AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
Refundable AMT credit
Posted by: freya, April 5, 2017 04:18PM

I was reading your article "Refundable AMT credit", trying to figure out how I could get back the AMT tax (ouch!) I am paying this year for exercising ISO. Since the refundable AMT credit was only in act 2007-2012, I am wondering if you happen to follow the latest updates on it? Has it been extended or proposed to do so?

Thanks a lot!!

Re: Refundable AMT credit
Posted by: Art, April 5, 2017 08:40PM
The tax writing congress-folk seem to have declared war on refundable credits.

Ask any 1040 tax preparer about the IRS' Due Diligence requirements, which is a tricky way of saying "Tax Preparer, you do some of our auditing for us or expect to be in trouble."

The current batch of due diligence work is associated where you find 1040 refundable credits, i.e., Earned Income Credit, Child/Advanced child tax credit, and American Opportunity Credit.

Some other refundable credits were simply not renewed, including AMT and Adoption refundable credits.

Re: Refundable AMT credit
Posted by: freya, April 6, 2017 05:30PM
Thanks, Art, for your detailed reply. Looks like I can only pray that the refundable AMT should return some day.

Re: Refundable AMT credit
Posted by: triad, April 6, 2017 07:32PM
I remember it took about 10 years of lobbying (and a few suicides!) to get that 5 year deal to get some of the AMT credits whittled down.

When the deal came out, I researched the history of the credit and found quite a few tax court cases where people tried to argue how unfair it was.

Several people did the following during the early days of the tech bubble: exercised stock options with a $1Million spread; aimed for the LTCG rate and did not sell by 12/31; filed their taxes and discovered that they owed AMT of about $250,000; ran to sell the stock only to discover it had tanked sufficiently that they didn't even raise enough money to pay the tax bill. And you betcha, IRS collections still wanted to be paid.

Year two. Even if AMT is $0 and regular tax bill is $10K, they only get to use $10K of the credit. To add insult to injury, the AMT version of schedule D has its own $3000 loss limit.

Re: Refundable AMT credit
Posted by: freya, April 7, 2017 01:57PM
Thanks, triad! It is always interesting to read the background story.

Re: Refundable AMT credit
Posted by: Kaye Thomas, April 9, 2017 04:27PM
In case there is any misunderstanding, I'll point out that although the refundable AMT credit is gone, most likely never to return, the regular AMT credit remains. Depending on your personal situation, it may or may not be possible to fully use this credit over a reasonable period of time.

A huge wild card now is the proposal for a major overhaul of our tax laws. It will be some time before we know the shape of that legislation, but one of the proposals is the elimination of AMT. I'd call that a long shot but not impossible. If that happens, Congress will have to decide what to do about unrecovered AMT credits, and the solution may be favorable or unfavorable to people in this position.

Kaye Thomas

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