Subcommittee, thank you for 
inviting me to testify today about the AMT for individual 
taxpayers.
    As the President-Elect of the New York State Society of 
CPAs, the first and oldest association of CPAs in the United 
States, I speak proudly to offer the views of our diverse 
membership and the public we serve.
    Perhaps no specific element in our nation's tax code 
exemplifies the snowball effect of clutter better than the AMT. 
The AMT, which is owed when tax computed using the broader AMT 
tax base exceeds the regular tax, was introduced in 1969 to 
ensure that very high income individuals pay some tax.
    At the time, Congress was outraged that some had figured 
out how to juggle the code's matrix of deductions, credits, 
exclusions and exemptions, combined with rate tables and filing 
status choices, to completely eliminate their Federal income 
tax liability.
    Today, the AMT may ensnare a few high income taxpayers, 
although not generally for the loop hole avoidance reasons 
originally intended. In doing so, it creates an unwelcome 
combination of tax and mind boggling complexity and confusion 
inflicted on the people that pay most of the income tax.
    This year, we estimate that about half of the American 
families will earn less than $50,000, and will pay virtually no 
income tax at all, and the other half of the families will need 
to worry about AMT.
    Calculation of the AMT requires a huge amount of work. The 
AMT forces people to calculate their tax two or even three 
times each year as they prepare their tax returns, just to get 
the right number. Is that fair?
    Can you imagine doing nothing and forcing most people who 
pay most of the income tax to calculate their tax for the 
current year twice, and in many cases, re-calculate their tax a 
third time for last year to see if their state income tax 
refund from last year is taxable or not this year.
    All this just to meet their civic responsibility? Let's 
face it. Once should be enough.
    Consider that only 20,000 people paid the AMT in 1970, and 
that without legislation, about 33 million people should be 
affected just 3 years from now. Why are so many people, why are 
so many taxpayers, why are so many families now affected by the 
AMT?
    There are three key root causes. State income taxes, local 
property taxes, and other non-Federal taxes.
    The AMT is in substance predominately a secret tax on the 
portion of our income paid over as taxes to state and local 
governments to provide community services, such as schools, 
public safety, and low income household support.
    We acknowledge that to a lesser extent, it also quietly 
takes back tax savings from family tax relief mechanisms and 
benefits built into the regular tax system, and deductions that 
might otherwise be allowed relating to the production of gross 
income.
    There are several easier ways to implement this tax policy 
directly in the regular tax system. The AMT should be re-named 
the ``archaic minimum tax.'' It no longer serves its purpose.
    You know the problem. There are countless examples, and we 
have provided a few to illustrate the point. We have them here 
at the panel. I hope you will review all of the examples with 
your staff that we have submitted.
    Our examples submitted in our written testimony were 
compiled from hundreds of similar examples for the 2006 income 
tax year to illustrate how AMT is affecting average Americans 
who pay income tax.
    Something needs to be done. We think repeal of the AMT 
would be the wisest thing to do. There are several ways to 
change the regular tax system to tax the same higher incomes in 
a more transparent way.
    People trust things, especially tax systems that they 
understand. Our Federal income tax system needs trust, and 
fixing the AMT is an important step in restoring faith in the 
American tax system. This is the same faith that is needed to 
close the over $300 billion annual tax gap.
    The New York State Society of CPAs has been working 
intensely on solutions to obviate the need for an AMT and 
reform our national tax code. We can help you with several 
feasible approaches to this goal. Just ask.
    If not repeal, then a major reform in the AMT is needed. 
Increasing and indexing the AMT exemption would remove most 
Americans from this needlessly complex burden and there are 
dozens of other potential fixes, but please do something.
    While we believe it is time for an overhaul, patch, if you 
must. Thank you.
    [The prepared statement of Mr. Lifson follows:]
Prepared Statement of David A. Lifson, President-Elect, New York State 
      Society of Certified Public Accountants, New York, New York
    Mr. Chairman, Ranking Member English, and distinguished Members of 
the Subcommittee: Thank you for inviting me to testify today about the 
Alternative Minimum Tax for individual taxpayers. As the President-
Elect of the New York State Society of CPAs, the first and oldest 
professional association of CPAs in the United States, I speak proudly 
to offer the views of our diverse membership and the public we serve.
    Perhaps no specific element in our nation's tax code exemplifies 
the snowball effect of clutter better than the alternative minimum tax. 
The AMT--which is owed when tax computed using the broader AMT tax base 
exceeds the regular tax--was introduced in 1969 to ensure that very 
high-income individuals pay some tax. At the time, Congress was 
outraged that some had figured out how to juggle the Code's matrix of 
deductions, credits, exclusions and exemptions combined with rate 
tables and filing status choices to completely eliminate their Federal 
income tax liability.
    Today the AMT may ensnare a few high-income taxpayers, although not 
generally for the loophole avoidance reasons originally intended. In 
doing so, it creates an unwelcome combination of tax and mind-boggling 
complexity and confusion inflicted on the people that pay most of the 
income tax--Americans with an income in the top 1%. They paid nearly 
40% of all these taxes in 2004. Over half of all taxpayers in the same 
year earned less than $45,000 and paid about 3% of the tax collected. 
This year we estimate that most American families will earn less than 
$50,000 and will pay virtually no income tax at all, so it is critical 
to address a problem that now could affect the other half of the 
taxpaying families in this country.
    Calculation of the AMT requires a huge amount of work. The AMT 
forces people to calculate their tax two or three times each year as 
they prepare their tax returns, just to get to the right number. Is 
that fair? Can you imagine doing nothing and forcing most people who 
pay most of the income tax to calculate their tax for the current year 
twice, and in many cases re-calculate their tax a third time for last 
year to see if their state income tax refund from last year is taxable 
or not this year . . . all this, just to meet their civic 
responsibility? Let's face it; once should be enough!
    Consider that only 20,000 people paid the AMT in 1970, and that 
without legislation about 33 million people should be affected just 3 
years from now. Why are so many taxpayers now affected by the AMT? 
There are three key root causes: state income taxes, local property 
taxes and other non-Federal taxes. The AMT is in substance, 
predominately a secret tax on the portion of our income paid over as 
taxes to state and local governments to provide community services such 
as schools, public safety and low income household support. To a lesser 
extent, it also quietly takes back tax savings from family tax relief 
mechanisms and benefits built into the regular tax system, and 
deductions that might be otherwise allowed relating to the production 
of gross income. There are several easier ways to implement this tax 
policy directly in the regular tax system. The AMT should be renamed 
the Archaic Minimum Tax. It no longer serves its purpose.
    You know the problem . . . there are countless examples and we have 
produced a few to illustrate the point.
    How does this unexpected result occur? Mechanically the two main 
reasons are rate creep and inflation. The AMT was created when the 
maximum regular tax was at 50%, 2\1/2\ times the 20% AMT rate. 
Countless rate changes later, the current maximum regular rate of 35% 
is only a quarter higher than the 28% AMT rate, which itself is an 
indirect legacy of the Tax Reform Act of 1986. Furthermore, since the 
mid-1980s, the regular income tax components have generally been 
indexed, or automatically adjusted, for inflation--but not the AMT. 
Over 20 years, these changes, largely enacted for different tax-policy 
reasons, have made a huge impact on how the regular tax and the AMT 
affect a given taxpayer. The difference between the regular tax and the 
AMT is further exaggerated because tax reductions, such as the child 
tax credit, often reduce the regular tax but do not impact the AMT. For 
all these reasons, each year more and more taxpayers find that their 
AMT computation exceeds their regular tax. Many individuals earning 
economically middle-incomes today are high-income individuals for tax 
purposes, making AMT a kind of ``tax out of time.''
    Lawmakers know this is a serious problem, and from time to time, 
they attempt to make quick fixes to match AMT rates to contemporary 
realities. Eliminating the AMT at once would prove costly: $600 billion 
over 10 years, according to a Congressional Budget Office report.\1\ 
And there may also be institutional resistance to stanching a reliable 
revenue source; AMT currently rakes in about $18 billion. It is not 
surprising, then, that alterations to the AMT exemption have been 
piecemeal and often temporary.
---------------------------------------------------------------------------
    \1\ CBO Revenue and Tax Policy Brief No. 4, ``The Alternative 
Minimum Tax,'' April 15, 2004; http://www.cbo.gov/
showdoc.cfm?index=5386&sequence=0#F3.
---------------------------------------------------------------------------
    Lawmakers have raised the AMT exemption several times since 1978. 
Congress in 2001 determined that an individual (single, head of 
household) with an adjusted gross income of $35,750 was wealthy enough 
to fall into the AMT. The Jobs Growth and Tax Relief Reconciliation Act 
of 2003 raised that figure to $40,250 (while setting the exemption at 
$58,000 for joint filers and surviving spouses, and $29,000 for married 
individuals filing separately), which reverts to the 2001 level this 
year if Congress doesn't move to extend the AMT exemption.
    Some have questioned even these higher exemption figures as an 
unrealistic anachronism. Bart Fooden and Lawrence Shoenthal, both CPAs 
who have written about AMT, wonder how a single parent could expect to 
feed, clothe, shelter, and medically provide for a family of five and 
also pay the AMT, with such a relatively low exemption.\2\
---------------------------------------------------------------------------
    \2\ B. Fooden and L. Shoenthal, ``A Closer Look at the AMT,'' The 
Trusted Professional, April 1, 2005.
---------------------------------------------------------------------------
    However, problems that are more fundamental vex the AMT. Its 
characterization of deductions and exemptions as ``loopholes'' can have 
the unfortunate appearance of punishing higher-income individuals 
(though not the highest in today's terms) for earning a living. State 
and local tax deductions, miscellaneous itemized deductions, and 
personal exemptions add up to trigger the AMT. This has obvious 
ramifications for those who live in high-tax areas or where the cost of 
earning a living is onerous, making AMT a ``tax out of place.''
    The AMT undermines the usefulness of deductions for some 
individuals who deign to employ them. As Fooden and Shoenthal point 
out, if an individual pays a lawyer a fee for collecting back wages, 
the legal fee is a miscellaneous deduction. But under AMT, that fee, a 
cost of earning income, is no longer an expense; the deduction is 
negated. So if an individual pays a lawyer $300 for collecting $1,000 
of back pay, netting $700, the AMT taxes the individual on the full 
$1,000.
    Unfairness of the AMT cuts across income lines. Look at the simple 
case of an individual who earns interest income of $100 from his rent 
security account, and after an $80 administrative fee, is sent a check 
for $20. If this individual is in the AMT, the tax on this $20 will be 
$28 (28% of the $100 with no deduction for the $80 cost). This is a tax 
rate of 140%. Similarly, an investor who earns $10,000 from his 
investments and pays $8,000 in investment fees and expenses nets 
$2,000. If he is in the AMT, his tax on the $2,000 is $2,800, also a 
tax rate of 140%.
    While the AMT affects a majority of individuals and families who 
earn more than $100,000, its impact can be potentially damaging to 
others, such as retirees on a fixed income. For example, an employee 
who was compensated by his or her company in qualified stock options, 
because it had no cash to pay salaries, could owe taxes, even if the 
exercised stock option produced no regular taxable income.\3\ Another 
aspect of the AMT is that it not only increases the complexity of the 
tax law, but also dramatically increases the compliance costs. The 
average time to complete an individual tax return has been estimated as 
6 hours and 40 minutes. Is this for a tax return with the AMT, without 
the AMT or just the AMT form? However, it is not only those who will be 
required to pay the AMT, who must fill out AMT forms, it is anyone who 
may be required to pay.
---------------------------------------------------------------------------
    \3\ In addition to the references cited in this section, see R. 
Harvey and J. Templaski, ``The Individual AMT,'' The National Law 
Journal (September 1997), pp. 453-73; Testimony of Thomas M. Sullivan, 
Chief Counsel for Advocacy, U.S. Small Business Administration, to U.S. 
House of Representatives Committee on Small Business, July 23, 2003, 
http://www.sba.gov/advo/laws/test03_0723.html; ``What tax cut? Meet the 
AMT,'' CNNMoney, http://money.cnn.com/2004/02/25/pf/taxes/amt_stories/; 
and Comments on Tax Simplification, NYSSCPA Tax Simplification Task 
Force, May 27, 2003, http://www.nysscpa.org/commentletter/
task_simplification.doc.
---------------------------------------------------------------------------
    The instructions for the form 6251 (Alternative Minimum Tax--
Individuals), under ``Who Must File'' begins as follows:

      Attach form 6251 if any of the following statements are 
true:
      form 6251 line 31 is greater than line 34.

    There are only 35 lines on form 6251. So, yes, you must complete 
virtually the entire form, with all of its detailed calculations, in 
order to determine whether you even have to file the form! And this is 
without regard to whether or not you are actually liable to pay any AMT 
tax!
    In May 2001, Congress' Joint Economic Committee estimated that 4.4 
million taxpayers filed the form, while only about 880,000 had to pay 
additional taxes. The JEC estimates that compliance costs were $360 
million, while the tax generated $4 billion in revenue. This rate of 9% 
of costs as compared to revenue is more than 5 times higher than the 
1.6% rate of preparation costs to revenue that pertains to the rest of 
the income tax.\4\
---------------------------------------------------------------------------
    \4\ The Alternative Minimum Tax For Individuals: A Growing Burden 
(Joint Economic Committee Study, May 2001), http://www.house.gov/jec/
tax/amt.htm.
---------------------------------------------------------------------------
    Finally, the GAO calculates that in 1998 as few as 14,000 taxpayers 
went from paying no tax to paying some tax because of the AMT. 
Furthermore, in 1998, per the Joint Economic Committee, only 3,572 of 
the individuals paying AMT had high incomes (earned $200,000 or more). 
In most cases the AMT merely increased the burden on people already 
paying tax, and did so in a complex, arbitrary, and unpredictable way. 
It seems highly questionable, from a tax policy point of view, to 
subject tens of millions of taxpayers to the complications of the AMT 
in order to collect tax from 14,000 people.
    The NYSSCPA believes that one of the reasons Congress has been 
unwilling to address the AMT issue is that they are given hypothetical 
examples and mountains of statistics to analyze and find it difficult 
to personalize the issue and recognize their constituents in the data. 
So what kind of taxpayer paid into the AMT in 2006? You might be 
surprised. Here are some examples:

    1. John is a single parent--the Head of Household--with four 
children. He works as an engineer and makes $78,000. Last year, he also 
had $1,000 of interest income on hard earned savings and pays $4,800 in 
state and local income tax. John rents his home, so he does not pay 
property tax. Still, under these circumstances, John's regular tax was 
$9,095 but his alternative minimum tax was $9,490. The end result? 
John--a non-homeowner earning $78,000 a year with four kids--paid $395 
in AMT and ended up in the AMT bucket with the ``wealthy.''
    2. Another example: Mary has two children and is also a Head of 
Household. She is a freelance commercial director, making $95,000 a 
year. But Mary still struggles to make ends meet. She lives in Long 
Island, so she pays extremely high state income and property taxes; 
approximately $14,000 a year. She had $8,000 of mortgage interest last 
year and one of her children was diagnosed with diabetes, forcing her 
to pay $15,000 in medical fees. Mary is self-employed, so she does not 
have health insurance. The result? Mary's regular tax was $7,898 and 
her alternative minimum tax was $8,792. She therefore had to pay $894 
in AMT. The lesson sent by the government? Don't have a sick child or 
choose to own a home in an area with services and fully funded schools 
or you will pay into the AMT.
    3. Now let's look at Steve and Asha, a married, working couple with 
four children living in New York City. Steve works in IT as a computer 
technician at a nonprofit, making $64,000 a year. Asha is a social 
worker making $42,000 a year. Steve and Asha have modest savings and 
earned approximately $3,000 in investment interest last year. Living in 
New York City also means that this family paid high state and local 
income and property taxes--about $16,000. The couple paid approximately 
$11,000 on a home mortgage last year and made charitable contributions 
totaling $2,000. But Steve and Asha--both of whom make modest wages and 
have four children to raise--fell into the AMT last year; their regular 
tax was $8,275 and their alternative minimum tax was $8,697, leaving 
them with an AMT balance of $422.
    4. Then there is Diane, a divorced schoolteacher with two children. 
Diane earns $60,000 a year and had investment income of $26,000 on 
assets received in a divorce. Her IRA deduction in 2006 was $3,000 and 
the state and local income and property taxes on her house came out to 
$15,000. She had a mortgage interest of $10,000 and made charitable 
contributions worth $500. The unreimbursed expenses she incurred as a 
teacher, along with school supplies, and some legal and other fees, 
totaled $4,000. Diane's regular tax was $6,673 and her alternative 
minimum tax was $7,800, leaving her with an AMT bill of $1,127. It may 
not sound exorbitant, but that amount is staggering in relationship to 
her total income and the net amount she was left with at the end of the 
year after providing for her children.
    5. My last example is Sharon, a single mother with one child. 
Sharon works and earns $50,000 a year. In 2004, she received a one-time 
$500,000 taxable settlement from a lawsuit. To receive that settlement, 
she had to pay legal fees of $190,000, bringing her net income from the 
settlement to $310,000. Regular Federal taxes on the settlement were 
approximately $105,500, and state and local income taxes were $52,000, 
leaving her with $152,500. Then, because the AMT does not give a 
deduction for either legal fees or state and local taxes, she paid an 
additional $39,500 of AMT tax, reducing her settlement amount to 
$113,000. Maybe it is no wonder that legal settlements keep 
skyrocketing: the recipients get to keep so little of it. Looked at in 
another way . . . the lawyers and the IRS each got more out of the 
settlement than Sharon did!
CONCLUSION
    Our examples submitted in this testimony were compiled from 
hundreds of similar examples for the 2006 income tax year to illustrate 
how the AMT is affecting average Americans who pay income tax. 
Something needs to be done.
    We think repeal of the AMT would be the wisest thing to do. There 
are several ways to change the regular tax system to tax the same 
higher incomes in a more transparent way. People trust things . . . 
even tax systems . . . they understand. Our Federal income tax system 
needs trust and fixing the AMT is an important step in restoring faith 
in the American tax system. This is the same faith that is needed to 
close the over $300 billion annual tax GAP. The New York State Society 
of CPAs has been working intensely on solutions to obviate the need for 
an AMT and reform our national tax code. We can help you with several 
feasible approaches to this goal, just ask.
    If not repeal, then a major reform to the AMT is needed. Increasing 
and indexing the AMT exemption amounts to a figure much larger than 
today would remove more Americans from this needlessly complex burden.
    Please, do something. While we believe it is time for an overhaul, 
patch if you must.

                                 

    Chairman NEAL. Thank you, Mr. Lifson.
    Mr. Nixon.

 STATEMENT OF JON A. NIXON, CPA, PARTNER, KATZMAN WEINSTEIN & 
                  CO., LLP, BETHPAGE, NEW YORK

    Mr. NIXON. I thank Chairman Neal and Ranking Member English 
for offering me the opportunity to testify before the Ways and 
Means Subcommittee on Select Revenue Measures.
    I am especially pleased to testify before the Congress on a 
topic as important and pressing as the AMT.
    My name is Jon Nixon. I practice as a CPA professional in 
New York State, and much of my practice focuses on small 
businesses and small business men and women.
    In my years of helping these small businesses comply with 
the tax code, I have seen a clear trend in the AMT, where the 
individual AMT is increasingly encroaching upon taxpayers and 
robs them of the important business incentives Congress has 
enacted through the years.
    Most often, when I talk about the individual AMT, we 
obviously think about its effect on individuals, but as I see 
every day in my practice, individuals are also small 
businesses.
    The great majority of small businesses that I see are held 
in pass through entities such as partnerships, limited 
liability companies, or S corporations, or operated as a sole 
proprietorship.
    In fact, for the tax year 2004, according to IRS, more than 
7 million individual returns reported net income or losses from 
partnerships and/or S corporations; over 20 million returns 
included a Schedule C, showing net income or losses from a sole 
proprietorship.
    Each of these structures does not pay a business level 
entity tax, but is taxed at the individual level.
    The reason most small businesses prefer this type of tax 
structure is to avoid paying two levels of taxes, one at the 
corporate level and then again at the owner level.
    In fact, Congress enacted the S corporation and partnership 
rules for just that reason, to eliminate this double tax burden 
on small businesses.
    Like many of the tax incentives Congress has enacted for 
small businesses, the individual AMT has started to eat away at 
the effectiveness of these provisions.
    As I mentioned, many small businesses are set up as pass 
through entities. The term ``pass through'' refers not to 
assets distributed to the owner, but instead, to the portion of 
the business' income, losses, deductions or credits that is 
reported to the owner on Schedule K-1, and is transferred to 
their individual tax return.
    Small businesses operating as a sole proprietorship receive 
essentially the same treatment. These taxpayers report their 
items of business income, losses, deductions and credits on 
Schedule C of their 1040. It is at this point that their 
business income mingles with personal items unrelated to 
business on their sole proprietor's tax return.
    For the small businessowners, their individual tax is their 
business tax. For these owners of small businesses, if their 
individual return is subject to the AMT, then their business 
income becomes subject to the AMT.
    As I mentioned, most small businesses must report their 
business income on their individual return. Many of these 
businesses become subject to the individual AMT. I know that 
other witnesses will discuss the unfairness of the AMT as it 
affects individuals, and I agree with them.
    There are aspects of the individual AMT few people talk 
about and that is how the AMT takes business incentives away 
from businessowners.
    For example, Congress has long supported the business 
incentive known as the research and development credit, but if 
a small business conducts research and development and attempts 
to claim the R&D tax credit, the individual AMT could deny this 
incentive. This is because most general business credits 
enacted by Congress are preference items for the AMT, and 
cannot be used to reduce AMT liability.
    This is also true of the work opportunity tax credit which 
Congress enacted to encourage businesses to hire disadvantaged 
workers. It is likewise the case with accelerated depreciation.
    Congress long ago enacted accelerated depreciation to give 
businesses an incentive to purchase business equipment. This 
has long been one of the most powerful tax incentives for 
helping businesses to grow and to strengthen our economy.
    The AMT takes part of this incentive away and the list goes 
on.
    In closing, let me paint a picture for you of a typical 
small business which could be a client of many of us on this 
panel.
    Joe Smith started his business, a small restaurant, 10 
years ago. He operates his business as a sole proprietorship by 
working 80 hours weekly and making personal and financial 
sacrifices. Joe and his wife and children have built this 
business into a moderately successful business enterprise.
    The Smith family is currently subject to the AMT. The 
restaurant employs 10 people, five of whom are work opportunity 
credit eligible employees.
    Joe would also like to modernize and expand his restaurant 
so he can hire even more people from the community. 
Unfortunately for Joe, because he pays the AMT, he will not get 
to claim his work opportunity credit on the five employees he 
hired. He will not claim it on any new employees he hires 
either. Joe will not get to claim the FICA tip credit for his 
tipped employees.
    Joe cannot claim accelerated depreciation under the 200 
percent declining method on the new furniture, fixtures and 
equipment he purchases for his restaurant expansion. Instead, 
his depreciation deductions are limited by the AMT.
    Joe illustrates how Congress gives benefits to small 
businesses with the one hand and then takes them away with the 
other.
    As you consider ways to fix the AMT, please remember to fix 
it for small businesses also.
    I thank the Committee for the opportunity to share these 
views, and I look forward to your questions.
    [The prepared statement of Mr. Nixon follows:]
Prepared Statement of Jon A. Nixon, CPA, Partner, Katzman Weinstein and 
                      Co., LLP, Bethpage, New York

Introduction
    First, let me thank Chairman Neal and Ranking Member English for 
offering me the opportunity to testify before the Ways and Means 
Subcommittee on Select Revenue Measures. I am especially pleased to 
testify before the Congress on a topic as important and as pressing as 
the Alternative Minimum Tax.
    Much of my practice focuses on small businesses and small business 
men and women. In my years of helping these small businesses comply 
with the tax code, I have seen a clear trend in the AMT. The individual 
alternative minimum tax is increasingly encroaching upon these 
taxpayers and robs them of the important business incentives Congress 
has enacted through the years.
How the Individual AMT Affects Small Businesses
    Most often when we talk about the individual alternative minimum 
tax, we obviously think about its affect on individuals. But as I see 
every day in my practice, individuals are also small businesses. The 
great majority of small businesses that I see are held in pass-through 
entities such as partnerships, limited liability companies, or S 
corporations, or operated as sole proprietorships. In fact, for tax 
year 2004, according to the Internal Revenue Service more than 7 
million individual returns reported net income or losses from 
partnerships and/or S corporations and over 20 million returns included 
a Schedule C showing net income or losses from a sole proprietorship. 
Each of these structures does not pay a business-level entity tax but 
is taxed at the individual level.
    The reason most small businesses prefer this type of tax structure 
is to avoid paying two levels of taxes, one at the corporate level and 
then again at the owner level. In fact, Congress enacted the S 
corporation and partnership rules for just that reason, to eliminate 
this double tax burden on small businesses. But like many of the tax 
incentives Congress has enacted for small businesses, the individual 
AMT has started to eat away at the efficacy of these provisions.
    As I mentioned, many small businesses are set up as ``pass through 
entities.'' The term ``pass through'' refers not to assets distributed 
to the owner, but instead to the portion of the business's income, 
losses, deductions or credits that is reported to the owner on Schedule 
K-1 and is shown on the individual's income tax return.
    Small businesses operating as sole proprietorships receive 
essentially the same treatment. These taxpayers report their items of 
business income, loss, deduction and credit on Schedule C of their Form 
1040. It is at this point that they mingle with personal items 
unrelated to the business on the sole proprietor's tax return.
    So, for most small businessowners, their individual tax is also 
their business tax. For these owners of small businesses, it is their 
business activity which determines whether or not they pay the AMT. For 
these small businesses, the individual AMT is also the business AMT.
How the Individual AMT Takes Away Business Incentives
    As I mentioned, most small businesses must report their business 
income on their individual returns. Many of these businesses are 
subject to the individual AMT. I know that other witnesses will discuss 
the unfairness of the AMT as it affects individuals and I agree with 
them. But there are aspects of the individual AMT few people talk 
about, and that is how the individual AMT takes business incentives 
away from businesses.
    For example, Congress has long supported the business incentive 
known as the R&D tax credit. But if a small business conducts R&D and 
attempts to claim the R&D tax credit, the individual AMT could deny 
this incentive. This is because most general business credits enacted 
by Congress are ``preference items'' for the AMT and cannot be used to 
reduce AMT liability.
    This is also true of the Work Opportunity Tax Credit which Congress 
enacted to encourage businesses to hire disadvantaged workers. It is 
likewise the case with accelerated depreciation. Congress long ago 
enacted accelerated depreciation to give businesses an incentive to 
purchase business equipment. This has long been one of the most 
powerful tax incentives for helping businesses to grow and to 
strengthen our economy. The AMT takes part of this incentive away. And 
the list goes on.
Conclusion
    So in closing, let me paint a picture for you of a typical small 
business which could be a client of many of us on this panel.
    Joe Smith started his own business, a small restaurant, 10 years 
ago. He operates this business as a sole proprietorship. By working 80-
hour weeks and making personal and financial sacrifices, Joe and his 
wife and children have built this business into a moderately successful 
business enterprise. The Smith family is subject to the AMT.
    The restaurant employs 10 people, five of whom are WOTC eligible 
employees. Joe would also like to modernize and expand his restaurant 
so that he can hire even more people from the community.
    Unfortunately for Joe, because he pays the AMT, he won't get to 
claim his WOTC credit on the five employees he hired. He won't claim it 
on any new employees he hires either. Joe will not get to claim the 
FICA tip credit for his tipped employees. Joe cannot claim accelerated 
depreciation under the 200 percent declining balance method on the new 
furniture, fixtures and equipment he purchases for his restaurant 
expansion. Instead his depreciation deductions are limited by the AMT.
    Joe illustrates how Congress gives benefits to small businesses 
with one hand and takes them away with the other. As you consider ways 
to fix the AMT, please remember to fix it for small businesses too.
    I thank the Committee for the opportunity to share these views and 
I look forward to your questions.

                                 

    Chairman NEAL. Thank you very much, Mr. Nixon. I think all 
of us would agree that the testimony you have offered today 
will support and put a real face on the challenge that 
confronts the Congress.
    Mrs. Rauh, many of us talk about the estimated 23 million 
taxpayers to be hit by AMT in 2007, which is up from only 4 
million in 2006, but we did not really know who that group is, 
until we heard from all of you today.
    You are one of those 23 million. The only reason that you 
know it is because you are a tax professional, and you gauge 
your liability throughout the year.
    For the rest of the 23 million, the AMT will come as an 
unwelcome surprise if the Congress does not act soon.
    Certainly, your family was not the target of Congress when 
it first enacted the AMT decades ago. Has the fact that you are 
now being hit by AMT changed the way you interact with your 
clients, now that you have firsthand experience with some of 
the same problems they face?
    I heard that by way of private conversation earlier, and 
perhaps you could comment publicly.
    Ms. RAUH. A lot of my clients are in AMT now that it is not 
being indexed. We have done planning for them not to pre-pay 
things, so they do not go into AMT, but explaining to them why 
they are in AMT. I used to be able to do that, and really at 
this point, there is no way to explain it.
    My clients, the clientele we have, the AMT itself is 
increasing the percentage of clients we have. However, the 
percentage below $150,000 of adjusted gross income is going up 
by 14 percent, while the clientele above $150,000, the 
percentage in AMT is decreasing.
    It is in fact hitting everybody below $150,000. As far as I 
am concerned, that is not the middle class any more. The 
$150,000 with two incomes and several children, college 
tuition, some of these people are barely getting by.
    It sounds like a lot of money, but it really is not.
    Chairman NEAL. Thank you. Mr. Day, I think you have 
identified yourself as another one of those unfortunate 23 
million, and thanks certainly for being here today.
    You mentioned in your testimony that the AMT is like a 
``fire call,'' except you just do not have the right training 
for the emergency.
    Our tax professionals here today have told us that very few 
have the right training for the complex AMT.
    Can you tell the Committee whether you still prepare your 
own taxes and if so, will you attempt the AMT calculation?
    Mr. DAY. Mr. Chairman, first I want to thank you for your 
support last year to fire fighters, as far as our retirees' 
relief on the health insurance. I had to get that little plug 
in for you, sir.
    Chairman NEAL. We will take it.
    Mr. REYNOLDS. I object.
    [Laughter.]
    Mr. EMANUEL. Can we strike these words from the record, 
please?
    Mr. DAY. Mr. Chairman, I no longer do my own taxes. I do 
actually compensate a friend of the family to do them.
    The problem with this, as I see it, relating to the middle 
class and fire fighters, and I am just a basic commonsense kind 
of individual, I think down here in D.C., there tends to be a 
lot of finger pointing, the blame game.
    This has been around for a pretty good long time. I think 
we need to stop the finger pointing, and I give it the analogy 
of a leaky roof. I am not a roofer. I am a fight fighter. I go 
up on roofs, but I do not go up and replace them. I tend to put 
holes in them.
    My point is do not keep climbing back up on the same roof 
year after year to put a little patch on it. At some point, 
Congress has the responsibility and obligation to the taxpayers 
and fire fighters in this country to fix what is woefully 
wrong.
    I am not an expert. I sit between CPAs. I am just an 
average Joe. I would strongly suggest that we roll up our 
sleeves down here in D.C. as elected officials and fix what is 
wrong once and for all.
    Thank you, sir.
    Chairman NEAL. Thank you very much, Mr. Day. I will now 
yield to Mr. English to inquire.
    Mr. ENGLISH. I thank the Chair. This has been a very 
enlightening panel in terms of your testimony. It is stunning 
to think that many of the people we are talking about here are 
people who from a policy standpoint are routinely regarded as 
rich within the Washington Beltway. You have given us a real 
splash of cold water and some excellent insights.
    Mr. Nixon, I wanted to follow up on your testimony. You 
testified that the benefits of accelerated depreciation for S 
corporations and partnerships may be taken away by the 
individual AMT.
    Could you walk us through why the individual AMT inhibits 
businesses from claiming business tax incentives and 
specifically, can you give me an insight on how a tax benefit 
can be denied once it flows through to the individual?
    Mr. NIXON. The accelerated depreciation when an individual 
is subject to the AMT is recalculated to a much longer period 
of time to depreciate that asset. The advantage of the 
accelerated depreciation is then taken off the table.
    That is one particular item that the AMT cuts into as the 
businessowner is looking to invest capital and buy something 
and depreciate it quickly.
    The other is that some of the credits that a businessowner 
flows through to his individual return, as he is hit with the 
AMT liability, these credits are not allowed to reduce his 
taxable income below or tax below the AMT tax liability.
    These credits that he may receive at the business level 
that flow through to him individually are then postponed and 
have to carry forward to a subsequent year, when in fact he is 
not in an AMT liability, which that could be some time long 
term in the future.
    That is how the businessowner is affected by his income 
flowing through to this individual return and then thereby 
these credits being stalled and not allowing him to take 
advantage.
    Mr. ENGLISH. That in turn can inhibit his investment 
decisions, his or her investment decisions and job creating 
behavior.
    Mr. NIXON. Yes.
    Mr. ENGLISH. Let me just say I am very grateful for Mr. 
Walloch and Mr. Lifson and their testimony saying that in 
principle, they think this tax should be flat out repealed.
    There has been discussion in Congress about how we can fix 
the AMT. One of the preferred ways is simply by shifting the 
AMT burden.
    Mr. Nixon, does shifting the AMT burden but leaving the AMT 
in place, solve the problems of complexity and unfairness that 
this panel has explored today, and will not taxpayers still 
have to calculate their taxes twice?
    Mr. NIXON. Shifting the AMT is not going to be the answer. 
The complexity of the AMT will continue with individuals into 
the future where you are constantly going to be trying to 
calculate your income tax liability with taking into 
consideration the AMT, however way that AMT is going to be 
shifted. We still have to sit there and calculate those and see 
if an individual will be subject to the AMT.
    We are looking at businessowners who want to make decisions 
that they feel, they read, they see all these wonderful credits 
they can get, R&D and tax credits, at the business level, but 
then they come to the accountants and we as accountants say you 
cannot get these credits because you are subject to the AMT.
    Even if that AMT shifts, you are still going to have those 
that are going to be subject to the AMT, and thereby defeating 
the opportunity for the businessowner to take advantage of 
these credits, especially R&D credits.
    Mr. ENGLISH. Mr. Walloch, you were kind of shaking your 
head. Do you have anything to add on that point?
    Mr. WALLOCH. Mr. English, I would second the motion that if 
you only do a shift, you still have to encounter the Form 6251, 
the AMT form. It is still complex. You still have to consider 
it. You have to consider it even if you come out to find the 
answer is zero.
    I think the ultimate best solution is to simply get rid of 
the AMT.
    Mr. ENGLISH. Mr. Lifson, do you have anything to add on 
that point?
    Mr. LIFSON. I would just say that Congress--the AMT was 
created as part of several steps from 1969 through 1986, to do 
away with individual tax sheltering activity. It was very 
effective when it started.
    In 1986, you put in passive activity losses and other stop 
gaps to keep tax sheltering activity from occurring at the 
individual level. By doing that, the AMT became the archaic 
minimum tax. It no longer serves its purpose any more than 
collapsible corporations do. They have been eliminated from the 
Code. It is time to get rid of the AMT.
    Mr. ENGLISH. That is a powerful statement and whether we 
call it the ``archaic minimum tax'' or the ``anti-manufacturing 
tax,'' I am inclined to agree with you, and I am grateful to 
all of you for your testimony.
    Chairman NEAL. I thank the gentleman. The gentleman from 
California, Mr. Thompson, will inquire.
    Mr. THOMPSON. Thank you, Mr. Chairman. Thank you for 
holding this hearing today and your longstanding commitment to 
fixing this egregious problem with the AMT.
    I have a question, I guess, for the folks on the left, the 
preparers. Have you seen an increase in the number of people 
who have to seek professional help in preparing their taxes 
because of the AMT?
    Mr. LIFSON. I have in that people come in the year after 
they get the letter from the IRS that they did not calculate 
the AMT correctly, and that usually drives them from the 
kitchen table directly to the CPAs, as our fire fighter 
reported.
    Mr. THOMPSON. You have not only people who figure they need 
your advice before, but then other folks who try to do it 
themselves and make errors then have to come afterward.
    I am assuming there is a penalty that is associated with 
that many times. The taxpayers are not only bouncing around 
like a pinball in a pinball machine, they are also having to 
pay at different stages for different problems.
    I also have been told, and it has been anecdotal at this 
point, that some of the programs, the computer programs for 
helping people prepare their taxes, have left folks in the 
lurch as well.
    Do you have any experience with that?
    Ms. RAUH. I have used one of the over the counter tax 
programs. Rather than forcing you to calculate the AMT, it says 
do you want to look at the AMT. If you do not know what the AMT 
is, there is also a button that says skip AMT. I think a lot of 
people skip AMT.
    Mr. THOMPSON. Thank you all for an excellent job. I just 
hope, Mr. Chairman, that we can fix this problem and fix it 
quickly so we do not continue this band-aid approach that we 
have in the past, which I think leaves taxpayers in even a 
bigger lurch.
    Sometimes we have not done the 1 year fix until after the 
tax year is actually begun. It is incredibly important that we 
get this thing solved this year.
    Thank you all for coming. Mr. Day, as the father of a fire 
fighter/paramedic, thanks for your service to your community.
    Mr. DAY. Thank you, sir.
    Chairman NEAL. I thank the gentleman. The gentleman from 
New York, Mr. Reynolds, will inquire.
    Mr. REYNOLDS. I thank the Chairman. I thank you for holding 
the hearing and our continued movement on this Subcommittee on 
seeing if we cannot get a permanent solution.
    We have had with this panel today, a very distinguished 
group, that has presented to us both what I call the ``person 
on the street,'' the reality that so many do not even know AMT 
exists, and that their accountants are preparing two sets of 
forms for them to see if they comply, and in states like New 
York, where many of the practitioners come from, and as the 
witnesses have said today.
    The fact that over the counter for those who think they can 
achieve their tax, they may not even know they have to do a 
second one to see what the AMT eligibility is.
    I have called this a ``stealth tax'' for a long time. I 
like the ``archaic'' or ``anti-manufacturing.''
    The reality is I think most of us in this room know that we 
have to get rid of this tax in its entirety, rather than 
picking and choosing winners in it.
    For the record, as I understand it, Congress has had a 
number of chances where we have had a target on trying to get 
rid of AMT and something happens.
    Chairman Neal and the leadership of the Committee on Ways 
and Means, both sides of the aisle, are committed to try to 
meet this.
    I think when we look at the part I have looked at in the 
past, if we cannot get permanent solution, we need to make sure 
we get the patch again to not let middle class get trapped into 
23 million more into this bad stealth tax or archaic minimum 
tax.
    As I look at the Budget Committee and the Ranking Member is 
here now, but as we open up some of our discussion, we need to 
be careful as we look at what the Budget Committee has done 
because a reserve fund saying that we want AMT relief but only 
if the distinguished Committee on Ways and Means identifies 
offsets by either taxes or on other decisions made in the 
Congress on offsets of spending that we get there.
    As one that was the architect for the 2006 patch, I would 
have wanted to see a permanent solution, but the patch was 
something that was a ``must do.''
    We are going to have to work in bipartisan fashion to make 
sure that we get around the difficulties of pay-go, the 
difficulties of those who have different goals or do not see 
the need of AMT relief in a bipartisan fashion to make sure 
that what is has been in the Chairman's mark, we can actually 
achieve in legislation at minimum, while we look to fix it.
    One of the questions I have, and some of the accountants 
and maybe Mr. Nixon, you might share a little bit, I would 
think that when clients are educated on AMT, I know when my 
constituents are, they are shocked to think that first of all, 
you actually prepare two run's, so to speak, of what they are 
going to pay, and two, in high tax states, as many of you are 
witnesses, and Northern Virginia is becoming a high taxed 
state, much like Massachusetts, New York, and California, where 
many of us know clearly well what our constituents face.
    We find that they are shocked when they see the type of 
eligibility they are not able to get under deductions as AMT 
comes in.
    Have you ever seen anyone that thought AMT was a good idea 
in your accounting practices?
    Mr. NIXON. Not necessarily, no. We are finding increasingly 
more and more that are subject to the AMT purely by the fact 
that in New York, we live in a state where real estate taxes 
have gone up substantially, and this is one of the things seen 
affecting our taxpayers.
    To fix it? There has to be ways in which we can try to 
adjust it. If AMT is to remain, to shift it where some of our 
middle-income taxpayers are not greatly affected by that, just 
purely by the fact that some of these particular taxes have 
increased, and that thereby puts them into the AMT liability.
    Mr. REYNOLDS. Does anybody have anything to add to that 
from the practitioners' standpoint?
    Mr. WALLOCH. To answer your specific question, I do not 
know of a single taxpayer who embraces the AMT. I think the 
only thing that speaks well of the AMT is it brings in revenue. 
Taxpayers are not excited about that.
    Mr. REYNOLDS. As you practice, and also the witnesses that 
are both taxpayers and professionals and understand what we are 
faced with here, I was greatly concerned when I saw with hope 
that the potential of addressing AMT from a recommendation of 
the Mack-Breaux Commission would outline a solution, while they 
attacked how we should go after a permanent repeal of AMT.
    They found in their pay schedule to offset the cost to be 
revenue neutral, eliminating deduction for state and local 
taxes and mortgage interest deductibility.
    Again, I guess I ask what your opinions might be. I would 
tell you with my background in real estate insurance, my first 
reaction was over my dead body, coming from a New York 
taxpayer's standpoint.
    Could the panelists maybe share what their thought is of 
elimination of that?
    Mr. WALLOCH. I agree with you that eliminating the state 
income tax deduction or property tax deduction or eliminating 
the mortgage interest deduction is not a good way to replace 
the AMT revenue.
    I think there is a whole spectrum of other possibilities 
that should be explored.
    Mr. REYNOLDS. Thank you.
    Chairman NEAL. Thank you, Mr. Reynolds. The gentlelady from 
Pennsylvania, Ms. Schwartz, will inquire.
    Ms. SCHWARTZ. Thank you very much. Thank you for putting a 
personal face on the issue of AMT. I think for many of us who 
have been reading about this, we are not surprised by what you 
said by any means. We have heard it certainly from 
constituents, and we are taking it very seriously. I know the 
Chairman is. We want to create a long term fix.
    I will say we want to do it in a responsible way. That 
means addressing the concerns and issues that you have talked 
about for individual taxpayers, and I wanted to sort of just 
highlight a couple of those issues.
    It is a serious effect on our budget and on the national 
revenues. We want to fix it. I want to say that.
    A trillion dollars of repeal, another trillion dollars in 
debt, which is what has been suggested, we ought to just take 
the hit and move on. We would like to come up with a more 
responsible answer, which makes it more complicated.
    We could have seen a repeal in any of the last 6 years, and 
we did not. We are faced with huge debt in this country, not 
enough revenues.
    We are trying to fix it, and we are trying to fix it for 
the people you are talking about, and certainly the people we 
represent. I represent a district that we are looking at 60,000 
of my constituents being affected next year if we do not do 
this patch at least for 1 year and hopefully, we can do a more 
permanent fix.
    I am interested in your just fleshing out a little bit, if 
you may, the issue that is affecting particularly two wage 
earner families. Maybe we did not anticipate that there would 
be so many two wage earner families. It particularly affects 
them, I think you talked about that a little bit when both 
husband and wife are working, and actually then when they have 
children.
    We are seeking folks who consider themselves very middle 
class, very middle income. I have a chart here that says--let 
me first say that experts have said that virtually all married 
couples earning $75,000 to $100,000 a year with two children, 
will be paying the AMT at the end of this decade if we do not 
do something about it. That is stunning.
    I represent a big city in Northeast Philadelphia, $75,000 
sounds like a lot of money, but we are looking at someone who 
earns that.
    If you live in an area that is sort of high cost of living, 
there may also be high local taxes and state taxes that may 
coincide with that, and you anticipate that you would like to 
send your children to college as well, and you buy a home. You 
really are obviously not feeling very rich. This is not who we 
intended to hit with the AMT.
    I also just to put another face on it, a chart that says 
just next year, in 2007, if we do not do something about it, a 
family with two children, married with two children, the entry 
point to be affected by the AMT is $66,114 income. Again, that 
is pretty stunning.
    I can imagine if you live in New York or Philadelphia and 
some of the big cities, that is really not very, very high 
income.
    I really wanted you to just flesh out, if you may, anything 
more you might want to say about what we say to these families. 
Many of you who help them anticipate and predict what they 
could do to both pay their taxes but to also anticipate what 
they might do to be able to get the best advantages on taxes, 
there really is very little they can do, other than getting rid 
of their mortgage, their kids, their spouse.
    Again, you are tax planners and preparers. I think the 
issue that I have for many of these families is the 
unpredictability, the fact that they are faced with having to 
pay an AMT on April 17th that they didn't anticipate.
    I think that unpredictability, and I know for small 
businesses, that is a huge issue, not to be able to predict 
your tax burden, but for families, it is as well.
    Could you speak a little bit both about what else, other 
than the 1 year patch, which I do expect we will do, but we 
would like to do it more permanently, any other comments you 
might want to make about the unpredictability, particularly for 
families in this sort of $75,000 to $100,000 range, that find 
themselves not feeling terribly rich to be able to meet all 
their obligations?
    Ms. RAUH. That is the exact category I am in. I do not own 
a house. I do not deduct mortgage interest. I do not deduct 
real estate taxes. I do not deduct my Massachusetts income 
taxes.
    I take the standard deduction given to me by the IRS. I 
have three kids. Other than getting rid of, as you said, 
getting rid of my children, I can do nothing to get out of AMT.
    Ms. SCHWARTZ. Which I hope you are not really thinking 
about.
    Ms. RAUH. No, I will keep them. The only one I am getting 
at this point is from the child tax credit. I am not wealthy. 
The housing market, although Virginia is much worse than 
Massachusetts, the housing costs are high.
    We have decided to rent. We have no deductions to speak of. 
The child tax credit and my tuition credit. Seventy-five 
thousand dollars is not a lot of money. I do taxes for friends 
and family. When I have to explain this to them next year, they 
are going to think it is illegal.
    Ms. SCHWARTZ. I think we are really very, very interested 
in working this out. The suggestion that Mr. Day made that we 
ought to get serious about working this out in a bipartisan 
fashion, I hope we can ratchet down some of the politics about 
this, but it is not easy for us to find the revenues to make up 
for this, or to be irresponsible in adding to the debt.
    We take very seriously your situations and the people you 
represent, and look forward to working it out for the long 
term.
    Thank you.
    Chairman NEAL. I thank the gentlelady. I will remind the 
Members and the panel that we are going to have a series of 
votes coming up quickly, so if we could move our questions 
along. I am happy to come back after.
    I would like to recognize the gentleman from Georgia, Mr. 
Linder, to inquire.
    Mr. LINDER. Thank you, Mr. Chairman.
    Mr. Campbell, you said you got no benefit from the Bush tax 
cuts, but you just heard Ms. Rauh say she took the child tax 
credits. Did you not?
    Mr. CAMPBELL. No, sir. My children are above the age for 
child tax credits. The tax credits or deductions that would 
normally be allowed to me specifically are for college tuition, 
which I pay, with no financial aid, so I pay full price college 
tuition.
    My family is trying to do that without incurring any debt. 
Those costs that we pay every year because of AMT, we do not 
achieve those credits. Actually, not because of the AMT. We do 
not achieve those because of our adjusted gross income. 
Therefore, they do not help offset that, and then the tax cuts 
that were enacted actually lower my regular tax rate, and 
therefore make me more susceptible to the AMT.
    Mr. LINDER. Thank you. Ms. Rauh, you said early on you 
understood the purpose behind AMT and why it was implemented. 
Please explain it to us.
    Ms. RAUH. Back in the day when there were excessive 
deductions and tax shelters taken by the very wealthy, they 
were trying to make the very wealthy pay their fair share.
    Mr. LINDER. That really is not true. In 1969, there were 
155 people who earned over $200,000 a year, and because they 
rudely took advantage of their legal deductions and credits, 
they had no tax obligation, and Congress determined that was 
not fair. They were just doing the legal thing.
    Ms. RAUH. Going forward from that time, that is what AMT 
has been used for, to make sure people with excess deductions, 
going forward from that point, every adjustment is having to do 
with some type of excess deduction----
    Mr. LINDER. My point is there is no such thing as an 
``excess deduction'' if it is legal.
    Ms. RAUH. What they considered to be excess deductions.
    Mr. LINDER. Mr. Walloch, you said you thought they should 
totally repeal individual AMT. Do you distinguish between the 
individual AMT and the sole proprietorship AMT?
    Mr. WALLOCH. No, sir. The individual AMT, if you have 
someone operating as a sole proprietor, that business----
    Mr. LINDER. Is an individual.
    Mr. WALLOCH. Is an individual.
    Mr. LINDER. The word ``individual'' really does not mean 
anything except you should get rid of the AMT entirely itself?
    Mr. WALLOCH. No, sir, with all due respect. There is an 
individual AMT and there is a C corporation AMT.
    Mr. LINDER. Thank you. Mr. Chairman, thank you.
    Chairman NEAL. I thank the gentleman. Mr. Blumenauer, the 
gentleman from Oregon, will inquire.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. I am pleased that 
for the first time since I have been in Congress, 11 years now, 
the adjustment, the repeal, the fix of the AMT is the number 
one priority of this Committee. It has never happened before.
    There has been lots of tax adjustments and priorities and 
winners and losers. I am pleased with the Chairmanship of Mr. 
Neal, the keen interest of the Ranking Member, and of the Full 
Committee Chair and Ranking Member, that for the first time in 
11 years, something is going to happen.
    I am very optimistic about that.
    You hear a lot of loose language of late about the largest 
tax increase in American history, that is applied routinely to 
all sorts of things.
    I will tell you what the largest tax increase in American 
history is, it is what is going to happen in the next 10 years 
if we do not take the advice of this Committee, $1.8 trillion 
of a tax increase largely on unsuspecting people.
    Although I am optimistic and I am pleased about the 
hearing, Mr. Chairman, I would like to inquire about one other 
area of the cost of AMT, that we do not talk about, and that is 
the cost of compliance.
    I am assuming that a number of the people that are 
represented by our taxpayers here today are going to end up 
paying somebody about as much to calculate it as the tax 
itself. Maybe it would only be $500 or $1,000, but they are 
going to pay somebody $500 or $1,000 or $1,500 to calculate it. 
It is a double whammy.
    I would ask, Mr. Chairman, if we could just have brief 
comments from both the practitioners and the individuals about 
the hidden hidden cost of the stealth tax, and that is the cost 
that they are going to pay to try and comply with this horribly 
mutated tax.
    Mr. CAMPBELL. I can start, sir. I can tell you that for my 
whole adult life, I have prepared my own taxes and consider 
myself a fairly smart guy who can figure it out.
    The first year that I was hit with the AMT tax, I thought I 
had made mistakes. I thought I had done something wrong because 
I did not understand how I could possibly be subject to 
something like that, which caused me to seek professional help 
to find out where I made my error.
    Mr. BLUMENAUER. Accounting professional help?
    Mr. CAMPBELL. Accounting professional help.
    Mr. BLUMENAUER. I am just checking.
    Mr. CAMPBELL. Thank you for that clarification. Seeking the 
services of an accountant to help me understand where I made 
that mistake, which turned out in fact not to be a mistake, and 
subsequently, I have employed that accounting firm every year 
since because it is just too difficult as an individual, even 
with the off-the-shelf type of tax programs, to really 
understand if you are doing it right.
    I think someone on the panel mentioned transparency. There 
is no real transparency in the process, so you do not really 
know if you are complying or not.
    Mr. BLUMENAUER. I know the Chairman is trying to move this 
along. If we could just have brief comments about the cost of 
compliance. You had an $1,000 extra liability.
    Mr. CAMPBELL. I do not think it cost me $1,000 in 
accounting fees, but certainly it cost me more than I normally 
would pay.
    Ms. RAUH. I am lucky in that I am a CPA. I do my own. The 
deductibility of the tax practitioner's fee is also an add back 
to AMT, so it is very circular.
    Mr. BLUMENAUER. Any of the other witnesses?
    Mr. LIFSON. I would just say I am sometimes questioned as 
both a member of the American Institute of CPAs and the 
President-Elect of the State Society of CPAs, why we would not 
be interested in continuing this confusion in our own self 
interest.
    Our interest is in the quality of the tax system. I would 
also add that you forgot one piece of cost, and that is the 
cost of the IRS to administer the AMT, which is also a very 
imported added cost.
    Mr. BLUMENAUER. Mr. Chairman, I assume my time has expired. 
If we could inquire about the actual costs, additional costs to 
taxpayers for compliance. I appreciate Mr. Lifson's point about 
the extra cost to the IRS to administer a very complex item.
    Chairman NEAL. I think it is a superb point that you have 
raised, Mr. Blumenauer.
    The gentleman from Wisconsin, Mr. Ryan, will inquire.
    Mr. RYAN. Yes. I thank the Chairman. I apologize for not 
having been here earlier. I was meeting with some constituents 
back in my office.
    I understand there has been some confusion about the 
Majority's new budget resolution, which we just finished 
marking up at 1:00 this morning.
    When we say that this new budget resolution imposes and 
budgets for and plans for the largest tax increase in American 
history, that is true because it does away with all the 2001 
and 2003 tax cuts. That is not even including the AMT.
    The AMT issue is what I want to talk about. There are 
absolutely no reconciliation instructions to the Committee on 
Ways and Means to do anything; anything. That is how you get 
policy done through a budget resolution.
    When you call something a ``reserve fund,'' that is the 
legislative equivalent of coming to the Floor and passing a 
resolution that says have a nice day. It sounds good, but it is 
meaningless. It affects nothing.
    These reserve funds are not worth more than the paper that 
they are printed on because they have no material effect 
whatsoever.
    When you write a budget resolution, a budget resolution is 
about numbers, and it is about instructions to Committees. The 
numbers do not lie. The numbers in this budget resolution 
assume, bank, prepare for, and require in order for the budget 
resolution to balance, that there is not only no permanent fix 
to AMT, that there is not even a patch next year.
    This year, we have a patch for people filing their tax 
returns for the 2006 year. This budget does not accommodate, 
create fiscal space for, or give us instructions with fiscal 
space to put the patch in place for 2007, let alone 2008.
    We will have 23 million people hit next year when they are 
doing their taxes for the 2007 year, if there is no patch. It 
goes to 25 million people the year after that.
    The problem with the budget resolution, unlike the Senate 
budget resolution, where they created a fiscal space for a 2 
year patch, unlike the White House budget, which has a 1 year 
patch, the House budget resolution does not have a patch.
    Saying it is the policy of the budget resolution that we 
want to have a patch, have a full time fix, but not having any 
plan to do it, means there is no plan to do it.
    I just think it is really important that we do not mislead 
people, that we shoot straight, and that we make sure that we 
do not set false expectations.
    This is a bipartisan issue. I know what I said is going to 
hit some people there. It is a bipartisan problem. It hits 
Democrat and Republican taxpayers.
    If you really want to fix this, you have to create the 
fiscal space to do it, unless you simply want to have a $50 
billion tax increase this year, or a $344 billion tax increase, 
which is to fix it over the next 5 years.
    You have to find the $344 billion to fix it for 5 years. 
The $344 billion is not in this budget. The $50 billion is not 
in this budget for the patch. Because that is not in there, 
there is no fix in this budget for the budget resolution.
    I was going to ask questions, but I see my red light is on.
    Chairman NEAL. I thank the gentleman. I would point out as 
an alum of the Budget Committee, budget resolutions have been 
routinely altered on the House Floor, and during my time, we 
used to call them ``dire supplemental emergencies,'' to move 
around those figures.
    I will recognize Mr. McDermott to inquire.
    Mr. MCDERMOTT. Mr. Chairman, I am sure the witnesses are 
enjoying watching us go at this issue. I appreciate the 
admonitions of Mr. Ryan.
    I have sat on this Committee for the last 6 years while 
this problem built and built and built. The only thing we 
talked about here was how we were going to get rid of the 
inheritance tax.
    Let's take the tax off the people on the top, folks. Nobody 
wanted to pay any attention, and you cannot claim you did not 
know it was coming, it has been obvious for the last 6 years 
that this day was going to happen.
    If the people in November had not chosen the Democrats, you 
would still be talking about extending the inheritance tax for 
the indefinite future, and ignoring this because it has been a 
trap that has been laid and you let it happen because you want 
to tear up the tax structure.
    I do not know what it is you really want, whether you want 
a sales tax or a value-added tax, or something. You want to get 
rid of the progressive income tax. That is very clear. That is 
why this happened.
    There was plenty of opportunity to change this. When you 
start talking about these tax increases, we could have said--I 
bet we did say the same things when we passed the budget 
resolution last year, because if you do not extend those taxes, 
they are going to end, and the taxes will in fact go up. We all 
know that.
    It is not anything that happened last night that is any 
different than what happened with all the other budget 
resolutions.
    Mr. RYAN. Will the gentleman yield for a quick 
clarification?
    Mr. MCDERMOTT. I just want to vent a little. After sitting 
here for 6 years and watching this foolishness, we knew this 
was going to happen and we talked about it.
    Mr. Neal, I got tired of hearing him raise it every time we 
had a tax bill, he would talk about the AMT. There must be more 
people in Massachusetts that play in this ballpark than in my 
state or something. I do not know what it was.
    It is not as though you did not know it was coming.
    I yield for a clarification.
    Mr. RYAN. Last year's budget resolution created the fiscal 
space for the patch. It actually gave the Committee on Ways and 
Means the reconciliation instructions and the wherewithal to 
actually bring a bill to the Floor to do the patch.
    Mr. MCDERMOTT. What did they do?
    Mr. RYAN. Put a patch in place. You are right. I just want 
to clarify that, but you are right, we are just kicking the can 
down the road. We have done it. We have to fix this thing and 
kicking it 1 year at a time is no way to run this railroad.
    This budget resolution does not even kick it down the road 
1 year. That is the point I was making.
    Mr. MCDERMOTT. We are not done yet. I yield back the 
balance of my time.
    Chairman NEAL. I thank the gentleman from Washington, and I 
want to agree with Mr. Ryan for the moment. He has described 
the problem, kicking it down the road.
    The gentleman from Illinois, Mr. Emanuel, is recognized.
    Mr. EMANUEL. I am also going to address slightly to the 
gentleman from Wisconsin, you can watch for a little while, get 
some popcorn and watch this for a second.
    [Laughter.]
    Obviously, it is sleep deprivation he is operating under 
from being here until 1:00 in the morning in the Budget 
Committee, where they marked up a balanced budget that the 
Democrats provided while expanding health care for children, 
which would be a first.
    The key word was ``deception.'' Mr. Day, Ms. Rauh, Mr. 
Campbell, not to address the other three, you can listen also, 
that is what the AMT has done to you. It was a deceptive 
practice.
    When the AMT was passed--this is also for my colleague from 
Wisconsin--you agree with this because you have said it before, 
as other colleagues from Pennsylvania have said it and from 
upstate New York--the deception that goes on is twofold.
    One, the AMT was intended for the wealthiest taxpayers who 
actually through the tax code ended up paying no taxes, which 
was never the intention. Then because it was not dealt with 
from an inflationary standpoint, it has grabbed hard working 
middle class families, a sales manager, a CPA, and head of the 
fire fighters.
    You were never ever supposed to get hit with the AMT. You 
had the normal income tax. That was it. That is where the 
deception begins. I think you would agree.
    Mr. RYAN. Yes.
    Mr. EMANUEL. The second deception, and this is where he 
will disagree--I love this soliloquy----
    Mr. RYAN. You are doing all the talking.
    Mr. EMANUEL. That is what I said, it is a soliloquy. I am 
having a great time. It is the only time in my house with three 
little kids I ever get a word in edge-wise, here in the 
Committee.
    [Laughter.]
    The President presented a budget and relies, as he said, 
that we finally get a balance in 2012. How does he do it? A tax 
increase. Twenty-three million American families get a tax 
increase called the AMT. That is deception number two.
    Mr. RYAN. Will the gentleman yield?
    Mr. EMANUEL. No, not yet. I am really enjoying this quiet 
time alone. I will in a second.
    This is a serious issue. What happens here is you have 
talked about the AMT, the Congressman from Western Pennsylvania 
has done it. The Congressman from upstate New York has done it.
    One year patches are just that, band-aids. We have the 
opportunity to fix the AMT and provide a tax cut to Ms. Rauh, 
Mr. Day, and Mr. Campbell. All of them, whether it is $1,400, 
$2,200, that is a tax cut. That is what it is. It is not a fix. 
It is a tax cut.
    To 23 million American families, in Washington, it gets 
talked as a ``fix,'' to them it is a vacation for their family, 
possibly the ability to pay college for their kids without 
taking out more loans and more debt, or anything else they 
choose. It is a tax cut.
    Mr. RYAN. I was going to agree with you on some things.
    Mr. EMANUEL. I will take it.
    Mr. RYAN. You are right. Number one, the Bush budget, 
whatever budget we are looking for clarifies something. The 
Bush budget has this tax increase kicking in for 25 million 
people in 2008. It does not have it kicking in for 23 million 
people in 2007 because the Bush budget has a 1-year patch.
    The Democrat Majority budget has the 23 million person tax 
increase in 2007.
    Both budgets here, the White House and Democrat Majority 
budget, kick in the tax increase. I think the other point you 
made is correct as well. These are tax increases. 23 million 
people are going to get hit with a tax increase because this is 
coming into being, just like your budget plans for all those 
2001 and 2003 tax cuts to go away, those are tax increases, 
too. Marriage penalties, child tax credit----
    Mr. EMANUEL. If we address the 1-year issue, we will 
provide all three of these that are here and the other 23 
million folks that they are basically representing in one way 
or another with a tax cut.
    Mr. RYAN. We need more than just 1 year.
    Mr. EMANUEL. That is right. Number two, we will provide 
those ideas. You will have a chance to provide your 
alternatives or join us and say here is a good way to do it.
    A tax cut, an AMT issue, that is wrestled to the ground 
beyond a 1-year fix, will be a tax cut for 25 to 23 million 
folks. That we have established today if nothing else.
    Thank you, Mr. Chairman.
    Chairman NEAL. I thank the gentleman from Illinois. The 
gentleman from New York, Mr. Crowley, will inquire.
    Mr. CROWLEY. Thank you. Thank you for the opportunity from 
a non-member of the Subcommittee to speak here. Thank you, Mr. 
Chairman.
    The witnesses today have highlighted the fix to AMT must be 
done as this massive tax increase that will target the nation's 
middle class and not the rich.
    I am pleased that our leadership, Speaker Pelosi, as well 
as Chairman Rangel, and Subcommittee Chairman Neal, have made 
fix AMT and providing the middle class with tax relief as the 
top priority of this Subcommittee, and quite frankly, one of 
the top priorities if not the top priority of the overall 
Committee.
    I thank all of the witnesses here today, and in particular, 
the real people that are here. I ask them to make sure that 
their friends and neighbors know about the coming tax tidal 
wave on America's working folks, and to have those individuals 
put more pressure on their Congress.
    My friends on the other side of the aisle who led this 
government quite frankly unhindered for 6 years, did very 
little, if anything at all, to remedy this growing tax on the 
middle class of our country.
    Even many of my colleagues on this side today still refuse 
to address the overall situation.
    My good friend, Mr. Linder, from Georgia, has said--I am 
sorry he is not here--that he does not want Congress to act on 
AMT, and I will quote from a CQ.com article.
    His exact quote is ``Don't do anything, let it hurt, let 
them rise up in anger against all of us.''
    My friends on the other side, and in particular, their 
leader, have also refused to work on a solution to the AMT 
arguing that we need to extend current tax rates for the rich 
while doing nothing to help the middle class.
    Mr. ENGLISH. Will the gentleman yield?
    Mr. CROWLEY. When I am done.
    His quote in the Boston Globe was ``Why would we want to 
risk the future growth of our economy in an effort to raise 
taxes on those that my colleagues across the aisle don't like 
much.'' I believe he was referring to the rich in our country.
    What I would ask of you is how would you respond to these 
powerful opinion makers here in Congress on the AMT and their 
opinion on the AMT, and their attempt in their view to let it 
run the course to incite the American people to do something 
about it?
    Mr. DAY. Like I said earlier in my testimony, common sense 
needs to prevail on this subject, and pointing blame, I do not 
think is very productive, but getting to your question, the 
overall problem needs to be addressed.
    I am not a CPA like the distinguished people here to my 
left. It needs to be brought to the forefront. It does not 
matter if you have an ``R'' behind your name or a ``D'' behind 
your name. It just needs to be thrown out on the table, roll up 
the sleeves, and let's get it done, so to speak.
    The patch approach is not going to work. It is dipping 
further and further down each given year into more and more 
American middle class wallets. That kind of sums it up.
    Ms. RAUH. I would like to comment that who is more likely 
to put money back into the economy than the middle class. If 
you take our tax refunds away, we are spending people. That is 
what we do with our tax refund. We do not invest it in stocks. 
We do not save it. We put it back into the economy.
    Mr. CROWLEY. Mr. Chairman, I know Mr. English wanted me to 
yield, but my time has expired. It is up to you, Mr. Chairman.
    Chairman NEAL. It would be my intention if we might, to 
proceed with closing the hearing.
    I want to thank these witnesses. You were terrific. You put 
a human face on the challenge that confronts all of us here. In 
addition, what I think is terribly important to acknowledge is 
we intend to go forward, and at the same time, we want to go 
forward in a bipartisan manner, in a bipartisan fashion.
    After all, when this tax is paid, it is not paid by just 
one political party, it is paid by all members of the American 
family.
    With that, I want to say thank you to the panel.
    Mr. ENGLISH. Mr. Chairman?
    Chairman NEAL. Yes?
    Mr. ENGLISH. If I could, and I am grateful for the 
opportunity, just if possible by unanimous consent, to submit 
for the record this particular document, which is a study that 
tracks a number of AMT taxpayers, and specifically shows the 
impact of recent tax policies on AMT projections, which I think 
will help clear the air on some of the points that have been 
made.
    I thank the gentleman, if I might do that.
    Chairman NEAL. Without objection.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T7007A.001
    

    Chairman NEAL. Again, thanks to the witnesses today. You 
were superb. Thanks to the Members of the Committee for their 
presence today. It was most helpful.
    This hearing is now adjourned.
    [Whereupon, at 11:34 a.m., the hearing was adjourned.]
    [Questions submitted by the Members to the Witnesses 
follow:]
              Question from Chairman Neal to Mr. Campbell
    Question: Mr. Campbell, you have said that paying AMT for the last 
4 years has had a real economic impact on your family. Can you tell us 
what spending decisions have been made or changed because of the AMT?

    Answer: I would say it has had two major economic decisions in my 
household. One, we are more focused on in-state college options for our 
second child thereby saving money and second, my wife stopped working 
full time in 2005 as there was no real financial benefit. After taking 
over 1 year off, she has returned to the workforce part-time and we 
continue to evaluate the benefit of that arrangement. In the end, her 
earnings put us into the AMT category and result in most if not all of 
her income being used to satisfy tax obligations. These decisions are 
in addition to the everyday spending decisions impacted by having less 
take-home pay. Things like eating out less, traveling less and spending 
less on large-ticket items.

                                 
               Question from Chairman Neal to Mr. Lifson
    Question: Mr. Lifson, you cite some statistics on the amount of 
time and money lost to taxpayers that have to fill out the complex AMT 
forms. And then, many find out they do not owe AMT after all that 
hassle. I guess we would call that a blessing in disguise. Do you think 
this simply results in many more taxpayers having to seek professional 
assistance, from people like yourself, in preparing their returns?

    Answer: [Response pending.]

                                 
               Question from Chairman Neal to Mr. Walloch
    Question: Mr. Walloch, you cite the case of the Klaassen family of 
Kansas--with 15 exemptions, certainly not a typical family. But also, 
not the family you would think the AMT would target. However, they paid 
more than $25,000 in higher taxes over several years because of the 
AMT. And you also cite instances of taxpayers who have gone out and 
bought hybrid cars thinking they will get the credit Congress created 
for such purchases, but the AMT took it back. It seems the AMT works 
directly against Congressional intent sometimes. Would you agree, and 
do you have other examples of this?

    Answer: ``Chairman Neal, yes, I agree with you. Other examples of 
when the AMT works directly against Congressional intent include 
taxpayers entitled to the standard deduction including additional 
standard deductions for the blind and elderly only to have those 
standard deductions disallowed for AMT. Also, taxpayers who have 
significant medical expenses, as in the Klaassen case as a result of 
their son's cancer treatments, are denied an additional portion of 
those medical expenses because of AMT. Also, hard working Americans who 
pay unreimbursed employee business expenses find that those expenses 
are not allowed for AMT as illustrated in the Aaron Law case.''

                                 
                Question from Chairman Neal to Mr. Nixon
    Question: Mr. Nixon, I am a big supporter of the R&D tax credit and 
I understand that many small business owners may lose this and other 
general business credits because they may be on the AMT. Certainly, we 
do not want a tax system that punishes business owners for doing 
research or for hiring disadvantaged workers. How do your clients react 
when you tell them these incentives are lost to the AMT? Is there any 
way to plan around it?

    Answer: ``Chairman Neal, this tax season we have increasingly seen 
our clients affected by the Alternative Minimum Tax. One client in 
particular invested over $200,000 in solar panels for his `S' Corp 
business because he understood he would get a solar credit on his 
personal return. Because this taxpayer was subject to the AMT the 
taxpayer lost a credit worth thousands of dollars. Our client was very 
upset. A 75-year-old woman purchased a hybrid car in 2006. She was told 
she would get an `Alternative Motor Vehicle Credit.' She received only 
a minor portion of the credit because she was subject to the AMT. The 
unused portion of the credit is not available for carryback or 
carryforward and is thus lost! If Congress has a tough time eliminating 
the AMT, the only real fix to this dilemma is to allow these credits 
and many others to lower the taxpayer's income tax below the AMT level. 
These and many other credits should stand on their own and not be 
affected by the AMT and should be allowed to lower the taxpayer's tax 
burden beyond the minimums set by the AMT. This would be a good 
opportunity for a bipartisan reduction in personal income tax thereby 
spurring the economy as was the intention of these credits in the first 
place. To take the R&D credit of many other credits under the current 
tax structure, a taxpayer has to prepare many calculations to see if 
the AMT applies. If the AMT applies the taxpayer then has to see if 
there are ways to shift income and deductions to take advantage of the 
applicable credit. This may be close to impossible. This is why the AMT 
should not hinder these credits. This current system places too much 
burden on the taxpayer to juggle income and deductions just to get the 
desired credit. I hope my examples and ideas help in making Congress 
aware of how the AMT negatively affects many business taxpayers.''

                                 

    [Submissions for the Record follow:]

                                                     Angela Hartley
                                              San Diego, California
                                                     March 20, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Angela Hartley and I am writing regarding a huge AMT tax 
debt that I incurred on ``phantom'' gains due to the application of the 
Alternative Minimum Tax to incentive stock options (ISOs).
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. It is a first 
step toward ending a financial nightmare that I have been living for 
nearly 7 years. The return of the tax overpayment credits will at least 
restore a fraction of what I have lost while struggling to pay taxes 
incurred on phantom income.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    I am a single mom of a 13-year-old son. I incurred the AMT 
liability in 2000 after exercising incentive stock options from the 
biotech company I worked for. I reported the exercise, have tried to 
pay off the debt, have sought a compromise with the IRS, but with 
little success. To pay the tax (and penalties and interest) of the 
phantom gain, I have lost my home, liquidated my savings and retirement 
and have been left with nothing. As opposed to the $40,000 I would owe 
under the regular tax code, I have paid over $530,000 to date, still 
owe over $115,000 and cannot get an offer-in-compromise from the IRS 
because it is a legitimate tax liability unless Congress instructs the 
IRS otherwise.
    My story was reported on the front page of the San Diego Union 
Tribune 2 years ago and it has only gotten worse (http://
www.signonsandiego.com/news/state/20050313-9999-1n13tax.html).
    Many ISO AMT liabilities were so incredibly disproportional to 
actual gain, that thousands of families across the country are still, 6 
years after being trapped by ISO AMT, seeking offers in compromise. I 
am hopeful that the IRS will see that Congress intended to also provide 
relief to those that were so completely devastated by the unintended 
consequences of the ISO AMT provisions that they have been unable to 
pay, but so far they have indicated that they will do nothing unless 
Congress instructs them to do so.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions. I 
have made peace with the fact that I will never be made whole again--I 
lost a low mortgage payment, low interest payments, low property taxes, 
the gains I would have made on my 401(k), my house and retirement and 
the things I could not provide my son during his middle and high school 
years--those cannot be restored. I JUST want the chance to start over 
without the huge undeserved albatross around my neck.
    A significant change was made to the relief in H.R. 3385 when it 
was included in the Tax Relief and Health Care Act of 2006, in that an 
income phase-out provision was added that leaves many American families 
with no relief or only partial relief. This phase-out was not a part of 
the widely supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that 
families should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
San Diego, California (my home), Massachusetts, New York, Connecticut 
and Virginia; those families are suffering as much from unfairly 
disproportionate taxation as people with lower incomes in other areas.
    I am grateful to Congress for all it has done and is doing to help 
families across the country suffering from ISO AMT, but I hope they 
will tie up the loose ends that will actually provide the relief they 
intended. Please do not hesitate to contact me at (858) 361-9475 if you 
have any questions.

            Sincerely,

                                                  Angela L. Hartley

                                 

                                                     Brian Hanrahan
                                               Brentwood, Tennessee
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Brian Hanrahan and I am writing on behalf of myself and 
my family, regarding a huge AMT tax debt that we incurred on 
``phantom'' gains due to the application of the Alternative Minimum Tax 
to incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for the last 3 years. 
We struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    My family has suffered greatly due to the treatment of ISOs by the 
AMT. I have had bank accounts levied, my credit ruined, and my marriage 
strained. Somehow we have been able to keep the house but to do so I am 
currently paying half of my salary in installment payments toward my 
2004 ISO AMT liabilities. Unfortunately, this payment mostly goes 
towards interest and penalties. I will not begin to get relief from the 
legislation passed last year until 2008. By the time I receive all of 
my $188,652 credit in 2013, I will have paid $122,624 in interest and 
penalties on the amount owed equaling the outstanding credit.
    I am hopeful that the IRS will see that Congress did not intend to 
provide relief to people who were significantly harmed (but were 
somehow able to pay), but deny relief to those that were so completely 
devastated by the unintended consequences of the ISO AMT provisions 
that they have been unable to pay. In addition, many families had no 
choice but to enter into devastating offers in compromise that are 
subjecting them to crushing ongoing monthly payments that are 
preventing them from properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at 615-364-7934 if 
you have any questions.

            Sincerely,

                                                     Brian Hanrahan

                                 

                                                         Brian Lent
                                               Bellevue, Washington
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Brian Lent and I am writing on behalf of myself 
regarding a huge AMT tax debt that I incurred on ``phantom'' gains due 
to the application of the Alternative Minimum Tax to incentive stock 
options (ISOs) from 1998 through 2001.
    First, I would personally like to thank Congress and in particular 
the Members of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for their significant efforts in the ISO AMT Relief 
passed last year. This relief brings a ray of hope and the beginning of 
the end to a financial nightmare that my family and I have been living 
for nearly 7 years. We struggle to express our deep gratitude for the 
Relief Legislation, which takes a big step forward to restoring fair 
return of tax overpayment credits that were generated when the stock 
value plummeted and ISO AMT tax became grossly disproportionate to any 
gain actually made on the stock.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    I relocated to Seattle in 1998 based on the acquisition of my 
employer by Amazon.com and the resulting promise of value from some 
large ISO exercises. Unfortunately, after triple-mortgaging my present 
house and other property to pay for the AMT taxes these exercised 
entailed, the stock values dropped by more than 95% in value after the 
AMT and IRS taxes were paid and to this day I have a large AMT credit 
with no possibility (without this bill) of using it up in my lifetime! 
Sadly, my average AGI for the past 10 years has been at or below 
$100,000 and only recently has risen above that level, and now after 
all this hard work to pass the legislation I am likely to STILL be 
excluded due to the income phase-outs! If there are to be any phases-
outs at all, why aren't they based on our AGI incomes during the same 
period the ISO AMT was incurred--the time of my deepest poverty.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Washington, Massachusetts, New York, Connecticut and 
Virginia; those families are suffering as much from unfairly 
disproportionate taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Warmest Regards,

                                                         Brian Lent

                                 
                Statement of Coalition for Tax Fairness
    Thank you for your ongoing work and commitment to resolving the 
unfairness and inequities that are severely impacting American families 
and workers under the AMT tax regime.
    CTF respectfully asks for your continued support for helping 
families and workers as they struggle to put their lives back together 
after suffering financial devastation due to the unintended imposition 
of massive taxes on ``phantom income'' when these workers purchased 
incentive stock options from their employers back in 1999-2003.
Extending Needed ISO AMT Relief to Workers and Their Families
    Removing Phase-outs Which Harm American Families. Please remove 
income phase-outs from the relief legislation passed last year, as 
these phase-outs unfairly target families in high cost-of-living States 
such as California, Massachusetts, New York, New Jersey, Connecticut 
and Virginia. Families in those States have been and are suffering as 
much from unfairly disproportionate taxation as people with lower 
incomes in lower cost-of-living areas.
    Many employees are now having to decide whether to quit work in the 
next few months in order to recover their credits, and they are 
wondering how they will then meet monthly expenses and family 
obligations. Companies and the economy will suffer. Other families 
nearing retirement are faced with the reality under the phase-outs that 
they cannot sell their home to move to a retirement community, because 
that will generate income that will preclude them from recovering AMT 
Credits.
    Addressing Ongoing Liability, Interest and Penalties. Many families 
continue to suffer under ISO AMT tax burdens they have been unable to 
pay for 6 years. The Baltimore Sun recently ran a story on one elderly 
couple struggling to resolve their ISO AMT liability under the offer in 
compromise program.
    Please encourage the IRS to resolve these cases fairly and quickly. 
The Coalition for Tax Fairness is working pro-bono with two families 
who have submitted offers in compromise for ISO AMT liability, 
following the passage of the ISO AMT Relief legislation last year. CTF 
is hopeful the IRS will adopt an internal policy position that will 
quickly compromise these liabilities that were based on phantom income, 
without imposing interest and penalties, in order to allow these 
families--and thousands like them across the country--to put this 
nightmare behind them and move on with their lives.
    CTF wants to once again express deep gratitude to Congress for all 
it has done and is doing to help families across the country suffering 
from ISO AMT.

                                 

                                                         Cong Trinh
                                               San Jose, California
                                                      April 4, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Cong Trinh and I am writing on behalf of myself and my 
wife Susan, regarding a huge AMT tax debt that we incurred on 
``phantom'' gains due to the application of the Alternative Minimum Tax 
to incentive stock options (ISOs).
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    In 2001 we were hit with a Federal tax bill of over $250,000 due to 
ISO AMT liabilities. It was quite a shock to us since our average 
Federal income tax has been around $20,000. It was my decision to 
exercise the ISO stocks and to hold for a year to get a long-term 
capital gain but the stock market crashed and my stocks value dropped 
so much that its value was not enough to cover the tax bill and we had 
to refinance the house to get over $150,000 in equity and used all our 
lifetime savings to pay the tax. My wife blamed me for the bad decision 
that I made and we had been in constant fighting that we were 
considering a divorce in late 2001. We had to see a marriage counselor 
to be able to keep our marriage.
    (i) Addressing Ongoing Liability, Interest and Penalties. Many ISO 
AMT liabilities were so incredibly disproportional to actual gain that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    (ii) Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,
                                                 Cong & Susan Trinh

                                 
             Statement of Craig Chesser, New York, New York
    Recent legislation undertaken to correct some of the injustices of 
the Alternative Minimum Tax, while a step in the right direction, do 
not go far enough. The tax code's AMT rules are--by ANY rational 
reckoning--some of the most radically unfair, irrational, and 
inconsistent rules in the entire tax code . . . and we all know how 
much that says.
    The AMT rules as they relate to exercise of Employee Stock Options 
are not only inconsistent with legislative intent, they are grossly 
unfair in how they often result in virtually unrecoverable tax 
liabilities even when the employer stock purchased by the employee is 
ultimately sold at a significant or total loss. Besides multiplying 
losses on stock options and creating devastating financial ruin, the 
AMT rules have the secondary effects of discouraging employee 
investment in employers and undermining any sense of fairness in our 
tax code.
    Employee stock options are not just a compensation perk for the 
already-rich; they are a cornerstone of compensation for emerging 
growth companies that are responsible for much of, if not most of, the 
growth in our economy. These companies, which are usually cash-poor, 
must often rely on granting options to all or virtually all employees 
as one of the only ways available to them to remain competitive in the 
marketplace for talented employees. To penalize employees when they 
exercise these stock options by triggering taxes--often in huge 
amounts--merely because the employees did not sell that stock by the 
end of the year of purchase, is quite frankly beyond ridiculous.
    Payment of AMT taxes does result in a credit of sorts. However, to 
rely on the AMT credit to correct the gross unfairness of taxes paid 
when employee options are exercised fails to recognize that these AMT 
credits are often virtually worthless. Even when the AMT credit does 
result in some sort of recovery, this recovery often takes many years, 
resulting in inflation and the Federal Government being the only 
beneficiaries of a long-term interest-free loan from a working 
American.
    It's distressing that the obvious must be stated even after all 
these years in which Americans have suffered from the bizarre and 
unfair AMT rules relating to stock options: Taxes should be payable 
when gains are realized--not when stock is purchased and held. Any 
taxes paid by employees simply because they purchased stock in 
employers with options and held that stock beyond the end of the year 
of purchase should never have been assessed in the first place, and 
should IMMEDIATELY be refunded.
    I incurred a devastating Alternative Minimum Tax of over $125,000 
when I exercised options in my employer, whose stock became nearly 
worthless before I could sell my shares. It was my first ever stock 
option exercise and even though I was in a finance profession, I was 
unfamiliar with the details of AMT and how it worked. I have since 
found that few tax practitioners have a good working knowledge of AMT 
either. Those who do seem to universally abhor it due in part to its 
complexity, but more importantly due to the way it imposes cash taxes, 
often astronomical taxes, on gains that only exist on paper and may 
permanently evaporate before any realization occurs. Even in cases 
where the ultimate loss realized is total, the present AMT code 
perversely compounds the loss because most or all of the taxes paid on 
the paper gain can be impossible to recover. This of course is a severe 
and blatant violation of any principle of fairness the tax code may 
otherwise strive to achieve.
    I exercised my options in December 1999 with the intent of selling 
the stock after my company announced earnings in February. I exercised 
early because (a) my company's captive broker did not reliably execute 
trades in a timely manner; (b) I had time to do the exercise and 
account setup paperwork and I knew I would have very little time after 
the end of the year; and (c) even as a finance professional, I never 
suspected AMT would have such a hugely devastating, unfair effect--
taxing me on gains I never actually realized.
    I didn't realize that by exercising in one calendar year and 
holding the stock for sale just a short time later, but in a different 
calendar year, I was automatically subjecting myslf to AMT. By the time 
I should have been able to sell, my company prohibited me from selling, 
and I was stuck with the stock, which was rapidly diminishing in value. 
I had exercised the options on margin, and to pay off the margin debt I 
had to sell my house.
    AMT turned what could have been just a lost opportunity to make 
money on stock options into a devastating, life-changing event that 
gutted my savings and cost me my home. All this to pay tax on phantom 
gains that had evaporated by the time I filed my income tax return the 
next year. This is truly the most twisted, broken, and unjust aspect of 
the tax code.

                                 
                        Statement of Dan Taylor
    Thank you for the opportunity to submit this letter to detail the 
hardships my family has faced as a result of the Alternative Minimum 
Tax. My name is Dan Taylor and I am writing on behalf of my wife Vicki 
and my children Trent and Stephanie. I write to you today to beseech 
you to provide a remedy to taxpayers and families who have been 
financially blindsided by the antiquated tax code that is the 
Alternative Minimum Tax, especially as it applies to Incentive Stock 
Options (ISOs).
    In January 1998, I was hired by GeoTel Communications in a sales 
position to sell telecommunications software. As an incentive to work 
for this small company, I was granted ISOs as part of my compensation 
package. These options would vest over time and I would have the 
opportunity to receive additional grants for meeting performance goals, 
which I did. This was the first position that I held in my career where 
I received any form of stock option with my only investment experience 
being through personal IRAs and company sponsored 401Ks, so I would 
consider myself an unsophisticated investor. I did not know one type of 
stock option from another, which would prove to be catastrophic to me 
and my family later.
    In June 1999, GeoTel, with revenues of approximately $40 million, 
was purchased by Cisco Systems for $2 billion, or 50 times sales. I 
received a bit more than one share of Cisco stock for every share of 
GeoTel that I was holding an option on, so this made my accruing 
options very valuable. In June 2000, I left Cisco Systems to pursue 
other interests and was required to exercise the options and purchase 
Cisco stock or lose all the options at no value. I used some options 
granted while I was a Cisco employee, Non-qualified (NQs), to purchase 
the ISOs that I originally received from GeoTel. The NQs were taxed as 
I bought and sold them as ordinary income and the proceeds from the 
sale were used to purchase and hold the ISOs. I purchased 28,000 shares 
of Cisco stock for $4/share on a day that it was selling in the open 
market for $62.
    All of these transactions were made with the help of a 
professionally licensed financial consultant. Every effort was made on 
the part of my wife and me to handle this financial blessing properly 
with regard to income taxes. We were advised that we would be taxed 
when we sold the ISO-based shares. The resulting tax would be at the 
long-term capital gains rate if we held the stock for 1 year. We were 
never advised that we had created a taxable event on the day that I 
purchased the stock with a tax liability of approximately $500,000 
triggered by the AMT as it is applied to the exercise of ISOs.
    Through late 2000 and spring 2001, the value of the stock 
plummeted. Vicki and I filed our taxes using the accountant recommended 
by our financial consultant for the 2000 tax year. We were not asked 
any questions about our stock transactions other than to provide the 
1099 for the exercise of the NQ based options. We were not asked to 
provide any records for the ISO based options despite the fact that we 
revealed to the accountant that I had exercised the options in June 
2000.
    In May 2001, I learned through a colleague from GeoTel that he had 
paid a tremendous tax bill centered on the exercise of his ISO shares. 
We both agreed that our situations were similar enough that I needed to 
research and confirm that my taxes had been filed properly. Much to my 
horror, I learned that Vicki and I had indeed filed our return 
improperly. Though we had paid over $125,000 in Federal taxes, we owed 
an additional $438,000 on W-2 income of approximately $350,000. The 
additional tax was generated solely by the AMT associated with the ISO 
stock purchase. I had not sold one share of that stock during 2000. The 
value of the stock was now less than $125,000.
    We did not have the money to pay the taxes, but I was confident 
that if we came forward voluntarily that we would be treated fairly and 
equitably by the Internal Revenue Service. There was no audit trail, 
but I wanted my children to see that we should do the right thing even 
when no one is watching. I expected the outcome to be painful, but 
nothing like what we have experienced.
    Everyone that we have come in contact with at the IRS has expressed 
sympathy for our plight, but very quickly made the point that they have 
no latitude in how the collection process is enforced. The guidelines 
are the guidelines. There are no allowances for anything, only formulas 
that are something out of the 1950s. After 2\1/2\ years, we were able 
to reach an agreement on an Offer in Compromise in October 2004. My 
family and I will pay $372,000 over 2 years or about $14,500 per month. 
This will require us to sell our home, use all of our savings and tax 
deferred retirement accounts, and my son will have to leave a 4-year 
university and attend junior college.
    Is this how the tax laws are supposed to work? Are they to be a 
snare that catches unsuspecting citizens and devastates them 
financially? If financial professionals do not understand how the AMT 
applies to stock options, how can the average citizen be expected to 
understand and comply with this law?
    Thousands of Americans have been caught in this snare, not just my 
family. Only Congress can provide a remedy that will insure that more 
families will not face similar circumstances. I believe and have faith 
that you will enact legislation to abolish the current AMT tax law and 
replace it with more straightforward tax code that the general public 
can understand. I believe and have faith that you will provide a remedy 
and relief to families such as mine with some type of retroactive 
abatement of taxes from ISO triggered tax bills. Why do I believe and 
have faith that you will do this? The U.S. Congress has the authority 
to do so, and it is the right thing to do. Thank you.
Addenda
    This tax has affected our family in every area of life. We have 
been uprooted, literally and figuratively. We have paid our tax bill, 
but at great personal cost. Our savings and retirement funds are gone. 
Our credit report reflects the situation, which, in turn has forced us 
to pay much higher interest rates on the mortgage for our current home. 
It has affected us in intangible ways, too. The feeling of 
powerlessness in this tax condition has bled into other areas of our 
lives, including physical and emotional health, and being able to 
effectively provide for our family, and continues long after the tax 
has been paid.
    The AMT tax law is far more than leaving a position, the decision 
to exercise a stock option, or a dollar figure on a tax return. It 
affects individuals and families for years.
    Anything that would allow us to accelerate the tax credits to the 
shortest time possible would be greatly appreciated.

                                 
             Statement of David W. Moyle, Beaverton, Oregon
    The Alternative Minimum Tax is bad government policy on a number of 
fronts:

      It is unfair.
      It has stifled economic recovery.
      It is very difficult to understand.

    My situation is this: I am a mid-level manager at Intel Corporation 
where I've worked for 20 years. During my first 10 plus years at Intel 
I received incentive stock options. During the late 1990s and early 
2000, the value of these options soared about the same time they were 
ready to expire. Believing in Intel's long-term future, and the 
incorrect assumption that long-term gains would be taxed more favorably 
than short-term gains, I purchased the shares and held them. As a 
result, I began to trigger the AMT.
    In 2001, in particular, I generated more than $400,000 in AMT based 
on paper gains. Then, the stock market crashed and Intel stock went 
from a high of $75 to a low under $13 per share. My alternatives were 
to sell my shares to pay my taxes and have nothing left over, or take 
out margin loans in the hope that Intel would rise again someday. To 
this day, I have a $500,000 AMT credit, most of which I will never get 
back. This tax is based on phantom profits . . . in other words, money 
I never made.
    Below is why I believe the AMT is unfair, has stifled economic 
recovery, is very difficult to understand, and has created taxpayer 
resentment.
The AMT is Unfair
    Enron-style accounting: In calculating the AMT, taxpayers must 
calculate paper gains on stock option shares we have purchased, but not 
sold, and treat it as income. In other words, no real profit has yet 
been made. The regulations practically require us to do Enron-style 
accounting to show phantom profits as if they were real, and then pay 
taxes on them.
    It's not really a credit: As I began to pay AMT taxes and build a 
``credit,'' I naively assumed I would readily get this back once I 
finally sold the stock. While this could happen if the stock ever 
reaches its former lofty heights at which I was taxed, most of us get 
only a small portion of this ``credit'' back, at a rate of only $3,000 
per year. At this rate, I'll have to live to be 213 years old before I 
get the credit back.
    Interest free loan to the government: If we under-pay taxes, the 
IRS assesses interest on taxpayer accounts until we pay in full. In the 
case of AMT, I have grossly overpaid my taxes, and rather than 
receiving interest from the government for my pre-payment of taxes, I 
had to take out a loan and pay interest to pay taxes on money I never 
made. In essence, I have given a $500,000 interest free loan to the 
government . . . and the government will in all likelihood return only 
a fraction of the loan.
The AMT Has Stifled Economic Recovery
    Discretionary Income Has Gone to Payoff Loans Used to Pay Taxes: 
Because AMT taxes on ISOs were based on phantom profits, many of us did 
not have the cash to pay our huge tax bills when the stock market 
crashed. In my case, I had to take out a $375,000 loan to pay taxes. My 
interest payments were double my house payments. Prior to having the 
huge tax bill, I was shopping for a mountain cabin to enjoy with my 
kids while they're still living at home. We obviously scrapped this 
plan. We were beginning to plan an international vacation. We scrapped 
this too. We planned to make some upgrades to our home. We scrapped 
these plans as well. Basically, all our discretionary income went to 
pay off our loan to pay taxes ON PROFITS WE NEVER MADE.
The AMT is Very Difficult to Understand
    Confusing and Contrary to Existing Tax Incentives: The AMT requires 
us to calculate our returns two ways. A ``credit'' is not really a 
credit. A paper profit is treated as a real profit. It is very 
difficult to do financial planning because many tax incentives and 
normally wise investment strategies, such has holding investments for a 
year or more, can actually put us at great risk with AMT.
    Taxpayer Resentment: Although I can't say I have always enjoyed 
paying my taxes, I had always viewed it as a necessary responsibility 
of citizenship. The AMT has left me very confused and frustrated and 
quite frankly resentful of our tax policy. I feel that the government 
has taken advantage of me. I feel ``robbed.'' After years of growing my 
equity, I am now in worse shape than I was 5 years ago because I was 
taxed on profits I never made. To date, no one has done anything to 
address this inequity. My hope is that your Committee will be able to 
do something. In priority order, I would have you:

      Refund ``credits'' . . . or let us use the credit against 
all taxes owed, not just future AMT taxes. If this is not done, pay 
interest on the ``loan.''
      Eliminate the AMT altogether . . . or at least go back 
and truly address the reasons it was created in the first place.

Dear Congressman Neil:

    I am very grateful that Congress is providing some relief to those 
of us who have paid AMT taxes and built AMT ``credit'' on phantom 
profits from the purchase of Incentive Stock Options. I place quotation 
marks around the word ``credit'' because, to my dismay, I discovered 
that it's not really much of a credit at all. Before the AMT relief was 
passed in December, I had little hope of ever recouping the ``credit,'' 
unless I lived to be over 200 years old!
    As grateful as I am that relief was passed, I was disappointed that 
Congress added a phase-out option. In my opinion, an unfair tax is an 
unfair tax, regardless of income level. I also want to point out an 
unintended consequences of having an income phase-out . . . it may in 
fact provide a disincentive to work. In my case, my wife is a homemaker 
who is considering returning to the workplace since one daughter is in 
college, the other a sophomore in high school. However, if she were to 
return to work, it may put us over the phase-out income level. 
Basically for each dollar she earns, we would receive less AMT money 
back, providing a huge disincentive for her to work.
    For this reason, as well as outright fairness, I urge your support 
in eliminating the income phase-out on AMT reform legislation.
    Thanks for your support.

                                 

                                                     Deborah Watson
                                                   Portland, Oregon
                                                      April 5, 2007
The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Deborah Watson and I am writing on behalf of myself and 
my husband, Allen Watson, regarding a huge AMT tax debt that we 
incurred on ``phantom'' gains due to the application of the Alternative 
Minimum Tax to incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims. These issues 
are (i) ongoing ISO AMT liability and associated interest and 
penalties, and (ii) the income phase-outs that leave many families with 
limited or no relief. These are discussed in more detail below, but 
first I would like to briefly tell my family's story.
    Early in 2000, my husband and I took steps to prepare for 
retirement by exercising Incentive Stock Options (ISO). Due to the way 
that the IRS treats Incentive Stock Options and Capital Gains, we 
needed to hold the stock for at least 1 year. Under the Alternative 
Minimum Tax rule, we were taxed at the market value on the day of 
exercise even though we didn't sell the shares. In order to set aside 
enough money to pay the AMT--a staggering amount of nearly a quarter of 
a million dollars ($246,000)--we had to sell even more stock that we 
had set aside for retirement. We then had to pay taxes on those assets, 
as well. Now our tax burden--above and beyond what we paid in income 
tax deducted from our salaries--was nearly a half a million dollars 
($493,000)! We are not wealthy people. I am not a senior executive. I 
have simply been working at the same company for many, many years and 
have been awarded stock options for my hard work. My husband was a 
police officer. This situation has entirely depleted the retirement 
that we have been accumulating for 20 years.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at [Your Contact 
Information] if you have any questions.

            Sincerely,
                                                  Deborah M. Watson

                                 

                                                        Eric Delore
                                                Alameda, California
                                                        May 7, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Eric Delore and I am writing you from California's 
Thirteenth Congressional District on behalf of myself and my family 
regarding a huge AMT tax debt that we incurred on ``phantom'' gains due 
to the application of the Alternative Minimum Tax to incentive stock 
options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
express our deep gratitude for the Relief Legislation, which takes a 
big step forward to restoring fair return of tax overpayment credits 
that were generated when the stock value plummeted and ISO AMT tax 
became grossly disproportionate to any gain actually made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below.
    How has this AMT situation affected me personally? I owe $420,000 
of Alternative Minimum Tax (AMT) on under $5,000 of actual income 
derived from the sale of frightfully deflated Incentive Stock Options 
(ISOs). For more about my story, please see http://www.ericdelore.com/
weblog/amt/.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at 510-390-4015 if 
you have any questions.

            Sincerely,
                                                        Eric Delore

                                 

                                                        Gerald Marx
                                              San Diego, California
                                                      March 3, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Gerald Marx and I am writing on behalf of myself and my 
family, regarding a huge AMT tax debt that we incurred on ``phantom'' 
gains due to the application of the Alternative Minimum Tax to 
incentive stock options (ISOs). I reside in the 50th Congressional 
District in California.
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    In Year 2000, I exercised ISOs and incurred approximately $39,000 
in AMT. This depleted my family's financial savings. As a result, in 
Year 2001 and 2002, we maintained a strict budget where a few dollars 
did not get unnoticed. This was especially true with a new baby in the 
family. I have recovered approximately $35,000 of the original AMT but 
unfortunately, we will be subject to AMT this year so the ultimate 
recovery is still at least a few years away.
    I know of several people who were subject to AMT due to ISO 
exercises in Year 2000. One individual that I know incurred 
approximately $500,000 in AMT. He was financially broke after that 
experience. Tough financial times were had by all of these people.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,
                                                        Gerald Marx
                                 

                                                       Hans Lachman
                                          Mountain View, California
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Hans Lachman and I am writing to you regarding a huge 
AMT tax debt that I incurred on ``phantom'' gains due to the 
application of the Alternative Minimum Tax to incentive stock options 
(ISOs).
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my story.
    In 2001, due to AMT, I was assessed an income tax that was about 
twice my annual income, and I paid the tax in full. Over the next 
several years, I sold the stock that caused the AMT assessment, but the 
actual gain was far less than the ``phantom'' gain that I had paid 
taxes on. The result was a large AMT credit balance that I would have 
never recovered without the relief that was passed in 2006. Although I 
am not subject to interest and penalties, and probably not subject to 
the income phase-outs (see below), I am sympathetic toward those who 
are subject to same, and I believe it is important to provide further 
relief to those who are in those situations.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me as indicated below, 
if you have any questions.

            Sincerely,

                                                       Hans Lachman

                                 

                                         Eldersburg, Maryland 21784
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Heather Youskauskas and I am writing on behalf of myself 
and my husband, John Youskauskas, regarding a huge AMT tax debt that we 
incurred on ``phantom'' gains due to the application of the Alternative 
Minimum Tax to incentive stock options (ISOs).
    John and I would first like to thank Congress and in particular the 
Members of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    John and I would respectfully ask for your continued support for 
important issues that remain unresolved for many ISO AMT victims, my 
family included. These issues are (i) ongoing ISO AMT liability and 
associated interest and penalties, and (ii) the income phase-outs that 
leave many families with limited or no relief. These are discussed in 
more detail below, but first I would like to briefly tell my family's 
story.
    It was in 2000 when all of the tech stocks boomed and hit Wall 
Street. I started working for a ``Start-Up'' so they called it and one 
of the benefits was Incentive Stock Options or (ISOs). I never realized 
what was about to happen to us as we were not provided detailed 
information and tax/financial consultants were not really seasoned on 
Alternative Minimum Tax (AMT). In the end we were given shares to 
exercise and did so; however, not without incurring a huge AMT to be 
paid the following year. We of course never made a dime on these stock 
options as the stock plummeted after being one of the largest IPOs to 
hit Wall Street and I was locked up from selling them for a period of 
over 6 months. The IRS of course was not sensitive to this and demanded 
the money owed, but we did not have it as we did not gain anything. I 
do understand tax levied on real income. I do not understand how tax 
can be levied on phantom income from anyone whether white collar, blue 
collar or destitute. This needs to change. (``Please also see the 
attached letter telling my personal story.'')
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at [Your Contact 
Information] if you have any questions.

            Sincerely,

                                                   John Youskauskas
                                                Heather Youskauskas

                               __________

To Whom It May Concern:

    The spirit of Naziism, Socialism, and Communism has found a 
protective incubator in the IRS. In other words, the IRS has become a 
police state, an entity so independent that it rules, as does no other 
area of our government, with utter disregard, indifference and 
hostility toward the populace. It is astounding that those words, 
thoughts, and feelings of contempt would be vocalized by me. The issue 
of injustice concerns a young couple in their early 30's, Heather and 
John, parents of a 10-year-old boy and a 1-month-old baby girl. They 
are middle Americans, both hard working. Heather's company went public 
1 year ago in July and was the largest IPO to hit Wall Street raising 
capital in excess of $400 million. On the day she was hired with the 
company, she was given Incentive Stock Options (ISO's), which was the 
norm at that time warranting lower salaries and possibly attracting 
more experienced employees. At the time of the gift, the value of the 
stock was $1.15 a share. They were told that the stock could not be 
sold, traded, disposed of in any lucrative way for 6 months (with 
additional lockup periods each quarter due to her being considered an 
``insider'') she was forced to sign a Lockup Agreement. Then, during 
this period of no-sale, two things happened. The value of the stock 
went from $114 to $25, and another tax year was entered. Also, even 
though they were prohibited from selling, the IRS valued the stock as 
though it was income, which it was not and subsequently levied the tax 
along with penalties and interest, as they could not afford to pay.
    She was not allowed to cash in this ``gift,'' and so received 
nothing from it. However, on paper, the stock was highly valued, as 
were so many of those high-tech companies. Consequently, the IRS, 
seeing dollars on paper, declared that Heather and John owed 
approximately $83,000 in taxes (due to the Alternative Minimum Tax Laws 
or AMT); however, after interest and penalties over a 6 month period, 
they now owe $96,000 and have been forced to hire a tax attorney to 
assist them in dealing with the IRS. Shocking, as their net worth or 
income nowhere approach this number and have greatly decreased due to 
the downward market trends.
    I do understand tax levied on real income. I do not understand how 
tax can be levied on phantom income from anyone whether white collar, 
blue collar or destitute. Not only have they not received a penny from 
the stock, but real money will be paid to satisfy this levied burden--
monies which have already been taxed once because that is how the IRS 
tax laws are written. In addition, they will literally be loaning the 
IRS money interest free, but will have to take approximately 28 years 
to get it back through tax credits as you may only claim a certain 
amount each year. Thus, shattering any hopes of putting money away for 
their children's education, not to mention possibly being forced to 
file for bankruptcy to alleviate paying other debts in order to pay the 
tax bill. Is this really what the ``Land of the Free'' is all about? 
Please tell me that I have misunderstood and there is some way to 
rescue them?? The young folks tried explaining their situation to the 
IRS officials. The ``kinder'' IRS folks retaliated by telling them to 
sell their home of 2 years, their cars, turn over their savings account 
and all their monies in their IRA's. The ``kinder'' IRS was indifferent 
to the fact that the couple never received any distribution from the 
stock. The ``kinder'' IRS was indifferent that the young mother was 
placed on disability because of pregnancy complications and then 
subsequently laid off from the company, whose stock has now plummeted 
to $.70 a share. The ``kinder'' IRS was indifferent to the mother's 
concern over the baby's heart murmur and breathing problems. The 
``kinder'' IRS told her to find a job soon so that she could begin to 
pay these taxes. Obviously the ``kinder'' IRS honors money ahead of 
motherhood and family values. The ``kinder'' IRS would not take into 
consideration that it would cost more than $700 per month for child 
care for the baby, and that this amount would not cover any before and 
after school care for the 10-year-old son if she went back to work. The 
``kinder'' IRS would not listen to the mother's physical needs, which 
are recovering from the Caesarian section, leaving her a bladder with 
no sensation. The ``kinder'' IRS does not understand kindness. The 
``kinder'' IRS is unable to quantify a situation. The ``kinder'' IRS 
can only see numbers on a paper and is indifferent to the honest 
situation surrounding those numbers. As I said in the beginning, the 
``kinder'' IRS is its own Gestapo State.
    This problem is perceived by U.S. Congress as being inappropriate, 
but measures to correct it in the House were defeated by reasons 
unknown. However, my understanding is that while these measures were 
defeated, government respectfully asked that the IRS not go after 
victims of this nature. Maybe this is the government's way of taxing 
the rich and protecting the lower- and middle-income citizens; however, 
this type of situation has hurt many middle Americans and will continue 
to do so unless something is changed and fast. Taxpayers should not be 
forced to pay tax on income that never materializes in order for the 
IRS to protect their interests up front from any massive overall gain. 
How the government can stand by and watch this happen to so many, I 
will never understand. Especially in a time when things are so tough 
financially.
    In closing, I would like to say that I have always loved the simple 
fact that I am an American. Nothing filled me with more pride than 
being from a country that fought so hard for its freedom and protecting 
its own other than watching my children smile and reach for their 
dreams. Living the ``American Dream'' is all I ever wanted. However, it 
has been a long cold year and I fear that my pride is turning to hate 
and utter contempt for my country for the simple fact that we can run 
to protect so many other countries, forgive foreign debts beyond 
comprehension, and pardon those who honestly do not deserve it, but 
when given the chance to truly help our own, we refuse or reply, ``I'm 
sorry, but that is just the way it is.'' Please tell me that this is 
not the way it is and that we can rest knowing that this will be taken 
care of because it is truly not right? Please tell me that I do not 
have to explain to my children why we could not put away money for 
their education and other things and pray they do not develop mere hate 
and contempt as well, but rejoice and give thanks that we live in a 
land where people are truly merciful??

            Bitterly,

                                         John & Heather Youskauskas

                               __________

March 17, 2005

    In continuation of this letter written in 2002, we have been 
through many trials and tribulations in order to free ourselves of this 
battle with the ``phantom'' AMT and finally have been successful. While 
it took the assistance of a seasoned tax attorney, and of course money, 
nothing can compare to being relieved of this issue. We originally owed 
the IRS in excess of $120,000 after all of the penalties and interest 
had accrued and with the help of our attorney we realized that we 
should not have owed the tax to begin with as our situation was unique 
based on the IRS laws and regulations. We wonder how many others have 
suffered as we have for over 2-3 years trying to bring resolution to 
their cases and been unsuccessful. We still await our tax credits and 
only in increments of $3,000 each year, but we guess that is a small 
price to pay compared to what we were originally told that we owed.
    Please don't misunderstand, we may have solved our issue; however, 
we strongly feel that the way tax laws are currently written that many 
people have suffered and will continue to suffer unjustly until the AMT 
is reformed to bring balance to American taxpayers. No one should be 
forced to pay taxes on phantom money or money that may never be 
realized. This is nothing but a benefit to the IRS in collecting money 
up front when possible losses are at stake. Not to mention, the 
corporations have no liability in these matters when they reward 
employees with stock options and refuse to educate them as well.
    Thank you for the opportunity to share our story. We look forward 
to the ``new'' reformed AMT.

                                 

                                               Larkspur, California
                                                        May 7, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    I am writing on behalf of myself and my family, regarding a huge 
AMT tax debt that we incurred on ``phantom'' gains due to the 
application of the Alternative Minimum Tax to incentive stock options 
(ISOs). This grossly unfair tax, which in my case amounted to an 
effective tax rate of 106% on stock sales, cost me everything I owned. 
I lost my home, life savings and children's college funds as a direct 
result of the AMT.
    I would like to thank Congress and in particular the Members of the 
Ways and Means Committee and Select Revenue Measures Subcommittee, for 
the ISO AMT Relief passed last year. This relief brings a ray of hope 
and the beginning of the end to a financial nightmare that my family 
and I have been living for nearly 7 years. We struggle to express our 
deep gratitude for the Relief Legislation, which takes a big step 
forward to restoring fair return of tax overpayment credits that were 
generated when the stock value plummeted and ISO AMT tax became grossly 
disproportionate to any gain actually made on the stock. Unfortunately, 
the bill does not provide any relief in my case.
    For this reason, I would respectfully ask for your continued 
support for important issues that remain unresolved for many ISO AMT 
victims, my family included. These issues are (i) ongoing ISO AMT 
liability and associated interest and penalties, and (ii) the income 
phase-outs that leave my family with no relief.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes or in the case of a death of a relative who left some of their 
estate, are left with the Hobson's choice of forgoing some or all of an 
intended credit refund because your collective AGI exceeded the Cap 
thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,

                                                   Herman Bluestein

                                 

                                                Seattle, Washington
                                                      April 3, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
The Honorable Jim McDermott
Select Revenue Measures Subcommittee
1102 Longworth House Office Building

Dear Chairman Neal, Ranking Member English and Honorable Jim McDermott:

    My name is Jeff Damir and I am writing on behalf of hard working 
Americans who still need your help to deal with huge AMT tax debts that 
due to ``phantom'' gains due to the application of the Alternative 
Minimum Tax to incentive stock options (ISOs).
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope to impacted families. The Relief Legislation was a 
big step forward.
    I would respectfully ask for your continued support for an 
important issue that remains unresolved for many ISO AMT victims. Many 
ISO AMT liabilities were so incredibly disproportional to actual gain 
that thousands of families across the country were unable to pay.
    Even after the ISO AMT Relief legislation passed last year, the IRS 
is still pushing to collect AMT related liabilities, interest and 
penalties. While it is illogical that the IRS would actively be 
collecting AMT liabilities related to a law that stipulated that IRS 
will refund the taxpayers money, it is unfortunately the reality that 
faces many American families.
    I am hopeful that the IRS will see that Congress did not intend to 
provide relief to people who were somehow able to pay, but deny relief 
to those who were so completely devastated by the unintended 
consequences of the ISO AMT provisions that they have been unable to 
pay. Unfortunately, the IRS continues to push collection activities and 
drive American families into bankruptcy to pay ISO AMT liabilities. The 
IRS appears to be operating as if the Congress has not changed the law.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families have struggled and 
suffered for almost 7 years desperately need ISO AMT liabilities, 
interest and penalties abated, or they will continue to be caught in 
the downward spiral.
    Recently, I was playing a computer game with my 8-year-old son. 
During the game, the narrator discussed the Boston Tea Party and how 
the colonist felt they were being unfairly taxed without 
representation. My son and I discussed that the colonist became very 
upset, and in turn, the unfair taxation led to resentment, protest, and 
the Declaration of Independence. For the past 6 years, American 
families have endured the IRS demanding payment for taxes that are 
unjust and unfair and many families have been devastated, driven into 
bankruptcy, . . .
    I hope that you and leaders of our great country finish this 
important work and reform AMT to address all the families impacted and 
devastated by this unjust tax.
    In conclusion, I want to express my gratitude for your support and 
efforts to reconcile this unfair situation and helping families across 
the country suffering from ISO AMT.

            Sincerely,

                                                         Jeff Damir

                                 
           Statement of Jeffery Chou, Foster City, California
    Thank you for giving me the opportunity to write to you concerning 
the Alternative Minimum Tax. Specifically, I would like to address 
Alternative Minimum Tax's treatment of Incentive Stock Options.
    My name is Jeffery Chou, and I have a wife and two daughters--one 
is 6 years old, and the other is 3 years old. We currently face an AMT 
bill, from exercising Incentive Stock Options, which is greater than 
all our assets.
    In 1996, I left a secure, stable job at a large company to help 
start a communications company as an engineer. My compensation 
consisted of an annual salary of $80,000 and Incentive Stock Options. 
Cisco Systems eventually acquired us. It was a happy time for my 
family, thinking that my hard work in helping to build a company would 
finally pay off.
    In 2000, we decided to exercise my stock options, and were advised 
to hold the stock for 1 year. We did not and do not live extravagant 
lifestyles. We live in a 3-bedroom townhouse--I drive a 1997 Toyota, 
and my wife drives a 1998 SUV. We have good credit and have always paid 
our taxes in full and on time. In April 2001, following my exercise of 
the Incentive Stock Options, we faced Federal and state taxes of $2.4M, 
more than 6,000% of our normal income tax and more than everything we 
owned. We also faced an ethical and moral dilemma. As we sought 
professional help to deal with this tax liability, several CPAs advised 
us not to comply with the law--to simply omit reporting the exercise 
and the tax. We discovered that the AMT on exercising stock options is 
a self-reported tax. Many of my friends and colleagues took this 
approach, did not report their exercise of stock options, and to this 
day, live happy lives.
    However, we decided to ``do the right thing'' and comply. We had 
faith that our country, in return, would also ``do the right thing'' 
and not ruin its honest taxpayers. Since then, the IRS has sent us 
threatening letters, placed a lien on our names, attempted to levy our 
accounts, and actually visited our house demanding payment. The IRS 
rejected our Offer In Compromise and we appealed. The appeals officer 
admitted to us that our offer was in good faith and was reasonable, but 
that he still could not accept it.
    I do know that those who did not report are certainly glad they 
didn't. And I also know that among the many honest people I have met 
over the last 6 years whose situation is similar to mine, few or none, 
if faced with the same choice, would comply again. Why volunteer for a 
100% guarantee of ruin, when you can win the audit roulette 99.9% of 
the time? My friends, if caught, will simply claim ignorance of the 
law. I am told it will be hard to prove that they were not ignorant of 
the law given how many tax experts are unaware of the consequences of 
the interaction of the AMT with Incentive Stock Options.
    You may ask ``Why didn't you sell?'' We are not sophisticated 
investors. I am an engineer; and my wife is a stay-at-home mom. We 
listened to advice that told us to hold for 1 year. At the time, I had 
no knowledge of diversification or hedging strategies. I worked 12-hour 
days trying to build products and meet schedules. At night, I returned 
home to help my wife with our newborn daughter. That was my life. In 
addition, our CEO, all throughout 2000, even as late as December, kept 
touting Cisco's optimistic future, saying ``we will be the most 
powerful company in history,'' ``we are growing 30 to 50% every year,'' 
and ``we are breaking away from our competitors.'' At the time, he was 
never wrong before, so I felt no sense of danger for my job, for my 
company, or for the stock. I had faith in my company and its leaders.
    Last year, Congress heard our cries for help and passed H.R. 3385, 
which refunds AMT credits over a period of 5 years. This is certainly a 
great step in the right direction. But, it still does not address those 
people who were not able to pay the tax in the first place. Under the 
new law, I will get a refund of my credits over the next 5 years, but I 
will still owe more in penalties and interest than all my assets after 
that. I sincerely ask Congress to help address this issue--to abate 
penalties and interest on taxes that will be returned to us over the 
next 5 years.
    This is the highest priority of my life. Please do not hesitate to 
contact me any time for any reason.

                                 
                        Statement of Kelly Baird
    How would you like to pay taxes on money you never had? The AMT is 
forcing U.S. citizens to pay taxes on a losing lottery ticket. Here is 
my story . . .
    In 1998, I joined a startup company, Ariba, Inc. I was offered 
Incentive Stock Options (ISO) as was every other employee at Ariba. I 
exercised 25,000 unvested shares of my ISO on Oct. 10, 2000. I would 
not vest (i.e. I did not own and I did not have the ability to sell) 
those options until Oct. 10, 2001. On April 16, 2001, I was forced to 
pay $1,000,000 in AMT because I purchased those options. Those options 
are now worth $100,000 or 10% of my AMT bill. I have yet to see one 
dollar of profit from any of those shares.
    I have lost my families' savings. I am on the verge of losing my 
home that my husband and I have worked so hard to keep. My economic 
freedom has been ripped from me just because I purchased a losing 
``lottery ticket'' called stock options. Worst of all because of my 
actions, I have made my husband and my two children suffer for my 
lottery ticket purchase.
    If I had won the lottery or had sold my stock options, I would 
gladly pay my fair share of taxes based on the lottery ticket winnings 
or sales price of the stock. But, that is not how the AMT works. 
Instead, you still have to pay taxes even on your losing lottery ticket 
and money you never made. How can we live in a country that holds 
freedom so close to our hearts and yet taxes middle class, law abiding, 
and tax paying families for earnings we never had?
    The AMT was never designed to tax middle-class families like mine 
in such a cruel and unfair manner. The AMT is a complex set of tax laws 
originally passed in 1969 designed to address a small group of super-
wealthy individuals who were hiding their wealth from the IRS in the 
form of illiquid assets. I am not a ``super-wealthy individual.'' My 
name is not Rockefeller, Vanderbilt, Kennedy, Gates or Ellison. Why 
have I been subject to AMT if I am not a ``super-wealthy'' person and 
never saw ANY earnings for the AMT taxes I had to pay?
    In addition, since the inception of AMT in 1969 it has never been 
adjusted for inflation. If the AMT had been adjusted for inflation, my 
family would have never been forced into this situation. Why has my 
family been punished because of a major inflation adjustment oversight?
    The AMT must be reformed in order to bring it back to its original 
intent--ensure the super-wealthy pay their fair share of taxes and to 
ensure that you pay taxes on your actual earnings.

                                 
           Statement of Kevin R. Frank, Cary, North Carolina
    I am in a very bad situation because of the tax liabilities that 
were generated in year 2000. Because of the economic downturn of the 
telecommunication industry, I was laid off from Cisco in March of 2000. 
This situation forced me to execute the NQ stock options I had 
accumulated over the 5+ years I had worked at Cisco or loose them 
forever.
    I did not know the single act of executing NQ stock options becomes 
a taxable event in the eyes of the IRS. I did not sell stock; I did not 
receive any cash; I did not realize any gain whatsoever in this 
transaction--not a single dime!
    Because of the complexity of the tax forms, I paid a CPA $900 to 
prepare my taxes and tell me I owed $1.7 million in taxes for the year 
2000 even though I make less than $100,000 a year! How can this be? The 
CPA office that prepared my taxes commented to me:

          ``This is the most unfair and unfortunate tax return our 
        office has ever prepared. Many officers have verified the 
        accuracy of your return and we believe it to be correct.''

    I was a habitual saver and lived a very meager lifestyle. At the 
time I executed the NQ stock options, I lived in a 1,400 sq. ft. house 
with my wife, a dog and a cat. I drove a 1979 F100 pickup, no air, 
manual steering, 3-speed on the column, 160,000 miles--worth about 
$600. My wife drove a 1987 Olds Cutlass with 224,000 miles. I did not 
live the life of our executives--I was just an engineer trying to save 
for a brighter future.
    The Cisco stock that I bought declined more than 80%. I sold 
everything and took out multiple loans to pay the IRS. Because of my 
prior savings, my meager lifestyle, and the kindness of my bank; the 
IRS received the money April of 2001. My bank has given me two 
interest-only loans. Today, I live in a 60  14 trailer by 
myself. My wife and I divorced in 2004. I still drive the same Ford 
pickup (over 200,000 miles now). Seventy percent of my salary goes to 
maintaining these loans, which I have been paying for over 4 years now.
    This unfortunate situation has taken my financial future from me. I 
am addressing this letter to you so that you may know how this stealth 
tax is destroying the lives of so many common people, like me. It is 
just plain wrong to tax people of all of their assets when they have 
realized no financial gain whatsoever.

                                 
        Statement of Larisa and John Bickel, Cedar Rapids, Iowa
    Over the past few years numerous articles have been written 
articulating the impact of the Alternative Minimum Tax. While much 
effort has been made in providing relief there is still considerable 
work to be done. Having worked for McLeodUSA, CLEC based in Iowa, since 
graduation from college I have experienced the roller coaster of the 
tech boom and bust. While we have been very careful to live within our 
means we have also been impacted significantly.
    We have lived a very conservative lifestyle and thought we were 
planning responsibly for the future of our family. We have a son who is 
7 years old who was born prematurely with a hearing loss and multiple 
other issues that have required hearing aids (which insurance does not 
cover), physical therapy, occupational therapy and speech therapy to 
this point. Because of our prior financial planning and saving, we had 
always been able to meet his needs financially. Fortunately our 5-year-
old son was born without such complications.
    In the fall of 2000, we vested a portion of my McLeodUSA stock 
options for the first time when the stock was at $18. We borrowed 
almost $40,000 to pay for the stock. We did not sell any of the options 
in anticipation of ``holding the stock for 1 year after exercise in 
order to avoid taxation at the ordinary income on the value at the 
point of exercise.'' As a result, we paid approximately $80,000 in 
alternative minimum taxes. We were able to pay for about one-third of 
this out of our own savings, but then had to take out a home equity 
loan for the remaining two-thirds.
    The stock's value plummeted, and the company filed for bankruptcy 
leaving the stock valued at $0--leaving us with essentially nothing of 
value to sell and burdening us with the reality that we took a $50,000 
loan for the alternative minimum tax which is essentially an interest 
free loan to the government because we can not simply obtain a refund 
of the overpayment. We also owe $40,000, the purchase price of the 
stock, which is now worthless. The reality is that this situation has 
been devastating for us. We are overwhelmed by the burden of the debt 
created by paying this tax. Because of paying this tax, we are unable 
to start a college education fund for our son, provide the financial 
resources needed to fund the special help he will require during his 
primary school years, and fund our retirement account. We are forced to 
live at a barely subsistent level.
    We want you to know that this is financially and emotionally 
devastating to our modest-income family. We thought we were doing 
everything right to become financially independent and now our reality 
is far from that, with an incredible debt in store for the future. This 
alternative minimum tax is devastating to those affected in the modest-
income level, as well.
    We thank Congressman Neal and others immensely for their efforts to 
help right this situation. Please let us know if there is anything we 
can do to assist you in this matter.

                                 
                        Statement of Leroy Lacy
    First I would like to thank the Members of Congress for their 
efforts during the closing stages of the 109th Congress. As one who was 
intently interested in a particular issue (the tax on phantom income 
from incentive stock options), I followed the activities during the 
final days of Congress closely.
    I am very appreciative that both houses saw fit to recognize the 
inequities posed by the AMT tax on options and made a gesture towards 
resolving the tax burdens associated with that tax. However, I must 
come back and ask for additional relief in the 110th Congress to follow 
on from your efforts in the 109th. Those of us who have acquired 
monstrous penalties and extremely large internist payments are still 
underwater and there appears to still be no way out.
    In 2000, when I was presented with the $1.6 million tax assessment, 
it really didn't register with me. I deluded myself with the thought 
that the government can't proceed with collecting this tax; they'll fix 
this issue. I felt (and still do feel) that there was so much dishonest 
and fraudulent activity associated with establishing value of these 
meaningless stock options that Congress will step in and put an end to 
all this foolishness. Well that never happened and at the end of the 
year, I was most taken aback when I received the letter telling me that 
I had penalties of over a quarter of a million dollars. This was when 
the magnitude of the issue really hit home. I received a penalty for 
not paying taxes on stock from stock options of more than twice my 
annual salary (when I had an annual salary) and there were interest 
assessments every month that would have made a nice income if I had 
one.
    At the end of the year, the collection arm of the IRS swept down 
like a giant vacuum cleaner and swept away all my assets as I attempted 
stop this juggernaut. I'm at the end of my career and like most of the 
workers of my generation, I have not saved sufficiently for retirement. 
With this job at Exodus Communications, I had a chance to get well. I 
had a financial planner who was supposed to be diversifying my 
portfolio. I had purchased three houses and had significant equity in 
those properties and it looked like I would have sufficient resources 
to get me though retirement without being a burden on my kids or the 
community. As the IRS swept through all my holdings, it made no dent in 
the penalties or interest. I still really didn't feel I owed this 
unfair tax and there had to be a way out. I invested many thousands of 
dollars (borrowed from family and friends) on tax attorneys, enrolled 
agents, and bankruptcy firms. I'm sure I invested foolishly in some of 
these attempts to stop the IRS and its collection before I lost my last 
real and most important asset, my house. I attempted offer in 
compromise, tax court and bankruptcy and as I entered each venue, it 
seems that I got there as they turned away from the taxpayer. My final 
round with the offer in compromise issue it was ridiculously oriented 
so that I had to make a downpayment that was so large that I had to 
sell the house just to make the downpayment.
    So at the end of 2006, I was most tired. I had been dealing with 
the collection arm of the IRS who treated me as a criminal and living 
on the financial edge trying to keep at least some equity in my home on 
which to live in my retirement. For 6 years I had to deal with an IRS 
that seemed to enjoy staging raids on my finances unannounced and 
levying my wages so that I get a surprise when the paycheck comes well 
below what was expected.
    At the end of 2006, I finally saw some light at the end of the 
tunnel in the form of the Tax Relief Act extensions. I wrote letters, 
hoped, followed the proceedings and finally it passed. I was so happy. 
I didn't quite understand how the law would work, but everyone else was 
happy and I was sure that there would be some relief for my problems 
that would come from this Act. However, January 2007 came and nothing 
seems to have changed. Days after New Years the collection agent was 
back in my face telling me that I had to sell my house in Ben Lomond or 
he would seize it. So I put it on the market and it sold and the 
money's gone and it has made no change in what I owe the IRS. No one 
seems to have told the IRS that there was relief for these AMT tax 
issues voted in Congress; they just keep coming.
    So I moved my family to Kremmling, Colorado to the home I had hoped 
would be my retirement home (no one in Silicon Valley would rent to a 
family that consisted of husband, wife, two dogs, three cats, 14 
Chinchillas, and two rabbits). Now to keep the collection agent happy, 
I have to put that house on the market which I'm in the process of 
doing. When that's sold, I'm not sure what I'll do, but I can assure 
you that it won't involve getting rid of the nonhuman members of my 
family. I've discovered another shocking fact in the form of my 
inability to find lodgings in Silicon Valley. It seems that the fact 
that I've never missed a payment to anyone in my 45 years as a worker 
and homeowner means nothing when compared to the fact that there have 
been four tax liens against my houses. I'm living in a residence hotel 
near work because I can't find a landlord that will rent me a small 
apartment.
    So in conclusion, here I am back with my hat in my hand asking for 
additional considerations by your Committee to help me with problems of 
penalties, interest, and collections. I have been fighting for the past 
6 years attempting to save my most precious possessions in my homes. I 
can see them slipping away, but I continue to hope that some resolution 
can be found before my home in Colorado is sold.

                                 

                                          Somerville, Massachusetts
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Lisa Szturma and I am writing on behalf of myself and my 
husband regarding a huge AMT tax debt that we incurred on ``phantom'' 
gains due to the application of the Alternative Minimum Tax to 
incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    My husband's company had the good fortune of being one of the 
largest IPOs ever. However, with the subsequent quickly changing 
economy in 2000, the stock value significantly and quickly declined. My 
husband's ISOs instead of being a benefit became a huge tax liability. 
We paid $206,000 in taxes on money we never had. Over the last 6 years 
we have been able to redeem only $23,000 of our outstanding credit. In 
addition, now unfortunately due to the phase-out clause included in the 
recently passed legislation, we can only redeem our outstanding credit 
if one of us quits our job. A scenario we are considering, but is not 
our desire.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,

                                                       Lisa Szturma

                                 

                                                   Cumming, Georgia
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable John Linder
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member John Linder:

    My name is Mark Flatman and I am writing on behalf of myself and my 
family regarding a large AMT tax debt that we incurred on ``phantom'' 
gains due to the application of the Alternative Minimum Tax to 
incentive stock options (ISOs).
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    When I filed my 2000 taxes in 2001, I found out that I would have 
to pay thousands more than I thought because I was subject to the AMT 
tax. In the meantime, the value of the stock that I had exercised had 
plummeted from nearly $100/share down to $10/share by the end of 2000. 
Selling the stock would not raise enough money to pay the AMT tax. 
Therefore, I had to dig deep into my personal savings, refinance my 
home (by pulling out equity) and put off saving for my children's 
college education. These choices have been very difficult and painful.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,
                                                       Mark Flatman

                                 
    Statement of Michael & Jennifer Carrobis, Bedford, New Hampshire
    My name is Michael Carrobis. My family and I have been living with 
the results of our ISO/AMT nightmare since 2001.
    Our journey began with the filing of our 1999 Income Tax return. My 
adjusted gross income for 1999 rose by $73,800 over 1998, a little more 
than a 65% increase. Our tax liability rose from $15,888 for 1998 to 
$119,929 for 1999, more than a 700% rise over 1998. When penalties and 
interest were added the total tax liability for 1999 was over $152,000, 
over a 900% increase.
    The reason for this increase was AMT. In 1999 I exercised incentive 
stock options that granted me stock valued at $274,258. I took the 
stock and put it into my brokerage account. It wasn't until we filed 
our taxes that we found that the stock I received was considered 
income. I didn't sell the stock but it was considered income anyway. To 
complicate matters the accountant I had doing our 1999 tax return had 
been going through some problems and delayed the filing of our taxes by 
about 6 months. All this time (unbeknown to us) penalties and interest 
was accruing. When we saw our 1999 return in January of 2001 we were 
stunned. A total of $22,757 of tax was withheld from my 1999 W2 income. 
We looked at our tax return and found that we now owed an additional 
$97,172. We sold my stock received in 1999 (and some stock from options 
received in 2000) and paid the additional 1999 taxes ($97,172) 
immediately upon filing our return. We were then stunned a second time 
by a notice of penalties and interest for 1999 (in excess of $32,000). 
As stated above, I had also received incentive stock options for 2000. 
We decided we better move forward as soon as possible with 2000 taxes. 
When I exercised the 2000 stock options much of the stock was valued at 
about $85 per share. I sold the stock from the options in the $40 per 
share range. We weren't happy at the stock price dropping by more than 
half but we thought it was ok since we really only paid about $20 per 
share for the stock. We still doubled our money right? Wrong. According 
to the rules we actually made $85 per share not the $40 per share we 
actually sold it at. According to the rules we didn't double our money 
we more than quadrupled our money. What? How can that be? How can we be 
taxed on an unrealized gain? This unrealized gain equated to a tax 
liability of over $283,000 for our 2000 taxes.
    At this point we did not have $283,000. We inquired about an offer 
in compromise. Our new accountant said that the IRS would not accept 
one because we owned too much, we have a house with a mortgage, a 
couple of cars and monies in IRA accounts. So in order to pay the 2000 
tax bill we liquidated stock in two of our IRA accounts and paid our 
2000 tax bill. The story is not over. The monies we took out of our IRA 
accounts (to pay our taxes) are considered income we received. So our 
2001 tax liability was in excess of $116,000. Today, March 21st 2007, I 
received a notice from the IRS that we now owe a little over $320,000.
    We have paid over $500,000 in Federal income taxes for 1999 and 
2000. The IRS says we still owe in excess of $320,000.
    Our nightmare started with our ISO/AMT in 2001 (1999 tax year). 
Hopefully it will end soon.
                                 

                                               San Jose, California
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is [your name] and I am writing on behalf of myself and my 
[husband, wife, family], regarding a huge AMT tax debt that we incurred 
on ``phantom'' gains due to the application of the Alternative Minimum 
Tax to incentive stock options (ISOs).
    [I/we] would first like to thank Congress and in particular the 
Members of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    [I/we] would respectfully ask for your continued support for 
important issues that remain unresolved for many ISO AMT victims, my 
family included. These issues are (i) ongoing ISO AMT liability and 
associated interest and penalties, and (ii) the income phase-outs that 
leave many families with limited or no relief. These are discussed in 
more detail below, but first I would like to briefly tell my family's 
story.
    [SOME SPECIFICS OF YOUR STORY; NOT TOO LONG; IF YOU HAVE A LETTER 
ALREADY WRITTEN ABOUT YOUR PERSONAL STORY, YOU CAN SUMMARIZE A COUPLE 
SENTENCES HERE AND THEN SAY ``Please also see the attached letter 
telling my personal story.'']
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at [Your Contact 
Information] if you have any questions.

            Sincerely,

                                                   Michael F. Abidi

                                 

                                                    Payson, Arizona
                                                      April 2, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Michael G. Parkin and I am writing on behalf of myself 
and my family, regarding a huge AMT tax debt that we incurred on 
``phantom'' gains due to the application of the Alternative Minimum Tax 
(AMT) to incentive stock options (ISOs).
    I would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. I 
struggle to express my deep gratitude for the Relief Legislation, which 
takes a big step forward to restoring fair return of tax overpayment 
credits that were generated when the stock value plummeted and ISO AMT 
tax became grossly disproportionate to any gain actually made on the 
stock.
    I would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims. These issues 
are (i) ongoing ISO AMT liability and associated interest and 
penalties, and (ii) the income phase-outs that leave many families with 
limited or no relief. These are discussed in more detail below, but 
first I would like to briefly tell my family's story.
    I was able to pay my ISO AMT liability, which resulted in a 
$146,000 AMT credit. Although I was able to pay the liability, we 
eventually had to downsize our principle residence by approximately 60% 
and shutter a personal business because we no longer had sufficient 
working capital to continue ongoing operations. The refund (I prefer to 
use the term refund versus credit) of that money, beginning in tax year 
2007, means the difference to me and my family of eating and not eating 
in the coming years. Compounding the difficulty in raising the money 
and paying our AMT liability was that the same market conditions that 
created the AMT ``Credit'' also left me unemployed and essentially my 
age (currently 57) left me unemployable. Although Congress has applied 
the name ``The Tax of Unintended Consequences'' to the ISO AMT, I feel 
more comfortable with the name ``Evisceration Tax'' to describe its 
affect.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    Overall, I have many concerns regarding the total AMT tax 
structure. In my opinion, it unfairly targets those Americans that 
shouldn't be asked to contribute more. I seriously question if we (I, 
the American population, and our Congress) can allow this tax to extend 
to the tax paying population as current projections forecast it to and 
the negative consequences it will create.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,

                                                  Michael G. Parkin

                                 

                                                Littleton, Colorado
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Michael Marino and I am writing on behalf of myself and 
my family, regarding a huge AMT tax debt that we incurred on 
``phantom'' gains due to the application of the Alternative Minimum Tax 
to incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    My AMT taxes in 2000 were more than I ever thought I would earn in 
a lifetime--$780,000. In order to pay these taxes, I had to sell all of 
my remaining shares at a very low price, cash in my IRA and children's 
college funds, and deplete my entire life's savings. The AMT treatment 
of ISO exercises applies to money which never existed--phantom income. 
As such, it can, and did exceed my lifetime income. I will be turning 
48 in a couple of months and have been working since high school, 
developing and then selling software, so lifetime income at this point 
is non-trivial. The only way I can recover from this is through AMT 
Relief.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,

                                                  Michael M. Marino

                                 

                                                 Reynoldsburg, Ohio
                                                     March 22, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Michael Powers and I am writing on behalf of myself and 
my family, regarding a huge AMT tax debt that we incurred on 
``phantom'' gains due to the application of the Alternative Minimum Tax 
to incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I just entered this year as a surprise 
encounter with AMT. We struggle to express our deep gratitude for the 
Relief Legislation, which takes a big step forward to restoring fair 
return of tax overpayment credits that were generated when the stock 
value plummeted and ISO AMT tax became grossly disproportionate to any 
gain actually made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    I have been fortunate to be able to complete my annual tax filing 
using commercially available software and some common sense. For the 
tax year 2006, I became subject to AMT because of $15,000 in Incentive 
Stock Options from my company. Not only did I have to pay my rightfully 
due tax on that amount, it increased my tax liability by $3,000 for 
this year. I am no longer able to use the software and now have to use 
a Certified Public Accountant to make sure I am filing correctly, an 
additional cost that isn't even deductible under AMT. We cancelled our 
vacation and are planning on paying an additional $200 extra per month 
in taxes to cover 2007 AMT.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,

                                                     Michael Powers

                                 

                                                     Santa Cruz, CA
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My family was among the many affected by a large AMT tax burden 
incurred due to ``paper'' gains triggered by the Alternative Minimum 
Tax treatment of incentive stock options (ISOs).
    We would first like to thank Congress and the Members of the Ways 
and Means Committee and Select Revenue Measures Subcommittee for the 
ISO AMT Relief passed last year. This relief marks the beginning of the 
end to a financial hardship that my family has dealt with since 2001.
    We respectfully ask for your continued support particularly due to 
the income phase-outs that leave many families such as ours with 
limited or perhaps no relief. These are discussed below, but first I 
would like to briefly share our story.
    We were assessed tax for multiple times our annual wages due to 
paper gains on ISO options and were forced to liquidate our college 
savings and take a second mortgage in order to pay our tax bill, which 
we did, resulting in a tax credit large enough to fund attendance at 
any university in the nation. But we have not been able to recoup this 
credit due to the nature of the AMT tax code, and the college years are 
rapidly approaching.
    Removing Relief Phase-out for American Families. We continue to be 
affected due to a significant change that was made to the relief in 
H.R. 3385 when it was included in the Tax Relief and Health Care Act of 
2006, in that an income phase-out provision was added that leaves us 
with no relief or only partial relief. This phase-out was not a part of 
the widely supported Johnson/Neal H.R. 3385. Ironically, the phase-out 
provision creates a situation whereby we would be financially better 
off by quitting our jobs, reducing our effort or hours, and/or 
foregoing diversification. Such choices would seem detrimental to our 
family, employers and society as our ability to generate income AND 
additional taxes is thereby diminished.
    Addressing Ongoing Liability, Interest and Penalties. Many other 
families across the country are still embroiled in offers in 
compromise. We are hopeful that the IRS will not also deny relief to 
those that have been unable to pay. Many others were forced into offers 
in compromise that are subjecting them to ongoing monthly payments that 
are preventing them from caring for their families in a manner 
commensurate with their talents and hard work. We would respectfully 
request your help in instructing the IRS to fulfill Congress's intent 
to provide relief to all affected citizens.
    I want to once again express our gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please go one small step further and allow us to recoup 
the tax credits we deserve without putting our careers and lives in 
reverse in order to avoid the phase-outs. Please do not hesitate to 
contact me if you have any questions.

            Sincerely,

                                                   Michael Sullivan

                                 
              Statement of Mike Brown, Cedar Rapids, Iowa
    My name is Mike Brown and I am writing on behalf of myself and my 
family, regarding a huge AMT tax debt that we incurred on ``phantom'' 
gains due to the application of the Alternative Minimum Tax to 
incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    After the crash of the telecom industry which not only included us 
paying over $100,000 in taxes to the government on unearned profits 
from stock options, I lost my executive position with the company. My 
wife and I have invested our savings into small local companies. We run 
two of those companies and have invested in two others. We have pulled 
money from our retirement accounts to make this happen, paying the 
associated taxes and penalties. We're trying to make a go of it here in 
Cedar Rapids, but if we have to continue to dip into our IRA/retirement 
savings to do so, we will be forced to move to other areas of the 
country to make more money. Getting our unfairly paid taxes back, 
WITHOUT INCOME PHASE OUT provisions would go a long way in allowing us 
to stay in the community we love where we are creating jobs and giving 
back to the community.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

                                 
            Statement of Mike Wertheim, Oakland, California
    I am an average middle class employee. In 2000, I worked for an 
Internet company called Critical Path. I received incentive stock 
options as part of my compensation. I exercised the stock and have not 
sold it. No one ever advised me to sell the stock before the end of the 
calendar year to avoid certain Alternative Minimum Tax problems. By the 
time my accountant prepared my income tax bill for 2000, the 
Alternative Minimum Tax on my stock was $64,000. This is despite the 
fact that the current value of the stock at the time was only $8,000 
(and is now worth only $2,000). The $64,000 tax bill far exceeded my 
net worth.
    I paid the entire $64,000 tax bill on April 15, 2001 and generated 
a $64,000 tax credit, by liquidating savings and borrowing money from 
my family. At this rate, it will take me over 20 years to use up my AMT 
credit because the tax code allows me to apply only $3,000 of my AMT 
credit towards my income tax each year. Essentially, I have been forced 
to make a $64,000 20-year loan to the government interest-free.
    Some day my wife and I would like to buy a house and send our 
daughter to college, but both of those plans are on hold until we can 
regain our financial standing. After my parents loaned me money to pay 
my tax bill, the rest of the family is feeling the financial pain, too. 
My parents, who are both in their 60s, no longer feel that they have 
enough money for their retirement. All these changes--to pay tax on 
income I never actually received.

                                 
                     Statement of the Miller Family
    Dear Chairman Rangel and Committee Members: My name is Rita Miller 
and I am writing on behalf of my husband, Arthur W. Miller, Jr. and 
myself. It is regarding a huge tax debt that we incurred on phantom 
gains that were created by the application of the Alternative Minimum 
Tax (AMT).
    In November 1997, I took a job in Linthicum, Maryland as an 
Administrative Assistant for a start-up Internet security company, 
VeriSign, Inc. 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 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. 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.
    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 were 
$448,873. We managed to pay $314,784 by selling whatever shares of 
stock we had. 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 within a few months 
of each other in the year 2002. I was unemployed for over a year, my 
husband is still unemployed. I'll be 60 this year and my husband will 
be 62.
    We submitted several OICs and Appeals and the IRS rejected them 
all--stating that we had a house, a car and some retirement money and 
if we sold the house, the car or turned in the retirement, we could pay 
the ``phantom taxes'' we owed. We came to realize that after filing 
subsequent years taxes, that the IRS now ``owes us '' over $115,267 in 
credits. We owe them $117,480. We filed an OIC asking the IRS to accept 
our credit as payment. It was rejected. The last OIC we offered $30,000 
(provided by a family member) and our credit 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? They accused us of 
using ``delay tactics''. The IRS wanted us to pay them in full, first.
    A travesty occurred in our lives that added additional hardship. My 
husband, who has been unemployed since August 2002 and spent more than 
a year of processing for employment with the Department of Defense, was 
notified that the DoD was withdrawing their offer of employment due to 
the outstanding IRS debt. They said that the tax issue ``brought into 
question his credibility and trustworthiness.'' That he didn't meet 
their suitability criteria. At almost 60 years old where is he going to 
find another opportunity like the one with the DoD? We are hard-
working, 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.
    This year we celebrated our 42nd wedding anniversary, but for the 
past 7 years we have been living a nightmare. We fear that one day when 
we open our mailbox there's going to be a letter from the IRS stating 
that they are taking our home or making us liquidate our retirement to 
pay them taxes that are unjust and unfair.
    We are currently preparing a submission of another OIC, in hopes 
that recent legislation changes have opened the doors for negotiating 
the application of the credit and the waving of interest and penalties.
    We respectfully seek the understanding of this Committee and plead 
with you to help rectify this wrong.

                               __________
                             Tax Nightmare
Jay Hancock
March 18, 2007

    Rita and Arthur Miller used to believe that honesty, hard work and 
filing taxes on time would keep you on society's good side.
    They believed this until about 2001, when, in the parallel universe 
known as the alternative minimum tax, the government began seeking more 
than $100,000 in tax on income that the couple never received.
    Six years later, the amount has doubled, and the couple will 
probably have to liquidate their retirement savings and maybe sell 
their townhouse to pay the bill. In a little-noted epilogue to the dot-
com boom of the 1990s, the Millers are among thousands of families that 
the Internal Revenue Service says owe tax on phantom stock market 
riches.
    Maybe more than anything else, their situation demonstrates the 
brutal unfairness of the alternative minimum tax, which Congress is 
considering reforming because it now hits far beyond the super-rich it 
originally targeted.
    Remember all the paper profits you lost when the Nasdaq crashed? 
Don't feel too bad. The Millers not only lost their dot-com 
quicksilver; thanks to the AMT they owe tax on it, too.
    ``Our hearts couldn't take it any longer,'' Rita Miller, 59, says 
of the moment 2 years ago when they caved in and agreed to pay the tax. 
``We said, `That's it. We'll cash whatever. We'll turn in our 
retirement. Just end this nightmare.' ''
    The nightmare, however, continues. The IRS doesn't just want the 
$117,000 the Millers are supposed to owe on income that never existed. 
It wants more than $200,000, including interest and penalties, and it 
has rejected every settlement offer they have made.
Unexpected riches
    Art and Rita Miller never figured they would even make hundreds of 
thousands of dollars, let alone owe that much in taxes. They had never 
owned a share of stock or a mutual fund. They didn't even have much of 
a savings account.
    But they earned enough to move out of Philadelphia, where they 
married when she was 18 and he 20, and raised three boys in New Jersey. 
Jobs took them to Buffalo and Albany, N.Y., and then, in 1997, 
Catonsville, when she signed up as an administrative assistant with a 
Linthicum branch of VeriSign Inc., a Web security company.
    Without knowing it, she had walked into a money factory.
    Like every other young Internet company in the 1990s, VeriSign 
distributed stock options in dump trucks to even low-level employees. 
After VeriSign shares rose 750 percent in 1999, the Millers began to 
realize they might become rich. Arthur Miller, 61, calculated the 
couple could someday be worth $3.8 million if the stock didn't tank.
    They knew they were over their heads. So they hired a financial 
adviser and a lawyer, and the advice was unequivocal: Exercise the 
options as soon as possible, but hang onto the shares, because they 
would get tax advantages that way, and who knows how high they'd go, 
anyway?
    It was a doubly terrible idea.
    The Millers scheduled option exercises on their calendar, like 
haircuts. Each time an option became exercisable, they called the 
broker, had him sell just enough shares at the market price to cover 
the exercise cost, and saw their paper worth go higher and higher--
mostly in VeriSign stock. Options' value depends on the difference 
between their exercise price and a stock's market price. Rita Miller 
was getting thousands of options with exercise prices of $4 and $6 a 
share, and VeriSign's stock was heading toward $250. Under the regular 
tax code, for the kind of ``incentive'' stock options that she held, 
that value would not have been taxed until the VeriSign shares were 
sold. But under the wacky AMT rules, holding shares after the end of 
the calendar year triggered a large tax based on the difference between 
the exercise and market prices at the time of exercise. (Incentive 
options are different from the ``nonqualified'' options most employees 
get.) Arthur Miller says their tax lawyer had no clue about this. But 
VeriSign tried to educate employees, and sometime in early 2001, the 
couple realized they were going to have a very large tax bill. Problem 
was, they no longer had the wherewithal to pay. Like every other 
Internet stock, VeriSign was crashing and taking the Millers' paper 
wealth with it. By March 2001 VeriSign had plunged back to $40, en 
route to $6, but the tax bills stayed stratospheric. The AMT system 
allowed people like the Millers to recoup excess stock-option liability 
by taking credits against tax owed in future years--but only up to 
$3,000 a year. The Millers couldn't pay the whole AMT without selling 
their house or cashing their retirement annuities and incurring big 
penalties. And even if they had, she says, ``we were going to be 97 and 
99 when we got all our credits back, and I doubt I would have lived 
that long.'' Thus the ordeal began. ``I know, personally, dozens of 
people who have lost their homes over AMT stock-option taxes,'' says 
Tim Carlson, president of the Coalition for Tax Fairness, a lobbying 
group organized to seek relief for people like the Millers. There have 
been at least two suicides, a coalition spokesman says.
Victims of honesty
    One of the many ironies, Carlson added, is that VeriSign and other 
companies didn't disclose incentive-option exercises to the IRS, so the 
agency wouldn't have even known about them if recipients hadn't 
reported them. ``The people that are affected by it are your hard-
working, salt-of-the-earth Americans who always pay their tax and who 
are impeccably honest,'' he says. In 2002, the Millers lost their jobs. 
VeriSign had hit tough times, and so had International Business 
Machines Corp., which employed Arthur Miller. Worse, Arthur Miller says 
he lost a potential new job because the employer thought he was a tax 
cheat. They had no income, and the IRS wanted a six-figure check.
    They had salvaged some of their dot-com wealth, cashing VeriSign 
shares and buying annuities tied to the stock market. The annuities, 
too, had dived in value, but they were still worth $200,000. Even so, 
redeeming them to pay tax would have involved huge early-withdrawal 
fees and separate tax penalties.
    The IRS attached liens to all their assets. Letters came and went. 
Interest and penalties mounted. The Millers didn't dispute they owed 
the tax, even though the income on which it was based never 
materialized. But they didn't think they should pay penalties and 
interest, which brought the bill to more than $200,000. Couldn't they 
compromise? No, the IRS said. What the couple really wanted was to see 
a human at the agency. If they could just explain the crazy situation 
face to face, they figured, a reasonable person would see the light. 
They counted the days to their meeting with the IRS officer, in 2005. 
``She was wonderful,'' Rita Miller recalled. ``She was really sweet. We 
told her, `We'll cash in our retirement and pay the just debt that's 
due' ''--something like $130,000 at the time. ``But we want you to 
waive the penalty and interest. It's not fair. We'll pay the debt and 
let's end this nightmare.'' She got up and hugged me. She said, ``I'd 
like to see if I can work a miracle for you.'' That's the word that 
came out of her mouth. Of course she had to take it to her superiors. 
``No,'' the superiors said. The IRS declined to discuss either the 
Millers' case or the incentive-option AMT trap in general. But in a 
recent memo filed on their case in U.S. Tax Court, the agency 
essentially says that the law is the law and the Millers should sell 
whatever assets are necessary to pay their tax, penalties and interest 
in full. ``By your own admission, you have sufficient resources to pay 
these outstanding liabilities, but feel that you should not be required 
to do so,'' the agency wrote them. ``The IRS will not accept any offer 
from you under these circumstances.''
    The Millers are especially exasperated because the IRS owes them 
almost as much money as they owe the agency. The credits they're due 
for AMT tax liabilities on VeriSign stock that later collapsed are 
$115,000; the principal balance of their delinquent tax is $117,000. 
Why not just call it a wash?
    No, the IRS said. Pay the tax and penalties now, it said, and take 
the credits year by year, in thimblefuls, over the next three decades.
    Congress, under much pressure--including correspondence by Rita 
Miller with the House Ways and Means Committee--has finally gotten into 
the act. Last year it accelerated the credit schedule for people who 
paid AMT tax on incentive-option exercises but never realized the 
income. Such taxpayers can now recoup their excess tax in 5 years.
    But that change doesn't much help the Millers, who can't pay all 
the tax in the first place. She has found a new job, but he is still 
unemployed. And it doesn't affect penalties and interest the IRS 
assesses on delinquents. Now that Congress has acted, Coalition for Tax 
Fairness President Carlson hopes the IRS will relent and start settling 
cases such as the Millers' in a reasonable manner. ``Stop the 
madness,'' he says. ``Stop the collection process. And don't charge 
interest and penalties on amounts people weren't able to pay because 
the law wasn't working properly. Let's let people get on with their 
lives. . . . We want to give the IRS a chance to do the right thing.'' 
But the IRS had a chance to do the right thing for 5 years, and didn't. 
Congress ought to free victims such as the Millers from paying any 
interest or penalty on their back taxes. And then it ought to throw the 
entire AMT into the garbage.

                                 

                                            National Potato Council
                                                     March 28, 2007

The Honorable Sander M. Levin
House Ways and Means Trade Subcommittee
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Levin:

    On behalf of U.S. potato growers, I am writing to provide comments 
for the record in response to the Ways and Means Committee's March 20 
hearing on the U.S.-Korea Free Trade Agreement. The National Potato 
Council (NPC) represents potato farmers from every large potato 
producing region on legislative and regulatory matters. The NPC remains 
committed to providing a unified voice for the U.S. potato industry on 
national legislative, regulatory, environmental, and trade issues to 
promote the increased profitability for growers and greater consumption 
of potatoes.
    The U.S. potato industry strongly supports the completion of a 
U.S.-Korea Free Trade Agreement as long as the final agreement results 
in significant additional access for U.S. potatoes and potato products 
in the South Korean market. South Korea is currently our fifth largest 
export market for frozen fries, with more than $22 million exported in 
2006. It is also an important and growing market for both dehydrated 
and fresh potato exports. We believe that a successful Korean FTA 
should result in significant increases in exports of all U.S. potato 
products and will guarantee market share for U.S. potato products 
against our primary international competitors, Canada, New Zealand, 
Australia and the European Union.
    The U.S. potato industry has four priorities for the U.S.-Korea 
Free Trade Agreement.
    Frozen Fries (H.S. 2004.1). Korea currently applies an 18% ad 
valorem MFN tariff on U.S. fry exports. Although Korea is our fifth 
largest fry export market, this 18% tariff hinders our ability to 
expand the market. The U.S. potato industry seeks the immediate 
elimination of this tariff as a result of the U.S.-Korea FTA.
    Korea has no fry processing facilities. Moreover, given that 
Australia and Canada, major fry producing competitors, have expressed 
an interest in their own Korean FTAs, it is vital for U.S. fry 
producers that this tariff be eliminated. A zero fry duty would ensure 
that the U.S. remains the major fry supplier to Korea and yield a 
significant increase in fry exports.
    Dehy: Korea has the potential to be a significant export market for 
U.S. dehydrated potato exports. Unfortunately, that potential is 
limited by Korea's quota system. Traditionally, pure dehy flakes, 
pellets, and granules are exported under Chapter 11 of the Harmonized 
Tariff System code (H.S. 1105.2). Korea currently has an overly 
restrictive tariff rate quota for this tariff line. Exports of 60 
metric tons (the equivalent of two ocean-going containers) can enter 
under the quota and face a 5.4% tariff. Once that quota is filled, the 
tariff increases to a prohibitive 304%. Furthermore, this quota volume 
covers imports from the entire world, so essentially Korea applies a 
304% tariff on all dehy products.
    In order to avoid this 304% duty, U.S. dehy shippers export a 
blended dehy product under Chapter 20 (H.S. 2005.2) with an applied 20% 
ad valorem tariff (below the 54% bound rate). While there is no quota 
here, in order to qualify for this tariff line as a processed good, 
Korea requires that the dehy products be blended with at least 10% 
other components. U.S. shippers have been forced to create dehy blend 
formulas to meet the Korean requirements to export under this tariff 
line and avoid the quota. Such blending limits the end use of the 
product in Korea.
    The U.S. potato industry is seeking the significant expansion and 
eventual elimination of the Chapter 11 quota on dehydrated potatoes, 
and the elimination of the Chapter 20 processed dehy tariff.
    Fresh Potato Quota: Like the dehy quota, Korea has established a 
restrictive TRQ for fresh potatoes. Korea allows the importation of 
18,810 metric tons of fresh potatoes every year. The in-quota duty is 
currently duty free, but the over-quota duty is again a prohibitive 
304%. U.S. fresh potato growers must share this quota with other 
countries, especially Australia. The Korean government also divides the 
quota into two categories, one for chipping potatoes destined for chip 
processing and one for fresh potatoes sold at retail. It is unclear 
whether these distinctions are allowable under the WTO.
    Korea is a promising market for U.S. fresh potato exports. As 
recently as 3 years ago, it was the third largest and fastest growing 
export market with over $1.7 million in sales. The industry believes 
that the Korean market has enormous potential for fresh potato sales.
    The U.S.-Korea FTA provides an excellent opportunity to address the 
restrictive TRQ. The U.S. potato industry is seeking a separate tariff 
line for chipping potato market access, which would allow the U.S. to 
ship their product at certain times of the year duty free outside the 
quota. The industry also wants this seasonal distinction phased out in 
the future so duty free access can occur year round for chipping 
potatoes. The industry is also seeking a significant expansion of the 
table stock TRQ, which would allow for additional shipments of U.S. 
table stock potatoes to Korea.
    Fresh Potato SPS Issues: Although U.S. potato producers have 
recently had some difficulties with Korean quarantine standards, 
Korea's National Plant Quarantine Service has been working with USDA 
and the U.S. industry to address these issues.
    The U.S. government can assist with fresh potato quarantine issues 
through the FTA by facilitating the approval of additional states 
allowed to export to Korea. Although major potato producing states such 
as Idaho (temporarily suspended), Washington, Oregon, Wisconsin, 
Michigan, Minnesota, and Maine are approved for export to Korea, other 
potato producing states such as North Dakota, Colorado, California, New 
Mexico, Arizona, and Pennsylvania are prohibited from exporting to 
Korea due to concerns over five pests.\1\
---------------------------------------------------------------------------
    \1\ Peronospora tabacina (tobacco blue mold), Synchytrium 
endobioticum (potato wart), Globodera rostochiensis (golden nematode), 
potato yellow dwarf virus, and potato spindle tuber viroid.
---------------------------------------------------------------------------
    The U.S. industry believes these pests either do not exist in the 
states in question or can be addressed through simple mitigation 
measures. In the North Dakota case, the restriction is unjustified. 
North Dakota and Minnesota are considered one growing region. Korea 
allows exports from Minnesota, but not from North Dakota. The U.S. 
potato industry would like to see the states listed above approved for 
export to Korea as a result of the Korean FTA.
    The National Potato Council and U.S. Potato Board have worked with 
USDA's Animal Plant Health Inspection Service (APHIS) to provide Korea 
requested information about each state in the hopes that they can be 
approved in the near future.
    The U.S. potato industry stands to benefit from the completion of 
the U.S.-Korea Free Trade Agreement. A successful agreement will result 
in increased potato sales to Korea and will maintain U.S. potato market 
share within Korea. Failure to complete an agreement could result in 
our competitors finishing a FTA with Korea and taking market share from 
the U.S.
    The U.S. potato industry has been actively involved in the talks 
through frequent consultations with the U.S. Trade Representative's 
Office and USDA. The industry also had an official in Seoul in late 
March to support the U.S. negotiators at the talks. Please feel free to 
contact the National Potato Council should the Committee have any 
questions regarding the NPC's support of the U.S.-Korea Free Trade 
Agreement.

            Sincerely,

                                                       John Keeling
          Executive Vice President and CEO, National Potato Council

                                 

                                                Chantilly, Virginia
                                                     March 22, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    The following information below is testimony that I presented 
before the House Committee on Ways and Means, Subcommittee on 
Oversight, Washington, DC, in a formal hearing on June 15th, 2004. 
Since then, I have continued to hope for complete relief of my AMT ISO 
problem in the form of legislation, and I am encouraged by the progress 
realized in the recent bill. However, as I have not been able to pay 
the tax for my ISO related AMT, the ever growing penalties and interest 
are of great concern to me, and a source of much stress as the years 
progress.
    Further, as I live and work within high technology industry here in 
the ``Dulles Corridor'' of Northern Virginia, I am hindered by the 
income phase-out provision that was added to H.R. 3385, which makes it 
impossible to find timely relief for the AMT ISO problem that I have 
been facing now going on 5 years.
    To better understand the background related to my personal story, 
please review my previous testimony as noted below, and as documented 
on the Ways and Means hearing archives: http://waysandmeans.house.gov/
hearings.asp?formmode=printfriendly&id=1631.
    Thanks for all your efforts to date, and please do not hesitate to 
contact me on this matter.

            Best Regards,

                                                       Nina Doherty

                               __________

    Mr. Chairman and Members of the Committee: My name is Nina Doherty 
and I would like to first thank you for the opportunity to speak with 
you today.
    I am a married working mother of three living in a modest Northern 
Virginia suburb with my husband of 17 years. Today, I work full time 
for a small software company. I am sharing my story with you in the 
hope that it will shed light on how the Alternative Minimum Tax 
treatment of Incentive Stock Options can have a devastating impact on 
average hard-working people like me.
    In 1994, I became the first employee of a small start-up 
telecommunications company. Part of my compensation included Incentive 
Stock Options. Seven years later, I found out to my huge shock that 
there could be an egregious impact from exercising Stock Options due to 
unintended consequences of the Alternative Minimum Tax.
    Back in March 2000, before I learned about the Alternative Minimum 
Tax, I exercised some stock options and it appeared that all my hard 
work and sacrifice in working for a start-up would pay off. My company 
was going public as many did at that time, and it was everyone's 
expectation that the stock value would remain stable and perhaps even 
grow. Unfortunately, shortly thereafter, the stock market tumbled and 
my ``paper'' stock value was reduced to nothing. Despite the dwindling 
stock value, I never thought to sell them even after my restrictions 
lapsed in September 2000. I continued to hold onto my stock because I 
was told by my financial advisor before I ever exercised any options 
that due to the way the law was written with regard to capital gains 
tax penalties, it was more beneficial for me to hold it for more than 1 
year.
    In April of 2001, while on a Girl Scout trip with one of my 
daughters, I got a call from my accountant about the taxes he had just 
prepared. He told me that because of the Alternative Minimum Tax, I 
owed a lot of money, but he didn't want to tell me how much until I got 
back into town. Alarmed, I asked him to tell me right there and then--
and that is how I found out that I owed tax equal to 100% of our annual 
family income! I was dumbfounded, and quite frankly, so was my 
accountant. Now my family is facing potential financial ruin as a 
result of this massive penalty.
    Unfortunately, the highly complex nature of the Alternative Minimum 
Tax code befuddled both my highly trained financial advisor and my 
accountant, a situation affecting family after family across this 
country.
    And it wasn't just complicated code that led me to hold onto the 
stock. The spirit and intent behind the incentive in an Incentive Stock 
Option is that employees like me are encouraged by law to hold onto our 
stocks for a longer period of time, to help our companies grow by 
investing in the future. Certainly, the intent was NEVER to hurt the 
very people that contributed to a company's success. Despite this, 
countless families are facing financial ruin due to the ISO AMT issue--
mine is not a unique story.
    The big problem with paying the AMT is that the tax payment is 
simply a prepayment of tax. When this law was written in the sixties, 
the volatility of the stock market was not anticipated by Congress and 
there was no evidence at that time that prepaying this tax would create 
hardship. Unfortunately, many families like mine cannot afford to 
prepay this tax. Because there was no actual gain for victims like me, 
this tax will generate a useless tax ``credit,'' meaning that our 
prepayment of this tax is nothing more than an interest-free loan to 
the government. By today's law, we can only recover the tax prepayment 
in credits at $3,000 per year, which for our family means 30+ years--
for many people the credit will well exceed their life expectancy.
    Recently, the IRS levied our bank accounts, seizing $30,000 that my 
husband had in savings from a loan against his 401(k). This money was 
needed to do repairs on our 10-year-old home and replace our failing 
minivan. Next we received official notice that there was a Federal lien 
filed by the IRS on any and all property that we own. With this and the 
past 3 years of worry about this problem, there has been terrible 
strain on my family and my marriage. Every day this issue is like a 
dark cloud over our heads and we wonder if we should just declare 
bankruptcy.
    My family and I respectfully urge those of you on the Committee to 
take immediate action on correcting this injustice, through a repeal of 
the AMT/ISO provision, or through targeted and principled measures that 
will help those of us currently facing this problem, and also prevent 
similar results from occurring in the future. For many families like 
mine, time has run out: The IRS is enforcing the strict letter of the 
law--threatening to take our homes and retirement funds to collect the 
money despite the fact that we never had any actual gain.
    Please don't allow this injustice to continue. Taxpayers deserve 
fair treatment in connection with simpler rules, and we appreciate your 
current consideration of a solution that is fair and just.
    Again, thank you for your time.

                                                       Nina Doherty

                                 

                                          Mountain View, California
                                                      April 5, 2007

House of Representatives
Committee on Ways and Means
Washington, DC

Dear Honorable Representatives,

    I'm writing to you today to ask for your support in reforming the 
Alternative Minimum Tax.
    Like many other hard-working American taxpayers, I was a victim of 
collection action by the IRS on taxes I could not pay on income I never 
realized by way of exercising incentive stock options at the time of 
the 2000 stock market crash. My case was particularly drastic. In tax 
year 2000, I was assessed a tax bill of more than $1 million, after 
having made estimated payments to the IRS in excess of $400,000 that 
year. The final tax bill was greater than my net worth, and 10 times my 
annual gross income.
    After the events of the past 6 years, my status with the IRS 
(reflecting prior year payments and subsequent amended returns) 
includes a capital loss carryover of more than $300,000, a minimum tax 
credit carryforward of more than $730,000, and an AMT capital loss 
carryover exceeding $3 million. I have yet to have these amounts 
explained to me in terms that a layman can understand, but it's clear 
that the IRS withholds a very substantial amount of money in the form 
of tax credits, and there are additional amounts that can be of 
potential benefit in the future.
    However, the tax credits and other amounts did not impress the 
revenue agents handling my case. They proceeded with their collection 
actions. The results of their actions included:

      The liquidation of all of my investments, including 
retirement savings.
      The abandonment of my girlfriend's mother to the elderly 
health care system, where she promptly died.
      The end of a 12-year relationship.
      The sale of my home under threat of foreclosure.
      Tax lien on my personal effects.
      Garnishment of my salary.
      Chapter 7 bankruptcy.

    In May of last year, the IRS opted to release the tax lien on my 
personal effects, which have little or no value. That marked the end of 
a 5 year nightmare, and I'm able to start over from scratch at age 45, 
hoping to build sufficient assets to retire above the poverty line with 
adequate health care.
    The recent tax extenders legislation passed into law might allow me 
to get some of the money back in a timeframe that would be useful. My 
tax attorney explains that, until the new law was passed, the IRS had 
no legal basis to continue withholding these tax credits from me, but 
the law gave them wide latitude to adopt a refund schedule policy. 
Until this past tax year, the IRS' policy allowed the money to be 
refunded at a rate of $3,000 per year, which seems rather inequitable. 
The new legislation law requires the IRS to refund a larger portion of 
these credits over a shorter period of time.
    However, there is a limit to the benefit of the new law. In my 
ongoing effort to rebuild my life, I'm in the process of purchasing a 
starter home in a working-class neighborhood. It is in fact the least 
expensive single-family home having an occupancy permit within 20 miles 
of my employment that was available at the time of my offer. The cost 
of housing in this area (Silicon Valley) is reputed to be the highest 
in the country, and the cost of the mortgage alone is well over half of 
my take-home pay, even though my salary approaches the income limit 
that begins to reduce the benefit of the new refunds. So I'm in the 
awkward position in which I cannot (yet) contribute to a 401K plan, but 
at the same time I cannot accept bonuses or raises from my employer 
despite their great satisfaction with my performance. I may even have 
to reduce or eliminate a second part-time employment.
    I encourage you to introduce new legislation to halt this type of 
abuse: I recommend that the IRS be compelled to apply existing tax 
credits to a taxpayer's assets as part of the offer-in-compromise 
program. Had this been in existence, I might not have lost some of the 
things I did during these past 6 years, and a life might have been 
spared. By avoiding chapter 7 bankruptcy, my creditors also would not 
have lost a significant amount of money, which I could have eventually 
repaid.
    Even better would be to repeal the alternative minimum tax, 
unifying and simplifying the tax code. Or at least make it impossible 
or illegal to assess taxes in excess of a person's net worth in the 
absence of tax shelters. Collection of such taxes is, in my opinion, a 
violation of the government's constitutional right to collect 
reasonable taxes, and a citizen's constitutional protection against 
unreasonable seizure.
    If you or your staff wish to discuss this matter further, please 
contact me.
    Many thanks in advance for your support.

            Sincerely yours,

                                                     Paul M. Sander

                                 

                                                 Manassas, Virginia
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Rich Verjinski and I am writing on behalf of myself and 
my wife, regarding a huge AMT tax debt that we incurred on ``phantom'' 
gains due to the application of the Alternative Minimum Tax to 
incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    I ended up paying over $220,000.00 in ISO ATM liabilities in 2000. 
I fortunately had the money to pay the IRS at that time (due to an 
unrelated windfall). I was so happy to see the relief legislation pass 
earlier this year, but very disappointed in the income phase out that 
was part of the bill. Because of the current phase out, I will get NO 
relief for the foreseeable future. This phase out unfairly targets 
families like mine, who live in high-income parts of the country.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me if you have any 
questions.

            Sincerely,

                                                     Rich Verjinski

                                 

                                                Scottsdale, Arizona
                                                      April 4, 2007

The Honorable Chairman Richard Neal
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal:

    First and foremost I want to thank you, your staff and the Members 
of the Ways and Means Committee for the ISO AMT Relief that was passed 
late last year. This legislation goes a very long way in correcting the 
unfair tax on ISO's. I am requesting your continued support for 
rectifying ISO AMT interest, penalties and phase-outs.
    While I was not impacted by interest and penalties because I had 
the ability to timely pay my AMT, I strongly believe it is an element 
of legislation that needs revision. I have read horror stories of 
citizens who were financially destroyed by the interest and penalties 
from this unfair tax. I urge you to provide full relief to the ISO AMT 
victims.
    An area that may impact me is the phase-out portion of the 
legislation. I have been fortunate to pick my life back up and am 
building a successful business. If my business continues to grow--which 
is what I am focused upon--I run the risk that I might not receive a 
refund of my AMT due to income phase-out rules.
    The logic of the phase-out eludes me.

      I paid an unfair tax in the form of ISO AMT,
      Then legislation last year recognized that it was an 
unfair tax in need of correction,
      But I am not entitled to relief if I am a successful and 
productive taxpayer and citizen.

    The implication that unfair taxes are acceptable for successful 
taxpayers doesn't sit well with me. I have consistently paid my taxes--
and actually paid over $2 million in Federal taxes during my high 
earning years. And I look forward to paying fair taxes. But please help 
provide full relief for the unfair tax of ISO AMT.

            Sincerely,

                                                    Robert M. Korte

                                 

                                                          Ely, Iowa
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Ron Speltz and I am writing on behalf of myself and my 
wife June and four children (Alison, Sydney, Angela and Sawyer), 
regarding a huge AMT tax debt that we incurred on ``phantom'' gains due 
to the application of the Alternative Minimum Tax to incentive stock 
options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years.
    My family and I would respectfully ask for your continued support 
for important issues that remain unresolved for many ISO AMT victims, 
my family included. These issues are (i) ongoing ISO AMT liability and 
associated interest and penalties, and (ii) the income phase-outs that 
leave many families with limited or no relief. These are discussed in 
more detail below, but first I would like to briefly tell my family's 
story.
    The IRS is continuing to pursue collection on amounts we have been 
unable to pay, even though--through incurring massive personal debt--we 
have to date already paid more than $160,000 in ISO AMT prepayment tax. 
The full Federal ISO AMT tax of over $205,000 was imposed on stock that 
we bought for around $30,000 and sold for $1,600 dollars.
    The stress continues year after year with liens on our home; the 
fear of wage garnishment; ongoing debts incurred as we tried to pay as 
much of the ISO AMT liability as possible; and the depressing thought 
that with mounting interest and penalties we may never get to the point 
where we are free from this unfair burden.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive.
    We personally know people who have worked hard for years and 
invested thousands of dollars of their personal money to bring about 
change in the ISO AMT law, and who will now be left off the relief even 
though they, like us, need the relief to get back to a position of 
financial health. This situation is totally puzzling to us. We cannot 
see any policy justification for people to be treated unfairly and 
ruined financially with hugely disproportional tax burdens because they 
make more than a specified amount of money.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at the number below 
if you have any questions.

            Sincerely,

                Ron Speltz, June, Alison, Sydney, Angela and Sawyer

                                 

                                                  Dunwoody, Georgia
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Sally Foster and I am writing on behalf of myself and my 
82-year-old mother of whom I am the sole support of, regarding a huge 
AMT tax debt that I incurred on ``phantom'' gains due to the 
application of the Alternative Minimum Tax to incentive stock options 
(ISOs). I am represented in Congress by the Honorable Tom Price of the 
Georgia 6th District.
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    In March of 1997, I took a job as the Vice President of Customer 
Support with a small software company in Atlanta, GA called Clarus 
Corporation (formerly SQL Financials, Inc.). The company gave Incentive 
Stock Options (ISOs) to the employees as a means of being competitive 
in the marketplace with other firms and also to provide the employees 
with an opportunity to become shareholders of the company. I held 
various positions of responsibility over the years with Clarus 
Corporation and ended my tenure with them as a General Manager of the 
business. I departed Clarus to become a President and CEO of a dot.com 
company in November 1999. At the time of my departure from Clarus, I 
had 18,000 ISOs priced at $3.67 and I had to exercise them within 90 
days of my departure or they would be forfeited. I consulted with my 
tax accountant at the time and he advised me that I should exercise 
them in January 2000 which I did. I asked him to advise me of all the 
tax ramifications of exercising the options and he never mentioned AMT 
implications of exercising the stock options.
    In March 2001, my tax accountant called me and said that my AMT 
liability was over $520,000 plus penalty and interest based on the fair 
market value of $1,584,000 (18,000 options at $88.00 per share) on the 
date I exercised them. By this time the value of those exercised 
options had already become worthless. Although, I have tax credits I 
will never be able to use the majority of them during my lifetime. I 
have always been a responsible taxpayer and have always paid my taxes 
on time and in full. I have been financially ruined and it does not 
appear that I will live long enough to utilize the tax credits. I am 
the sole support for my 82-year-old mother and the stress that this 
liability has cause me and my family over the last several years has 
been enormous. Your assistance in rectifying this injustice would be 
greatly appreciated.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families. I applied for an offer in 
compromise but was rejected.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at the address and 
phone number below if you have any questions.

            Sincerely,
                                                       Sally Foster

                                 

                                                      Aloha, Oregon
                                                      April 5, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Phil English
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member English:

    My name is Sheila Weaver and I am writing on behalf of my husband, 
Ron Weaver, and myself, regarding a huge AMT tax debt that we incurred 
on ``phantom'' gains due to the application of the Alternative Minimum 
Tax to incentive stock options (ISOs).
    We would first like to thank Congress and in particular the Members 
of the Ways and Means Committee and Select Revenue Measures 
Subcommittee, for the ISO AMT Relief passed last year. This relief 
brings a ray of hope and the beginning of the end to a financial 
nightmare that my family and I have been living for nearly 7 years. We 
struggle to express our deep gratitude for the Relief Legislation, 
which takes a big step forward to restoring fair return of tax 
overpayment credits that were generated when the stock value plummeted 
and ISO AMT tax became grossly disproportionate to any gain actually 
made on the stock.
    We would respectfully ask for your continued support for important 
issues that remain unresolved for many ISO AMT victims, my family 
included. These issues are (i) ongoing ISO AMT liability and associated 
interest and penalties, and (ii) the income phase-outs that leave many 
families with limited or no relief. These are discussed in more detail 
below, but first I would like to briefly tell my family's story.
    I worked for Intel Corporation and received Incentive Stock Options 
as part of my compensation package. We paid our share of the AMT but it 
was an enormous personal struggle for us. Luckily, we didn't have to 
lose our house or file for bankruptcy, as I know many others have had 
to. This had a huge impact on our children's college education. We have 
only recouped a very small portion of our AMT credits over the last 6 
years.
    Addressing Ongoing Liability, Interest and Penalties. Many ISO AMT 
liabilities were so incredibly disproportional to actual gain, that 
thousands of families across the country are still, 6 years after being 
trapped by ISO AMT, embroiled in offers in compromise. I am hopeful 
that the IRS will see that Congress did not intend to provide relief to 
people who were significantly harmed (but were somehow able to pay), 
but deny relief to those that were so completely devastated by the 
unintended consequences of the ISO AMT provisions that they have been 
unable to pay. In addition, many families had no choice but to enter 
into devastating offers in compromise that are subjecting them to 
crushing ongoing monthly payments that are preventing them from 
properly caring for their families.
    I would respectfully request your help in instructing the IRS to 
fulfill Congress's intent to provide relief to all ISO AMT victims, and 
end the collection nightmare that has been unfairly plaguing hard-
working families trapped by ISO AMT. Families who have suffered for 
almost 7 years are in desperate need of having remaining ongoing 
liability, interest and penalties abated, or they will continue to be 
caught in the downward spiral in which they have been suffering for 
years due to the unintended consequences of the ISO AMT provisions.
    Removing Relief Phase-out for American Families. A significant 
change was made to the relief in H.R. 3385 when it was included in the 
Tax Relief and Health Care Act of 2006, in that an income phase-out 
provision was added that leaves many American families with no relief 
or only partial relief. This phase-out was not a part of the widely 
supported Johnson/Neal H.R. 3385. H.R. 3385 recognized that families 
should pay their fair share of tax on money actually received, 
regardless of income level. Also, these income phase-outs unfairly 
targeting families in high cost-of-living States and Districts such as 
Silicon Valley, Massachusetts, New York, Connecticut and Virginia; 
those families are suffering as much from unfairly disproportionate 
taxation as people with lower incomes in other areas.
    The phase-outs themselves have serious unintended consequences by 
forcing affected employees to quit work or lower productivity in order 
to recover their credits, thereby robbing companies and the economy of 
the services of high value employees, and robbing the Treasury of tax 
revenue that would otherwise be collected from these people if they 
were fully productive. Additionally families are frozen in their 
footsteps for 5 years, for instance if they were to receive a spike in 
salary or one-time bonus, they're also prevented from selling their 
homes and God forbid a relative passed away and left some of their 
estate to you are left with the Hobson's choice having to forgo some or 
all of your intended credit refund because your collective AGI exceeded 
the Cap thresholds or limits.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. Please do not hesitate to contact me at [Your Contact 
Information] if you have any questions.

            Sincerely,

                                                      Sheila Weaver

                                 
                         Statement of Todd Keen
    I was contacted via email by an organization I have been associated 
with for the last several years known as ReformAMT (www.reformamt.org). 
I joined this organization sometime after being hit with a substantial 
tax bill in the form of AMT tax in the tax year 2000. They have 
informed me of your panel and you're looking for input on the following 
items regarding current tax laws:

      Headaches, unnecessary complexity, and burdens that 
taxpayers--both individual's and businesses--face because of the 
existing system.
      Aspects of the tax system that are unfair.
      Specific examples of how the tax code distorts important 
business or personal decisions.
      Goals that the Panel should try to achieve as it 
evaluates the existing tax system and recommends options for reform.

    In regards to the following item:

      Headaches, unnecessary complexity, and burdens that 
taxpayers--both individuals and businesses--face because of the 
existing system.

    I have worked most of my adult life at start-up high-technical 
companies which commonly issued stock options as a form of 
compensation. One grant I received in 1997 was for ISO options, the 
rest were for Non-Qualified options. It is the ISO options that have 
created my headache. With the ISO options the general prevailing 
philosophy on the sales of these options was to exercise them and hold 
them for at least a year so that they would be taxed as long term 
capital gains. This philosophy appears to have been a recipe for over-
taxation in the form of AMT tax when held in the context of the boom 
period of 1999-2001. While my employer held seminars on the 
implications that stock options had on potential tax burdens, we would 
be advised to consult with our own private tax consultant on our 
specific details. The problem is many tax consultants seemed to be 
inadequately informed on the matter of stock sales, ISO options and AMT 
tax implications. The result of attempting to do the correct thing for 
me to put myself in a tax situation where my ISO options would be 
taxable as long term gains resulted in being taxed on potential income 
that I have never made. Indeed 4 years later the stock my ISO's were 
granted in have still not approached the values that my AMT tax was 
based upon. I have since sold these shares to pay for my AMT 
obligation, but I am extremely disappointed at the opportunity lost. I 
am not an accountant and to this day still do not know what would have 
been the correct way to handle my ISO options.
    I have continued to seek accounting help in this area several years 
after the fact, I have involved myself in the organization ReformAMT 
and hope that some day a clearer more representative taxation on my ISO 
sales will be implemented and I will have some restitution on my AMT 
taxes paid.
    I am not a millionaire. I do not earn $200,000.00 every year. I had 
several exceptional earnings years based upon stock options in the late 
90's and early 2000. I am not now nor have I ever been close to 
bankruptcy. I have paid all my tax bills. I do believe that due to the 
current tax laws and lack of correct advice I have been overtaxed in 
the form of AMT tax on ISO options for profits I will never earn. I 
also feel that the government has impacted my ability to provide 
greater stability in the form of financial security to both my children 
and my spouse and I as we get older. This seems shameful to me that 
taxation laws could have this kind of impact on a family.
    In regards to the following item:

      Aspects of the tax system that are unfair.

    Any tax law that taxes people on potential future earnings and then 
does not return those taxes if the earnings are not realized is just 
plain unfair.
    In regards to the following item:

      Specific examples of how the tax code distorts important 
business or personal decisions.

    For me my important decisions had to do with funding my children's 
educations and providing for my wife and I in retirement. Due to the 
complexity and lack of correct advice in ISO/AMT matters my ability to 
properly plan for these items have been adversely impacted.
    In regards to the following item:

      Goals that the Panel should try to achieve as it 
evaluates the existing tax system and recommends options for reform.

    My primary goal for this panel is to recover AMT taxes assessed in 
the year 2000 for exercise of ISO stock options. My secondary goal 
would be obviously for others who have been impacted similarly to have 
their AMT recovered as well. My third goal would be a review of the AMT 
tax laws to see if they make sense and do whatever it is they were 
originally intended to do. If they do a new less complicated method of 
implementing these needs to be developed. Currently the AMT taxation 
rules are even too complicated for most accountants to properly explain 
to clients.
    While I have not commented on specifics of my AMT impact other than 
the timeframes and personal feelings towards the issue, I would be more 
than happy to meet with the panel to discuss any specific detail of my 
AMT experience. I am not comfortable providing more specific details in 
this letter, as I am told it would be public record.

                                 

                                               Excelsior, Minnesota
                                                      April 4, 2007

The Honorable Chairman Richard Neal
The Honorable Ranking Member Jim Ramstad
Select Revenue Measures Subcommittee
1102 Longworth House Office Building
Washington, DC 20515

Dear Chairman Neal and Ranking Member Ramstad:

    My name is Tom Schrepel and I am writing on behalf of my family, 
regarding Alternative Minimum Tax to incentive stock options (ISOs). We 
would first like to thank Congress and in particular the Members of the 
Ways and Means Committee and Select Revenue Measures Subcommittee, for 
the ISO AMT Relief legislation passed within the Tax Relief and Health 
Care Act of 2006. This relief brings a ray of hope and the beginning of 
the end to a financial nightmare that we have been living for nearly 7 
years. We also respectfully ask for your continued support for 
important issues that remain unresolved for many ISO AMT victims, my 
family included. Specifically, we request assistance in addressing the 
income phase-outs that leave many families with limited or no relief. I 
will discuss this issue in more detail below, but first I would like to 
briefly share my family's story with regards to ISO AMT.
    Our family paid over $1.7 million AMT in Tax Year 2000, due to 
phantom gains on ISOs that were exercised but not sold. Specifically, 
the AMT was paid due to paper gains on 70,000 Ariba, Inc. ISOs that we 
exercised when the stock's value was over $110/share. Due to a Blackout 
Period, I was unable to trade the stock until after the end of the tax 
year. The stock is now worth less than $1/share, with an economic 
benefit of about $70,000, as opposed to the $7,700,000 paper gain we 
were taxed on. I ask that you focus on those numbers. We paid a 
$1,700,000 tax for an economic benefit of $70,000.
    Tax law for AMT on ISOs as currently written is highly confusing 
and very unfair. The Instructions for Form 6251 (AMT--Individuals) when 
filing my 2000 taxes stated the following:

          ``The tax laws give special treatment to some types of 
        income, allow special deductions for some types of expenses, 
        and allow credits for certain taxpayers. These laws enable some 
        taxpayers with substantial economic income to significantly 
        reduce their regular tax. The AMT ensures that these taxpayers 
        pay at least a minimum of tax on their economic income.''

    My family has no special credits, deductions, or exemptions that 
significantly reduce our regular tax and we have been caught in a 
situation where our AMT tax burden on ISOs has far exceeded any 
economic benefit we have or ever will gain from ISOs exercised in tax 
year 2000. I am not a wealthy executive. I am a 47-year-old sales 
representative that received the ISOs because I joined a company before 
they were well known and opened a territory for them to make them well 
known. My wife, Velinda, is a stay-at-home mom for our 10-year-old 
daughter Emma and 6-year-old son Quinn. When we became aware of our AMT 
obligation in 2001, we liquidated all of our assets and paid the AMT, 
including a substantial penalty that incurred during the period that it 
took us to liquidate those assets. I continue to work and pay taxes. 
Interestingly enough, I seem to get hit with AMT every year.
    We request that Congress remove relief phase-out that exist in the 
Tax Relief and Health Care Act of 2006. A significant change was made 
to the relief originally contained in H.R. 3385 when it was included in 
the Tax Relief and Health Care Act of 2006. Specifically, an income 
phase-out provision was added that leaves many American families, 
including mine, with no relief or only partial relief. This phase-out 
was not a part of the widely supported Johnson/Neal H.R. 3385. H.R. 
3385 recognized that families should pay their fair share of tax on 
money actually received, regardless of income level. These income 
phase-outs also unfairly target families in high cost-of-living States 
and Districts such as Silicon Valley, Massachusetts, Minnesota, New 
York, Connecticut and Virginia. Families in these areas suffer as much 
from unfairly disproportionate taxation as people with lower incomes in 
other areas.
    The phase-outs contained in the Tax Relief and Health Care Act of 
2006 have serious unintended consequences by forcing affected employees 
to quit work or become less productive in order to recover their 
credits. This robs their employers and the economy of the services of 
high value employees, and robs the Treasury of tax revenue that would 
otherwise be collected from these people if they were fully productive. 
The phase-out Caps put us into another 5 years in purgatory of no 
financial flexibility after 7 years of loaning the Federal Government 
$1.7 million, interest-free, due to the unintended consequences of ISO 
AMT.
    I want to once again express my gratitude to Congress for all it 
has done and is doing to help families across the country suffering 
from ISO AMT. I also appreciate your attention to the topics in this 
communication. It is interesting to look back on correspondence with 
various entities on this topic. In our first correspondence, my son 
Quinn was 1 and my daughter Emma was 6. They are now 6 and 10. We do 
appreciate the progress you have helped us achieve and I trust that, 
with continued progress, we will be able to afford college for them 
when the time comes. Thanks again and please do not hesitate to contact 
me at any time if you have any questions.

            Sincerely,

                                                       Tom Schrepel

                                 
                  Statement of William David Kebschull
    Mr. Chairman and Members of the House Ways and Means Subcommittee 
on Select Revenue Measures, I thank you for the opportunity to submit 
my statement regarding current problems with IRS instructions related 
to the AMT. My name is William David Kebschull and my statement is 
being submitted as an individual taxpayer.
    In this statement I will address IRS instructions that result in 
the ``Double or Nothing Taxation'' of tax refunds when the regular tax 
is paid in one year and the AMT is paid in the other and there was a 
tax benefit from a tax overpayment in the first year and a refund of 
the overpayment in the second year.
    IRS's instructions that deviate from the Internal Revenue Code by 
excluding from alternative minimum taxable income (AMTI) the refunds of 
tax overpayments that provided a tax benefit in a prior year when the 
regular tax was paid has cost the United States Treasury several 
billion dollars since 1988.
    On the other hand, some taxpayers who received a limited long-term 
capital gains rate-based tax benefit from a tax overpayment included on 
Schedule A (Form 1040) in the year the AMT is paid will have their 
refunds taxed at the regular tax rate after the income used for the tax 
overpayment was taxed at the AMT rate.
Double Taxing Income/Refunds
    It is well understood that state and local income and property 
taxes are deductible in determining the regular tax and that an 
overpayment of the tax can produce a tax benefit that must be accounted 
for in the refund year when the regular tax is paid. It is not 
understood by IRS that the refund must be accounted for by inclusion of 
the refund in AMTI when the AMT is paid in the refund year. It is also 
not understood by IRS that there can be a limited long-term capital 
gains rate-based tax benefit from a state income tax overpayment that 
is claimed as an itemized deduction on Schedule A (Form 1040) in a year 
that the AMT is paid. This benefit is the result of a tax overpayment 
causing a larger portion of capital gains to be taxed at the 5 percent 
rate and a smaller portion being taxed at the 15 percent rate on 
returns where the regular income without capital gains and qualified 
dividends is taxed at a rate below 25 percent. See page 2 of Form 6251. 
This benefit is revealed by the following instruction from page 25 in 
IRS Publication 525.
    Subject to alternative minimum tax. If you were subject to the 
alternative minimum tax in the year of the deduction, you will have to 
recompute your tax for the earlier year to determine if the recovery 
must be included in your income. This will require a recomputation of 
your regular tax, as shown in the preceding example, and a 
recomputation of your alternative minimum tax. If inclusion of the 
recovery does not change your total tax, you do not include the 
recovery in your income. However, if your total tax increases by any 
amount, you received a tax benefit from the deduction and you must 
include the recovery in your income up to the amount of the deduction 
that reduced your tax in the earlier year.
    In a year that the AMT is paid and there is a limited long-term 
capital gains rate-based tax benefit, the income used for the 
overpayment is included in Alternative Minimum Taxable Income and taxed 
at the AMT rate. If the regular tax is paid in the year the refund of 
the overpayment that produced the limited long-term capital gains rate-
based tax benefit is received, the refund will be entered on lines 10 
or 21 and will be taxed at the regular tax rate. Thus the income/refund 
related to a tax overpayment that produced the limited long-term 
capital gains rate-based tax benefit is double taxed because the income 
used for the tax overpayment is in a year that the AMT is paid is taxed 
at the AMT rate and the refund received in a year that the regular tax 
is paid is taxed at the regular tax rate. This violates section 111(a) 
of the Internal Revenue Code.
    Section 111(a) of the Internal Revenue Code provides,
Deductions
    Gross income does not include income attributable to the recovery 
during the taxable year of any amount deducted in any prior taxable 
year to the extent such amount did not reduce the amount of tax imposed 
by this chapter.
    Based on section the language in 111(a) the refund of a tax 
overpayment that produced a limited long-term capital gains rate-based 
benefit should only be included in gross income for the purpose of 
determining the capital gains portion of a person's income tax in the 
refund year.
Taxing Neither the Income Nor the Refund
    When a tax overpayment produces a tax benefit in a year that the 
regular tax is paid, the deduction for the overpayment offsets the 
income used for the overpayment. When the refund of a tax overpayment 
from a year the regular tax was paid is received in a year the AMT is 
paid the refund will be included in gross income as a result of the 
entry of the refund on either line 10 or 21 of Form 1040. The refund 
amounts entered on Lines 10 or 21 of Form 1040 are then excluded from 
Alternative Minimum Taxable Income as a result of their subtraction on 
line 7 of Form 6251. Thus neither the income used for the tax 
overpayment that produced the tax benefit nor the refund of the 
overpayment will be taxed directly. It should come as no surprise that 
this instruction is contrary to the section 56(b)(1)(D) of the Internal 
Revenue Code. The result of this bollixed instruction has been the loss 
of several billion dollars to the United States Treasury since 1988. I 
estimate the loss to the United States Treasury to be about 
$500,000,000 in 2006 alone as a result of the bollixed IRS instructions 
that excludes refunds from years when the regular tax was paid from 
AMTI.
    Section 56(b)(1)(D) provides,
Treatment of certain recoveries
    No recovery of any tax to which subparagraph (A)(ii) applied shall 
be included in gross income for purposes of determining alternative 
minimum taxable income.
    Section 56(b)(1)(A)(ii) provides,
(b) Adjustments applicable to individuals
    In determining the amount of the alternative minimum taxable income 
of any taxpayer (other than a corporation), the following treatment 
shall apply (in lieu of the treatment applicable for purposes of 
computing the regular tax):
(1) Limitation on deductions
    (A) In general
    No deduction shall be allowed
    (ii) for any taxes described in paragraph (1), (2), or (3) of 
section 164(a). Clause (ii) shall not apply to any amount allowable in 
computing adjusted gross income.
    Section 164(a) (1-3) provides,
(a) General rule
    Except as otherwise provided in this section, the following taxes 
shall be allowed as a deduction for the taxable year within which paid 
or accrued:

(1) State and local, and foreign, real property taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war profits, and excess 
profits taxes.

    In 1999, two letters from me to IRS and two letters from IRS to me 
were released by IRS as Tax Correspondence and published in Tax 
Analyst.\1\ The letter from a respondent in the IRS Office of Chief 
Counsel presented a detailed response to my concerns about the tax 
treatment of itemized deduction recoveries. Unfortunately, the 
respondent seemed to subscribe to the philosophy of John Sears, an 
advisor to Ronald Regan, ``reality is an illusion that can be 
overcome.''
---------------------------------------------------------------------------
    \1\ Tax Analyst, Tax Notes Today, March 18, 1999 Thursday, 
Department: Official Announcements, Notices, and News Releases; IRS Tax 
Correspondence, Cite: 1999 TNT 52-53. HEADLINE: 1999 TNT 52-53 Taxpayer 
Irate About IRS's Position on AMT and Tax Benefit Rule (Section 111--
Tax Benefit Recovery Items;) (Release Date: DECEMBER 08, 1998) (Doc 
1999-10275 (28 original pages)).
---------------------------------------------------------------------------
    Here is how the respondent tried to justify the IRS instruction 
(currently line 7 on Form 6251) that has produced a multi-billion 
dollar fraud on the United States Treasury.
    As stated in prior correspondence we disagree with your assertion 
that recoveries of taxes described in paragraphs (1), (2), or (3) of 
section 164(a) should only be excluded from gross income in computing 
AMTI to the extent deduction of the taxes did not reduce the taxpayer's 
income tax liability. Under your interpretation section 56(b)(1)(D) 
would be unnecessary; it would only apply to exclude items from gross 
income when such items are already excluded from gross income under 
section 111.
    Section 56(b)(1)(D) provides that no recovery of any tax to which 
section 56(b)(1)(A)(ii) applied shall be included in gross income for 
purposes of computing AMTI. By its terms section 56(b)(1)(A)(ii) denies 
any deduction in computing AMTI for taxes described in section 
164(a)(1)-(3). It does not limit its application to taxable years in 
which the taxpayer is liable for AMT. Because these taxes are never 
deductible in computing AMTI, recoveries of such taxes are always 
excluded from gross income, under section 56(b)(1)(D), for purposes of 
computing AMTI.
    When the respondent's letter was published in 1999 his assertion 
that a tax deduction taken in a year that the Alternative Minimum Tax 
(AMT) was paid could not have reduced a taxpayer's income tax liability 
and therefore the refund should not be included in gross income on Form 
1040 was no longer true. In fact, beginning in 1997, a tax deduction 
claimed on Schedule A (Form 1040) could have reduced a taxpayer's tax 
liability when the AMT was paid as a result of what I have described 
above as a limited long-term capital gains rate-based tax benefit which 
results from the two tier capital gains rate structure. See page 2 of 
Form 6251.
    What the IRS respondent is saying is that section 56(b)(1)(D) 
provides that refunds of taxes that were allowed as itemized deductions 
under section 164(a) and as such produced a tax benefit when the 
regular tax was paid are excluded from AMTI in addition to the taxes 
that were not allowed as a deduction in determining AMTI under section 
56(b)(1)(A)(ii) and therefore produced no tax benefit when the AMT was 
paid.
    When the respondent stated, It does not limit its application to 
taxable years in which the taxpayer is liable for AMT, he was simply 
wrong. Section 56(b)(1)(D) means exactly what it says: no recovery of 
any tax to which subparagraph (A)(ii) applied shall be included in 
gross income for purposes of determining alternative minimum taxable 
income. For subparagraph (A)(ii) to have applied to the tax being 
refunded, payment of the AMT would have been required. Section 
56(b)(1)(D) is necessary to appropriately preclude the inclusion in 
AMTI of a refund of a tax overpayment that produced a limited long-term 
capital gains rate-based tax benefit in a year the AMT was paid. When 
the tax benefit is the result of paying tax on less taxable income 
rather than the result of paying tax at a lower rate on a portion of 
capital gains, the tax refund must be included in AMTI based on a 
rational interpretation of section 111(a) of the Internal Revenue Code.
    If it were the intent of Congress not to include the refunds of all 
taxes claimed as itemized deductions on Schedule A (1040), section 
56(b)(1)(D) would state the following:
Treatment of certain recoveries
    No recovery of any tax claimed as a itemized deduction under 
subparagraphs (1), (2), or (3) of section 164(a) shall not be included 
in gross income for purposes of determining alternative minimum taxable 
income.
    But that is not what 56(b)(1)(D) states.
    Here is a question for the Internal Revenue Service and the 
Treasury Department to answer:
    If a tax overpayment is allowed as a deduction and produces a tax 
benefit in a year that the regular tax is paid and the refund of that 
overpayment is to be excluded from alternative minimum taxable income 
in a year the AMT is paid as indicated by the IRS instructions and 
defended by the respondent in the IRS Office of Chief Counsel, just 
when is the income/refund taxed directly?
    I submitted a more detailed statement on ``Double or Nothing 
Taxation'' of Tax Refunds when the AMT is paid in one year and the 
regular tax is paid in the other to the Oversight Subcommittee of the 
House Ways and Means Committee for inclusion in the record for their 
hearing of March 20, 2007 regarding the Tax Gap. That statement also 
addressed ``Double Taxation'' of itemized deduction recoveries that 
result from IRS instruction that deviate from the provisions of section 
111(a) by inclusion of the recoveries entered on lines 10 and 21 in the 
calculation of taxable Social Security benefits and 27 other provisions 
in the Internal Revenue Code that are impacted by AGI or one of the 
numerous versions of modified AGI (MAGI).

                                  
