**Individual Statement to the President\'s Advisory Panel on Federal Tax
Reform**

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| **Name:**             | Eric Delore                                  |
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| **Date of             | Friday, March 18, 2005                       |
| Submission**          |                                              |
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| **Contact             | **Address**: 23 Moore Court                  |
| Information:**        |                                              |
|                       | Alameda, CA 94502                            |
|                       |                                              |
|                       | **Phone:** 510.390.4015                      |
|                       |                                              |
|                       | **Email:** <ericdelore@comcast.net>          |
|                       |                                              |
|                       | **Website:**                                 |
|                       | <http://www.ericdelore.com/weblog/amt/>      |
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| **Category of         | Individual                                   |
| Submitter**           |                                              |
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-   **Overview of my situation**

> I owe \$420,000 of Alternative Minimum Tax (AMT) on under \$5,000 of
> actual income derived from the sale of frightfully deflated Incentive
> Stock Options (ISOs), and the IRS\'s aggressive and disorganized
> collection activities threaten to destroy my peace of mind and ruin my
> family. I am not wealthy. I am a middle-classed citizen struggling to
> raise a family on a single income.
>
> I have already paid the IRS \$37,000 of taxes, but they want more.
> They want everything. One collection agent suggested that I sell my
> home and give them all the proceeds. Bear in mind that by raiding
> various immediate and extended family bank accounts, I have already
> paid the California State Franchise Tax Board \$100,000 of AMT tax on
> this same \$5,000 of income. That is almost \$140,000 of taxes paid to
> date.
>
> Like many technology professionals during the dotcom boom years, I
> exercised and held unvested ISOs from my company, Commerce One, so
> that the long-term capital gains tax period would run concurrently
> with the vesting of the stock options. This way, by the time the
> shares fully vested, I would be able to sell them and pay the lower
> long-term capital gains tax rate. However, the value plummeted while
> they were vesting and insider trading rules periodically restricted me
> from selling the shares that vested along the way. At exercise, the
> ISOs were worth 1.1 million. By the time I was able to sell the
> shares, they were worth under \$5,000. Disastrously, the outdated and
> onerous AMT code forces me to pay taxes on the value of ISOs at the
> time of exercise, 1.1 million dollars, not at the time of sale, less
> than \$5,000.
>
> I hired tax attorneys, and we made two Offers In Compromise (OIC) to
> pay the IRS an additional \$100,000 of taxes. They rejected both
> offers, one without comment and another time because between the time
> we made the offer and the time they responded, almost six months, the
> value of my house had increased and they wanted that equity, too.
>
> We then were thrust into the jaws of the Automated Collection Service
> (ACS). The IRS cleaned out my bank accounts and intercepted my
> paychecks twice. They have also intercepted my state and federal tax
> refunds since the year 2001. My employer, Commerce One, then declared
> bankruptcy and laid off almost all of their work force, including me.
> At that point, the ACS decided to have me make another OIC, despite
> the fact that another IRS agent had told us that it would be
> impossible for us to submit another OIC. We submitted all the OIC
> forms and waited for months. After several months, we received a
> notice from a specific IRS agent, asking us to resend much of the same
> information and to correspond only with him. We submitted the
> information again and waited months again. After several more months,
> we received a letter from a different IRS agent asking us to resubmit
> much of the same information and to correspond only with her. We just
> resubmitted and are hunkering down for another several months wait. If
> the IRS rejects this OIC, this leaves only bankruptcy available to me,
> which basically amounts to, \"I quit, come and sell everything I own
> to get your money.\" This would be a very hard step for me to take,
> considering that I have paid all my other taxes on time and I do not
> have any other debts aside from my mortgage.
>
> The effect of this AMT debt on my family has been terrible and
> pervasive. I am on the brink of bankruptcy. I am on antidepressants to
> dull the clinical depression and dark thoughts triggered by this
> situation. I love these United States of America and I do have
> confidence in our government, but this situation has spawned in me a
> deep and, perhaps, irrational loathing of the IRS and State tax
> agencies that I struggle every day to mitigate and overcome. This
> loathing infects my every night's sleep, thought, decision, and
> familial interaction.

-   **Headaches, unnecessary complexity, and burdens that taxpayers -
    both individuals and businesses - face because of the existing
    system**

    -   AMT Tax -- Forces taxpayer to compute taxes twice for regular
        income and AMT income. Hard to understand how to compute this.
        Places unfair burden on average taxpayers to render tax on huge
        phantom gains resulting from the early exercise and holding of
        ISOs.

    -   OIC Process -- Lack of continuity. Slow response times. Often
        deal with different agents along the way who need months to come
        up to speed on each case.

    -   Tax code -- Too complex. Requires accountants to complete all
        the forms.

    -   IRS Coordination -- Had to inform IRS several times we had a
        power of attorney on file and not to contact us directly. One
        such instance resulted in the levying of all our money that we
        had to foight to reverse.

-   **Aspects of the tax system that are unfair**

    -   AMT on ISOs -- Requires taxpayer to pay huge taxes on phantom
        gains realized at the exercise of ISOs rather than at the sale
        of the associated vested stocks. AMT credit policy is laughable.
        The amount the IRS refunds every year is so small that only a
        taxpayer with a life expectancy of 500 years could ever hope to
        recover the entire AMT credit.

    -   OIC Process -- IRS refusal to accept OICs based on Ineffective
        Tax Administration claim when the claim arises from AMT on ISOs
        is unfair. Prolonged OIC process results in increased interest
        and penalties assessed against the petitioner

    -   ACS -- Unfair to levy bank accounts and salary after leaving a
        cryptic message on an answering machine, such as, "This is a
        message for Eric Delore. Please call me at xxx.xxx.xxxx
        regarding case number xxxxxx."

-   **Specific examples of how the tax code distorts important business
    or personal decisions**

    -   Because of the AMT on ISOs and the unfair and unpredictable
        associated IRS processes, we have avoided starting a business
        because we fear the IRS would just take all the money we made
        anyway, and postponed having another child because we thought
        we'd bee too poor to afford it and we can see the effects of
        this situation on our two young daughters. They haven't had
        vacations in years because we did not want the IRS to assert
        that if we can afford vacations, then we could afford to pay
        them 400k. We also feel that Tax law compliance is a risky
        choice. I voluntarily informed the IRS that I had early
        exercised ISOs. The unfair nature of the IRS treatment of AMT on
        ISOs may compel otherwise law-abiding citizens towards
        non-compliance.

-   **Goals that the Panel should try to achieve as it evaluates the
    existing tax system and recommends options for reform**

    -   Fair and Simple -- Simplify tax code. Repeal AMT tax laws. Adopt
        a flat tax or Value Added Tax (VAT).

    -   OIC for AMT on ISOs -- Allow claims of Ineffective Tax
        Administration

    -   Retroactive remedy -- Forgive tax AMT on ISOs tax debt for those
        people affected by the dotcom stock crash.