In 1999 I was given by my company founder IPO options. In 2000 I
exercised my options because the company was going public that year
and wanted to take advantage of the long term gains tax advantage. I
paid for the options and paid the taxes on them, including AMT because
of the "income" due to exercising the options. The company has not
gone public and now has no plans to. Can I declare a tax loss on the
share that I bought and claim that on my tax returns. Thanks

Your situation is very similar to mine, which resulted from a plunge
in the value of the stock after I had exercised the options but not
sold it.  Essentially what you have is an Alternative Minimum Tax
credit that you can gradually recapture using Form 8801.  The
situation is pretty complex, particularly because I think you will
want to restate your taxes for the last several years in order to
start recapturing the tax credit immediately.

Using Forms 1040 and 6251, along with any relevant schedules, you
calculate your tax using the standard method and the Alternative
Minimum Tax.  Then, you use Form 8801 to calculate your Alternative
Minimum Tax credit, which you then enter onto your 1040 to reduce your
tax for that year.  Essentially, if you would owe less tax under the
Alternative Minimum Tax system in a particular year, you can deduct
the difference between that and the regular tax system from that
year's taxes until the sum of your recapture tax credits matches the
overall Alternative Minimum Tax credit you have from your stock
options.

These forms are quite complicated, and particularly because I believe
you will want to amend your tax filings back to 2001 so as to
recapture the credit as fast as possible, I strongly encourage you to
consult a tax preparation professional.  If the amount of your AMT
credit is large, it will be well worth the cost.

The 2004 Form 8801 is available from the IRS web site at
http://www.irs.gov/pub/irs-pdf/f8801.pdf.  The instructions are
included in the PDF file after the form itself.

Reform AMT, an organization devoted to trying to resolve problems like
ours, has a web site at http://www.reformamt.org/.

Isaacson Law Firm is a firm conducting significant litigation in this
area.  Their web site is http://www.isaacsonlawfirm.com/.

Good luck!

Wonko