Death to the AMT

By Damien Cave and Amy Standen

By Salon Staff
Published April 19, 2001 7:30PM (EDT)

Read the story.

In your article today, CPA Tony Pimentel says that the AMT for stock options "violates the green paper rule. You only assess taxes based on the person's ability to pay."

But the exercisers of these options HAD the ability to pay on the day they exercised: They could have immediately sold enough shares to lock in a gain equal to their tax liability. The real question is why they didn't do so. Why exercise if you're not going to sell? Bad advice? Fire your accountant. Company plans that require you to hold the shares beyond the exercise date? Get your company's compensation people to change that inanity. This ain't rocket science. Know the rules and act accordingly.

-- E. Eccher

I have no sympathy for these purported "victims" of the AMT. Basically they were screwed by their own greed and now want the government to give them a pass on their mistaken bet on the market. Like many others in the less glamorous sectors of the economy, I have nonstatutory stock options -- exercise them and you are taxed at ordinary income rates whether or not you sell the shares. And tax withholding applies so you must pony up the tax at the time you exercise. The AMT hits incentive stock options -- no tax on exercise and if you hold the shares for a certain period, the disposition of the shares is at favorable capital gains rates. If these people are so dumb that they could not understand the relatively simple provisions of the AMT tax as it applies to a matter of such personal significance, I question that they were adding much value to the companies they worked for. No surprise the stock prices tanked. Suck it up and pay the tax man!

-- Bill Bayers

So, the "ATM victims" didn't make sure that they had enough money to pay their taxes; were willing to cash in and make hundreds of thousands, or even millions of dollars, but didn't bother to be educated about the tax code; engaged in high-risk investing by retaining the stocks they bought with stock options. Therefore, they think the tax code has a problem with it.

I have trouble having any sympathy for them. For years, I had to pay taxes that were not deducted from my payroll. I made sure I had the money to pay them set aside. Why didn't they cash out at least enough options to pay their taxes?

If you want to pass a law, pass one that requires companies to inform employees of their tax obligations, including the AMT, when they get stock options. Don't treat getting burned by high-risk investing as a problem with the tax code.

-- John Shannonhouse

I couldn't agree more. We had to pay a whopping bill to the IRS for phantom gains on exercised options. The complexity of this tax is outrageous -- every hour that citizens have to spend understanding the nuances of the tax code is an hour wasted and a drag on the economy. Surely the government can find more effective ways to raise money.

-- Walter Gillett

It would figure that these poor little rich dot-commers want it both ways -- give me money, money and more money but DON'T tax me for it! What do they mean it was money they never saw? They profited plenty from their stock options. What did they think their line of credit was based on? I am hardly worried that they will no longer be consuming. Maybe they'll just consume at a lesser (read normal) rate. What a load of bull. They knew the game and most of the rules. That you chose to buy that overly priced house, car, vacation home, whatever instead of hiring the best accountant (no, not financial planner) that money could buy was your mistake.

Crying time's over, time to pay for all the fun you had while thumbing your nose at the rest of us regular working joes. Welcome to the real world, where we all pay our way.

-- F. M. Martinez

The automobile analogy is erroneous. If the car was stolen the next day, a taxpayer could take the casualty loss off on his taxes.

It would seem that a fair alternative if the AMT is to be maintained is to allow affected stockholders to mark their securities to market as of the end of the year and offset any unrealized losses against the gain arising from the option exercise. This would allow the AMT to continue to serve its original purpose, while protecting taxpayers against being taxed on phantom gains.

-- M. Clayton McDonald

I'm baffled by the folks complaining about the fact that they have to pay the AMT on their exercised stock options. Its akin to someone being upset because of a margin call, or feeling "cheated" because they shorted a stock that went up in value.

Bowey, for example, can complain all he wants that it is "unfair" for him to pay $269,000 in taxes -- but he had almost a million dollars in stock that cost him only $13,000. He was just too greedy to be sensible and sell some of his windfall in order to pay the taxes. Here's a hint: If you're doing anything financially that involves a million dollars, you should probably consult with an accountant at some point.

These people feel entitled to become rich at any expense, but God forbid the market should turn around -- that's just ... just ... UNFAIR!

-- Nathaniel Merriam

John McNulty, the tax law professor at UC-Berkeley, said, "But they did make a profit when they exercised the option." No, they did not make a profit. One does not make a profit until the stock is sold.

Paper profits are exciting, but any experienced investor who has gotten a bit too greedy waiting for a stock to go up just a few more points, only to see it plummet, knows that a profit is not realized until the stock is sold.

-- Dan Murphy

Salon Staff

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