Tax planning and compliance for investors
Free Online Guides
Kaye A. Thomas
Posted March 14, 2009
You didn't pay? We forgive you.
The tech stock collapse that began in 2000 left some people with AMT liabilities far beyond their ability to pay. Some of them had to deal with IRS collection efforts over a number of years. The original version of the refundable AMT credit did little to remedy this situation. Someone who owed $1,000,000 to the IRS might qualify a credit of $200,000 or less. The IRS would apply that credit against the amount owed and continue trying to collect the remaining amount. The new version does away with that problem.
The law says that if, as of October 3, 2008, you owed AMT as a result of exercising an incentive stock option ("ISO") in 2007 or any prior year, the tax is abated. That means you don't have to pay it. The tax is wiped off the slate. You don't have to pay interest or penalties relating to that unpaid tax, either. It's as if you never owed it.
Only for AMT from exercising ISOs. This relief doesn't extend to AMT you might owe for any reason other than exercising an incentive stock option. Even if your unpaid AMT relates to a "timing adjustment" (the kind of adjustment that allows you to claim AMT credit later), tax abatement doesn't apply unless it was the specific timing adjustment that applies when you exercise an ISO and hold the stock after the end of the year of exercise.
No credit for unpaid tax. Naturally, if you escaped having to pay AMT as a result of this provision, you can't claim a credit for this unpaid tax.
It isn't at all clear why Congress extended this provision to unpaid tax from 2007. People who paid AMT for that year aren't allowed to claim a refund. They have to wait until they're able to claim the AMT credit, something that may not occur for several years. Meanwhile, someone who didn't pay the tax got off scot-free, regardless of whether their nonpayment was due to hardship or forgetfulness or even outright cheating. We've seen some bitter complaints about this from people who paid their tax in 2007 or other recent years.
|That Thing Rich People Do|
|The fastest, easiest way to learn the principles of investing.|
|Our complete guide to Roth IRAs and Roth accounts in 401k and similar plans: choosing, creating, building and using these accounts.|
|Consider Your Options|
|A plain-language guide for people who receive stock options or other forms of equity compensation.|
|Equity Compensation Strategies|
|A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options.|
|Capital Gains, Minimal Taxes|
|Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options.|