ACCT 5318
Tax Research – Fall 2011
Case 6
Our client this week is in the same situation as the Speltz family. Carla Jenkins and her
husband exercised incentive stock options in 2007, incurring $275,000 in alternative
minimum tax liability. They paid $75,000 of this liability with their 2007 return, and
requested a payment plan for the remaining $200,000. They wanted to hold their shares
for a year in order to qualify for the 15 percent tax rate on long-term capital gains. They
planned to pay the $200,000, or whatever was left of it, upon sale of their shares in 2008.
Of course, we know what happened in 2008. The value of their shares plummeted in the
stock market crash of late 2008 and they ultimately sold their shares for less than they
paid for them at exercise. In 2008, Congress passed the Emergency Economic
Stabilization, Energy Improvement and Extension, and Tax Extenders and AMT Relief
Acts of 2008. Based on his reading of the act, the Jenkins’ CPA claimed an AMT credit
of $275,000, resulting in a net refund of $265,000. The Jenkins planned to use the refund
to pay the balance of their 2007 taxes, plus the interest accrued over the preceding years.
They hoped to have a small balance left over to pay other bills. Unfortunately, the
couple’s CPA misread the new law and the IRS refused to pay the refund. At this point,
they have received two letters from the IRS explaining the appropriate treatment of their
tax situation and they are hopelessly confused. They do not trust their CPA and have
come to us for advice. Write a letter to the Jenkins explaining specifically how the new
provisions passed as part of the AMT Relief Act should apply to them.