Employees Suffer Under AMT Recognition Rules, Individual Says

April 2, 2019

Us Department of the Treasury
Assistant Secretary for Tax Policy
David J. Kautter
1500 Pennsylvania Ave., N.W.
Washington, D.C. 20220

Mr. Kautter,

I am writing this letter with the hope of effecting clarification and maybe change in the Alternative Minimum Tax (AMT) recognition as it is related to the exercise of Incentive stock options (ISO). I believe Tax forms Forms for recognizing phantom income for AMT income are incorrect.

Assuming qualification under section 421. The Internal revenue form calls for the calculation below.

Market value of the stock at exercise date. Less option grant price.

Example. Market value at exercise date $100/Share Less option grant price of $25/Share = phantom AMT gain assuming stock is held of $75/share. AMT tax rate 28%.

I believe the calculation should be as follows.

Market value of stock option at vesting date (opposed to exercise date.) Less option grant price. Market value at option vesting date typically 20% of total options one year from the grant date fully vesting after five years with a ten year exercise period.

Argument:

Incentive options are a retention tool and vest based on the concept of increasing your income for each year associated with the option period. Matching principle for the time period makes more since. Measuring the income based on the “market value” for stock at the time of exercise creates hard ship for your average employee. To avoid the hard ship the employee is forced to sell a portion of the stock prior to reaching the one year hold period and thus short term capital gain tax treatment.

This seems to be in direct conflict of the measurement required of the entity granting the stock option which could disqualify the option based on the $100,000 per year limitation. Section 422 SS D indicates the market value to be calculated at the date the option are exercisable for the 1^st time by the individual (vesting Date). Why would the treasury measure the asset with different numbers.

Example:

2,500 share Option Granted at 2/06/2006 Grant price (market value) $25/Share.

2,500 shares exercised at end of 10 year (prior to expiration date)

Current Calculation

Options grant price	$25 X 2,500 =	$62,500
Market Value at exercise date	$70 X 2,500 =	$175,000
Phantom income for AMT		$112,500
Cash needed by employee to purchase		$62,500
Cash for AMT Tax 28%		$31,500
Total cash required		$93,000
Phantom income for AMT		$112,500
Real Income		$0

Proposed Calculation

Options grant price	$25 X 2,500 =	$62,500
Market Value at vesting date
2/06/2007	$20 X 500 =	($2,500)
2/06/2008	$25 X 500 =	$12,500
2/06/2009	$31 X 500 =	$15,500
2/06/2010	$36 X 500 =	$18,000
2/06/2011	$70 X 500 =	$35,000
Total market value		$78,500
Phantom Gain after $62,500 cost		$16,000
Real income.		$0

Current requirement:
Cash needed by employee to purchase	$62,500
Cash for AMT Tax 28%	$31.500
Total cash required	$93,000
Proposed:
Cash needed by employee to purchase	$62,500
Cash for AMT Tax 28%	$0
Total cash required	$62,500
Stock Held for one year and Sold:
Market value 2/06/16	$100/share or $250,000
Long term capital gain	$250,000 – $62,500 = $187,500
20% tax	$37,500.
Market value 4/02/19	$185/share or $462,500
Long term capital gain	$400,000
20% tax	$80,000

Long term the treasury would have gained income in my scenario. The current treatment forced me to sell the stock. The current treatment is bad for everyone. I understand the AMT is the law however, I believe the code is miss interpreted for the valuation of the options once exercised and damages the populous and the country on both sides. The numbers above are very real. This scenario forced me to take on debt and then sell the stock sooner than I would have. Which would have had a material impact in my family's financial wellbeing and increased the revenue to the treasury to $80,000. We all win.

Than you for your attention to this matter and I hope you give this serious consideration.

Barry Collier
1128 Dortmunder Dr.
Sparks, NV 89441
775-527-0025