The Tax Increase Prevention Act of 2007 (H.R.
3996) increased the Alterative Minimum Tax (AMT) exemption
amounts to $44,350 (individuals) and $66,250 (married
filing jointly), respectively, and allowed personal credits
to further reduce the number of taxpayers subject to the
AMT treatment. A section of the new "Bailout Bill",
referred to as the "AMT patch", raises the exemption amounts
to $46,200 (individuals) and $69,950 (married filing jointly)
for 2008. The AMT patch also extends (through 2008) tax
relief for nonrefundable personal credits taken by taxpayers
to reduce their liability under the AMT.
Another AMT provision in the bill involves Incentive
Stock Options (ISOs), offered as compensation by some
employers. Under regular tax treatment, the taxpayer does
not have to pay income tax on the difference between the
exercise price and the fair market values of the shares
issued. However, under the AMT, the taxpayer must pay
tax on the value of stock once the option is exercised.
Targeted at those taxpayers affected by the economic collapse
in 2000, such as those employed in the technology sector,
the bill is intended to decrease AMT liability for ISOs
exercised prior to 2008, which often left the taxpayer
paying tax on "phantom gains" given the decline in stock
prices. The new AMT provision abates any underpayments,
interest or penalties associated with the ISOs. (Note:
the IRS called a moratorium on collection of ISO AMT prior
to the passage of the bill). Also, the AMT refundable
credit amount and the minimum tax credit for underpayments,
interest or penalties for the taxpayer's first 2 taxable
years (after December 31, 2007) are increased by 50% of
the amount of interest and penalties paid prior to the
new bill, which would have been abated.
The new bill also increases the AMT refundable credit
amounts for individuals with unused credits for prior
year minimum tax liability (including those taxpayers
who previously paid ISO AMT underpayments, interest or
penalties). The refundable credit amount is equal to the
greater of 1) 50% of the long-term unused minimum tax
credit for the tax year or 2) the amount of AMT refundable
credit determined for the preceding year. This has the
effect of accelerating the minimum tax credit refund that
has not been used.
For the full text of the "Bailout Bill", click
here.
