Sam Johnson champions fairness for Texas veterans & those battling AMT
Today U.S. Congressman Sam Johnson (3rd Dist-Texas) fought for Texas veterans and those battling a particularly bad aspect of the alternative minimum tax (AMT) at a Ways and Means Committee mark-up. A provision Johnson co-authored to help those paying the AMT as a result of “phantom gains” earned on incentive stock options when the tech bubble burst became a part of the new tax bill heading to the House floor next week.Today U.S. Congressman Sam Johnson (3rd Dist-Texas) fought for Texas veterans and those battling a particularly bad aspect of the alternative minimum tax (AMT) at a Ways and Means Committee mark-up. A provision Johnson co-authored to help those paying the AMT as a result of “phantom gains” earned on incentive stock options when the tech bubble burst became a part of the new tax bill heading to the House floor next week.
First, Johnson supported a change to a tax rule that would put Texas veterans on equal footing as veterans in other states. Johnson called for fairness for the Lone Star State and urged inclusion of a housing measure in the tax bill before the House panel.
In 1946, the Texas Legislature created the Texas Veterans Land Board (VLB) to make loans to returning veterans so they could buy a piece of Texas to farm or ranch. Since then, the VLB has served more than 200,000 veterans. There are five states with similar programs. Johnson believes that the Texas Veterans Land Board should receive the same beneficial tax rules as other states enjoy.
Earlier this year, Jerry Patterson, the Texas Land Commissioner, and Chairman, of the Texas Veterans Land Board, submitted testimony to Congress advocating a fair plan for Texas veterans.
“The inclusion of the Qualified Veteran Mortgage Bond section …will allow California and Texas to have the same benefit to serve their veterans as Alaska, Oregon and Wisconsin now do. QVMB loans symbolize an important commitment to veterans” said Patterson.
“I’ve been fighting an uphill battle for Texas veterans on this one. Hopefully, we’ll see some progress soon,” said Johnson. Johnson supported the “Heroes Earnings Assistance and Relief Tax Act of 2007,” legislation creating tax relief for members of the military and their families. The measure passed the Committee by a voice vote.
Second, the House panel voted on another provision granting temporary relief for the millions of Americans about to face the AMT this tax filing season. Sometimes called “the patch,” the fix would relieve families earning less than about $66,000 a year from paying the AMT. Without this change, 25 million Americans would pay the AMT for 2007, up from 7 million in 2006. Created to guarantee that the wealthy can not avoid paying taxes by using deductions and shelters, the AMT has never been indexed for inflation. The AMT forces people to compute their taxes with far fewer deductions. Johnson voted against this bill citing that it did not go far enough to remove middle-class Americans from the punitive AMT.
Third, the House panel approved an initiative Johnson drafted with U.S. Congressman Chris Van Hollen (8th Dist.-Md.). The AMT Credit Fairness and Relief Act, helps those forced to pay taxes on “paper gains” on incentive stock options (ISOs). “While employees thought they would be able to ride a wave of success with their companies, what they got was a financial and emotional tsunami that ruined lives,” said Johnson.
Upon purchasing ISOs, people were automatically, and for many unknowingly, thrown into AMT in which they were taxed on the paper gain of their stock before they were allowed to sell it and get any money to pay this tax. Shortly thereafter the tech bubble burst and the IRS began to require payment of income taxes on this paper gain or “phantom income.”
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An example of what happened is that an employee bought stock options for $10 a share and the stock climbed to $100 a share that year. They were required to pay tax on the $90 gain despite the fact that they did not sell the stock so the gain was never cash-in-hand. It was at roughly that same moment in time that the tech bubble burst and the price of the stock may have fallen to $1 per share. Despite facing a $9 economic loss, the IRS still pursued them for a $90 gain per share.
For the last several years, Johnson worked to fix this quagmire. Last year, he proved successful in getting a big chunk of the problem fixed when most of his bill H.R. 3385, the AMT Credit Fairness Act, was included in a bigger bill that got enacted at the end of 2006.
Unfortunately, not every aspect of the bill was enacted. To complete the job, Johnson introduced another bill H.R. 3861, the AMT Credit Fairness and Relief Act. This bill would eliminate the income caps that were put into the law last year and would speed up the relief from a five year timeline to just two years.
According to the non-partisan advocacy group, Reform AMT, many of those affected by the tax never made a cent selling their ISOs and never will. Many hit with the AMT are middle-class folks from all across America and range from administrative assistants and engineers to accounting managers and business executives.
As Nelson Allen of North Texas writes, “Most all of us were forced into bankruptcy by the I.R.S. but many were hard pressed to afford legal council or CPAs who really understood AMT and could give proper guidance. To see my Congressman champion - and win - a great victory for AMT reform last year allowed me to celebrate the victory with a full heart, even though my wife and I were not covered by this victory.”
“I'm also proud and appreciative to have a Congressman who didn't stop with that victory, but instead has continued the good fight for the rest of his constituents,” he said.
“Congressman Johnson's new legislation if passed would allow my wife and me to complete our settlement with the I.R.S. and allow us to move on with our lives. It will not return our home or our credit which was devastated by the malicious tactics of the I.R.S. but it would allow us to move forward in building back our retirement fund. Win or lose - we appreciate the efforts of our Congressman and we hope that our great country gets stronger from reacting to the injustice of AMT.”
Both the military tax bill and the temporary AMT fix head to the floor next week for House consideration.