Senator Grassley has announced an agreement with the IRS that it will "suspend" collection efforts regarding taxpayers who owe the AMT on incentive stock options. The rationale--that Congress may pass legislation to undo the requirement that taxpayers pay the AMT on such options. For Grassley's release on this matter, see here.
Remember that the AMT has for a long time served as a backstop to the regular income tax by eliminating the benefit of excessive preferences. Rather than redo the regular tax and eliminate preferences for everyone, Congress allowed the AMT to "clawback" some of the benefits of preferences. Defining the base more broadly, and taxing at just a few rates, Congress was able to ensure that most taxpayers paid at least a de minimis amount of tax.
Those who are granted the options can avoid the problem of holding onto options that later tank by selling immediately to pay the tax. A suspension --or, indeed, if it is passed, legislation that undoes the tax treatment for a few who happen to fall within its parameters--is inherently unfair. Many taxpayers wisely exercised options to pay the tax and avoid the potential of the problem. Legislation would unfairly reward those who didn't do so.
Congress shouldn't pass that kind of reform of the AMT. Instead, Congress should make the AMT a genunine "clawback" for excessive preferences by adding back the capital gains preference as an AMT adjustment.
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