M E M O R A N D U M
		Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W. Washington, D.C. 20006-1101 Main Tel (202) 263-3000 Main Fax (202) 263-3300 www.mayerbrownrowe.com Brian P. Trauman Direct Tel (202) 263-3361 Direct Fax (202) 263-5361 bptrauman@mayerbrownrowe.com
March 29, 2005
To:	Mr. Joe Kristan
From:	Tim Carlson President Coalition for Tax Fairness (301) 515-6584
Re:	AMT/ISO: Executive Summary of Proposed Legislation

Executive Summary of Proposed Legislation re:

Alternative Minimum Tax / Incentive Stock Options

The Proposed Bill respects the Congressional purposes of the Tax Code by aligning the AMT prepayment structure with the regular tax code incentives for ISOs in a comprehensive and consistent manner. The Proposed Bill generates revenue by ensuring that everyone pays their fair share, while at the same time ensuring that the AMT ISO provisions will no longer unintentionally impose exorbitant and devastating tax liability on honest taxpayers. The refund provisions for past taxpayers resolve the current injustice where taxpayers are being subjected to unintentional and outrageously disproportional tax rates and irretrievable tax prepayment credits. Key provisions provide:

· New Valuation Date Aligns AMT Prepayment with ISO Incentives: This proposal matches (a) the date on which the AMT prepayment tax is imposed, with (b) the date on which the underlying stock becomes a long-term capital asset. This new valuation date generally will be one year after exercise, at which point the taxpayer can satisfy the AMT tax by paying the proportional amount of current value. The vagaries of the stock market during the period prior to the stock becoming a long-term capital asset will no longer create the unintended “trap” or Hobson’s choice.

· Compliance Provisions Generate Revenue: Current law does not provide for matching notice to the IRS when a taxpayer exercises ISOs. Accordingly, the only people paying the ISO prepayment tax are honest self-reporters. Given the devastation visited on these honest self-reporters, and the fact that no independent reporting exists, compliance is at an all-time low. The Proposed Bill requires companies to provide matching reports to the IRS (as are currently required for NQOs), allowing the IRS to track when AMT prepayments are owed, without additional cost to the companies. This matching provision, along with the fair and equitable payment provisions, combine to remove reporting disincentives and add reporting incentives, thereby bringing compliance to virtually 100% and generating substantial revenue (See, California and IRS recent examples).

· Provisions Treat Taxpayers Fairly for Past Years: Honest taxpayers are being subjected to disproportional and devastating tax rates for past ISO exercises, and payments are generating irretrievable AMT “credits” which are in essence a lifetime (or longer) interest free loan to the government. Because taxpayers didn’t make any money on the stock or made significantly less than the “phantom” income on which they are being taxed, many taxpayers have taken our loans themselves (on which they are paying interest) to then turn around and make this loan to the government. The Proposed Bill provides for a refund of these overpayment credits in the next 3 filing periods, thereby avoiding the injustice of forcing taxpayers to make a lifetime interest-free loan to the government based on future income they will never receive.

The Proposed Bill is designed to be fair and equitable to all taxpayers, requiring everyone to pay their fair share but not penalizing honest taxpayers with excessive taxes while those who don’t report get off without paying. The Proposed Bill is fair, generates revenue, and fixes the current disconnect between the AMT Code and Regular Tax Code to prevent this unintended result from happening in the future, and to rectify the past unintended results.