The Internal Revenue Service (IRS) has suspended collection enforcement activities on alternative minimum tax as they relate to incentive stock option (ISO) tax liabilities through September 30. According to IRS Commissioner Douglas Shulman, this suspension will give lawmakers time to enact the AMT Credit Fairness and Relief Act of 2007 (H.R. 3861), and its Senate companion bill, S. 2389.

Many taxpayers have been caught by what is referred to as the ISO AMT liability because of the way stock options are treated by the AMT. These families are struggling under the weight of massive tax liabilities based on income they did not collect and never will collect.

Congress is currently working to help these ISO AMT taxpayers through the enactment of both H.R. 3861 and S. 2389. These bills stem from earlier legislation contained in the Tax Relief and Health Care Act of 2006 to increase the AMT refundable credit amount for families and individuals with long-term unused credits for prior year minimum tax liability. Both measures would also abate unpaid AMT liabilities, including interest and penalties, attributable to the exercise of ISOs and would not allow a refundable credit for any underpayment that is stopped.

Under current law, taxpayers exercising ISOs are entitled to use refundable credits into the future to compensate for what they owe now. However, they are being pressed to pay their current liabilities immediately, without regard for the refundable credits. These families are facing the garnishments of wages, foreclosures of homes, seizures of retirement accounts, and all the other tools available to the IRS to settle uncollected tax debts.

There is very broad bipartisan consensus to abate all interest and penalties attributable to ISO AMT liabilities and permit taxpayers to apply the full amount of their future refundable credits towards the entirety of their current ISO AMT liabilities. According to some, there is a strong bicameral commitment to enact legislation that accomplishes these goals in the near future.