In response to a letter from several members of Congress, the Internal Revenue Service will stop trying to enforce collection of alternative minimum taxes due on incentive stock options for the rest of the month.

The suspension of AMT collection efforts will be in effect through the end of the fiscal year ending Sept. 30. The decision will give Congress a few more weeks to pass legislation to fix a problem with the AMT that forces taxpayers to pay heavy taxes on shares of stock they have held after exercising the incentive options, only to see the value of the stock plummet before they could sell it. The IRS has been collecting the AMT, along with interest and penalties, in some cases even garnishing wages. A bill known as the AMT Credit Fairness and Relief Act of 2007 is pending in Congress to fix the problem.

"Taxpayers in this situation faced a lot of income tax on very little income," said Sen. Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee. "There's bipartisan consensus to fix the problem. By holding off on collections, the IRS is giving Congress time to act without making things worse for the affected families."

On July 3, Grassley (pictured) and Senate and House colleagues wrote to IRS Commissioner Doug Shulman, asking for a suspension of liability and penalty collections in incentive stock option AMT cases.

Shulman wrote to Grassley last week to inform him that the IRS is temporarily suspending its collection enforcement efforts. "In response to your request, we are taking steps to identify all collection cases that involve AMT ISO liabilities," wrote Shulman. "To provide Congress with an opportunity to enact the pending legislation, the IRS will not undertake any collection enforcement action through the end of the fiscal year on these cases."

Shulman added that if taxpayers approach the IRS in an attempt to reach payment arrangements during this period, the IRS would continue to advise them of available options and will also continue to make case-specific determinations about the taxpayer's ability to pay in reaching resolution. "If the pending legislation is not enacted this fiscal year, the IRS will then continue to administer programs in accordance with current law, and in fairness to the thousands of taxpayers who have already made sacrifices to pay taxes due under this provision of the Tax Code," he wrote.

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