Why did you owe tax on gains you never saw?
I exercised incentive stock options at McLeodUSA, in Cedar Rapids, Iowa, where I still work. That triggered the AMT, which required us to prepay taxes on the paper gains and receive tax credits to cover the tax bill when the stock was sold for a real profit.
Did you eventually sell the stock?
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Yes -- at a huge loss. People like us who exercised options just before the stock market collapsed in 2000 got stuck paying taxes on gains that never materialized. So we wound up with credits that, under the old tax law, we'd never be able to use.
How did you pay such an enormous tax bill?
We wiped out our savings and borrowed to pay our Iowa tax bill of nearly $53,000 and make an $89,000 down payment on the federal tax debt.
That must have devastated your finances.
The IRS has confiscated our tax refunds every year since. Interest and penalties continue to accrue, so we still owe $134,000. We have no savings, a boatload of debt and a lien on our home.
How did you fight back?
For six years, June and I wrote letters, called our congressional representatives and the IRS, and rallied other AMT victims to do the same. After our story appeared in Kiplinger's Personal Finance in 2003, the Coalition for Tax Fairness took up our cause, flew us to Washington, D.C., to lobby in person, and represented us for free in tax court. Witnessing President Bush sign the new tax-relief bill moved us to tears.
How will the new law help?
Starting with our 2007 tax returns, we will be eligible for a refundable credit of 20% of the AMT we have already paid, and 20% of the remaining balance over each of the succeeding four years.
How much do you expect?
We hope to get a refund of more than $30,000 the first year. But since we still owe the IRS money, they could apply the refund to our outstanding tax liability. We hope the new Congress will agree to wipe out the remaining tax debts for us and others hit by the AMT.
-- Interview by Mary Beth Franklin
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