Welcome to the new PP&Co Blog
Welcome to the unveiling of the new PP&Co ; our effort to translate current events in the world of tax into something a bit more understandable and accessible to those who don’t have the Internal Revenue Code next to the latest Grisham novel on the bedside table.Whether they call it the “Bail-out Plan”, “Rescue Plan” or the “We’re Trying To Save Our Phony Baloney Jobs Plan”; the recently passed Emergency Economic Stabilization Act (see this website and our newsletter for a detailed summary of the Act) contains some significant law changes that have flown under the radar. One is the alternative minimum tax (AMT) patch, which increases the 2008 AMT exemption amount to $69,950 for married couples filing jointly and $46,200 for single taxpayers. This patch will insulate middle-income taxpayers from the tentacles of the AMT. This patch will save millions of taxpayers from falling into AMT in 2008, and was expected even before the recent calamities.What was not foreseen was a provision that accelerates and eases the ability of those who have AMT credits from prior years (usually from the exercise of Incentive Stock Options) to release those credits. A brief history – an unintended and agonizing consequence experienced by many taxpayers who exercised Incentive Stock Options during the dot.com bust of 2000-2001 was that they had to recognize phantom income for AMT purposes and pay substantial AMT tax. While this tax was supposed to be refundable over time, income and phase-out limitations made it impossible to recover the credit. Past efforts to solve this problem have had a limited impact due to phase-out limits that kept many from receiving a benefit. The new law allows 50% of the long-term unused minimum tax credit to be refunded over each of two years. That’s it –no phase-outs, no catches.The new law will also abate AMT liability stemming from the exercise of ISOs before 2008, effective for any unpaid liability on the law’s date of enactment. Interest and penalties on the unpaid amounts would also be abated. For many Silicon Valley taxpayers, this is a very big deal.
