AMT

Floor Speech

AMT -- (Senate - September 26, 2008)

Mr. GRASSLEY. Mr. President, there is a provision in the bill we passed Tuesday on taxes with only two dissenting votes that hasn't been discussed much, and I wish to refer to that provision. It is a modification of the alternative minimum tax credit allowance against incentive stock options. So the important words there are ``incentive stock options.'' Because of how stock options are treated by the AMT, the economic downturn in 2000 created a situation where many individuals owed tax on income they never realized. This is because they owed tax on the value of their stock options when they were exercised and not on what the value of the stock actually was when the shares were sold. Many people owed tax that was several times their actual income. Congress acted to remedy this situation through past legislation, but that did not completely solve the problem. Many families are still facing an IRS bent on collecting liabilities owed now, despite the fact that those liabilities would be offset by credits in the near future. This means that the IRS was--and could, in the future--be working to seize assets such as family homes to satisfy present tax liabilities that would be eliminated within the next few years under current law.

One Iowa family caught in this AMT trap is the Speltz family of Ely, IA, near Cedar Rapids. Ron and June Speltz found themselves in the crosshairs of the IRS after Ron used stock options to purchase several shares of stock of his employer. I ask unanimous consent that an editorial printed in the Des Moines Register on July 24, 2006, that describes the Speltz family ordeal be printed in the Record.

There being no objection, the material was I ordered to be printed in the RECORD, as follows:
[From the DesMoinesRegister.com, July 24, 2006]

Congress Should Fix Unfair Tax Quirk
(By the Register Editorial Board)

The U.S. government has ruined the financial lives of Ron and June Speltz of Ely.

Here's how it happened: In 1992, Ron took a job with McLeodUSA, then a small telecommunications start-up. Compensation included stock options, which he saved for a family nest egg. In 2000, he and June consulted a financial adviser on the best way to cash out the stock. The adviser told them to exercise the stock options and hold the stock for a year to take advantage of low tax rates on capital gains.

Then the stock price fell. What was once worth about $700,000 became worth about $2,000. Yet, they owed more than $250,000 in state and federal taxes due to a quirk in the Alternative Minimum Tax law that targets Incentive Stock Options (ISO-AMT).

When we wrote about the Speltzes and other Iowans in similar straits earlier this year, we received a few letters to the editor stating it was their greed and desire to avoid paying taxes that landed them in such a predicament.

Yes, they tried to take full advantage of tax law. Who doesn't? But at the end of the day, Americans should not have to pay taxes on money they never collected. It amounts to the U.S. government taking money from people it shouldn't be entitled to. It's hard to believe Congress intended such consequences for people whose employers, like McLeod, go bankrupt.

It's devastating families and driving them into bankruptcy, too. The Speltzes have had to borrow money from banks and family members to try to pay the tax. They have lost everything they had saved for retirement and their children.

But perhaps the greatest tragedy is that they have taken every possible step to get the government to respond to their case. And they're still waiting for help.

They've traveled to congressional hearings in Washington, repeatedly contacted members of the Iowa delegation, and gone round and round with the Internal Revenue Service. They even took their case to the 8th Circuit Court of Appeals, which on July 14 affirmed a judgment from the United States Tax Court that the Speltzes owe the tax.

``This is one more time that our court system has placed the issue in the hands of Congress,'' Ron wrote in an e-mail to the Register. ``We are in desperate need'' of Congress'' help.

Here's a glimmer of hope: When we checked with Sen. Charles Grassley's office last week, his aide, Jill Kozeny, said the senator was ``working to get included some ISO-AMT relief for middle-income taxpayers'' in what's called the ``extenders'' tax bill being negotiated in a conference committee.

``Obviously this is the biggest thing that's happened in five years,'' said the Speltzes' pro-bono attorney, Tim Carlson. He hopes it provides relief to the thousands of Americans, including scores of Iowans who worked for McLeod, who have been adversely affected by this quirk in tax law.

We hope so, too. The senator is the Speltzes' last hope.

Mr. GRASSLEY. Mr. President, despite the previous stock option alternative in minimum tax relief enacted earlier, the IRS is still after the Speltz family. In fact, this past June, Ron and June received a notice from the IRS announcing their intent to levy certain assets. After stating that the IRS intends to levy any State tax refunds, the notice continued: ``In addition, we will begin to search for other assets we may levy.''

I think anyone would be terrified to receive something such as this in the mail, especially when the outstanding liability derives from income never actually realized, and Congress has already decided that it shouldn't happen.

In July, I sent a letter with 26 of my colleagues in the Senate and the House to IRS Commissioner Shulman asking that he use the discretion provided to him by effective tax administration to suspend collection efforts to collect incentive stock option alternative minimum tax liabilities in order to give us a chance to fix this problem once and for all. Commissioner Shulman gave us that chance by agreeing that the IRS would not undertake any collection enforcement action through the end of the fiscal year. The end of the fiscal year is next Tuesday.

If the House does not stop playing politics with the taxpayers and instead pass the Senate extenders package that we passed with only two dissenting votes, Commissioner Shulman promises in his letter that ``the IRS will then continue to administer programs in accordance with current law.'' That means the Speltzes and probably a lot of other people spread around Iowa, California, and other places where high-tech was a big thing in the 1990s, their assets will be needlessly seized from them if we do not fix this problem.

This is not a political issue either. The original legislation to fix this problem was introduced in the Senate by Senator Kerry, and in the House by Congressman Chris Van Hollen. Both bills were cosponsored by Members of both parties. Even the National Taxpayer Advocate, in her Fiscal Year 2009 Objectives Report, agreed that this problem demanded immediate action.

Commissioner Shulman has given us the window we need to prevent additional taxpayers from being crushed in the grip of incentive stock option AMT liability. Any delay in enacting the Senate-passed legislation is to aid and abet the seizure of the Speltz family's assets and those of many other families.

According to the latest Small Business Administration report, issued in December 2007, all net new private sector jobs in 2006 were created by small businesses. According to the National Federation of Independent Business, almost half of those job-creating businesses are owned by taxpayers who are targeted with a marginal rate increase of 17 percent to 33 percent. Since these small businesses are likely to create or retain new jobs, maybe we could get a bipartisan agreement not to raise their taxes on small business.

I yield the floor.

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