Middle Class Tax Bill Shocker

They are a picture perfect family. But as CBS News Correspondent Lee Cowan reports, these Iowa taxpayers are also the picture of desperation.

June and Ron Speltz have been pursued into bankruptcy after they were forced to pay a huge income tax on money they never even made.

"I had an IRS agent tell me, 'I can't believe the federal government is doing this to you. If it were me, I'd be looking for a building to jump off of,'" says June Speltz.

The Speltzs owed the government $210,065 on top of the $53,000 they owed the state.

"How could our tax bill be higher than the president's tax bill?" asks June Speltz. "That just doesn't make sense."

The tax bill was nearly three times their annual income.

"The only thing we've got left is the house, and they want that too," says Ron Speltz.

Kiplinger's Magazine put their nightmare into numbers.

It started when the Speltzs took advantage of stock incentives offered by Ron's company, McLeod USA.

He bought $800,000 worth of stock at a fraction of the price.

But when he sold that stock it was worth only $1,500.

Still, under a little understood provision in the U.S. tax code, he was taxed on the full $800,000 anyway.

"It's legalized extortion," he says. "You look up 'extortion' in Webster's - there it is. This is exactly what is going on."

The culprit: the "Alternative Minimum Tax" or AMT for short. Never heard of it? The IRS warns you're about to.

"What's going to happen is that 35.5 million taxpayers, if they didn't know the AMT existed, are going to get letters from the IRS saying, 'Oh by the way, you thought that you paid your income tax timely and properly, but you're wrong and here's your bill," says Nina Olsen, a National Taxpayer Advocate for the IRS.

The AMT was originally designed 34 years ago to hit only the rich. The theory? Since their deductions sheltered them from paying taxes under the ordinary set of rules they should be saddled with a second, tougher set of rules to make sure that they did. The problem: it was never adjusted for inflation, so the rich then, are middle income now, which means virtually anything that lowers your taxable income can trigger it. Unfair? You bet, says the IRS.

"It's a horrible, provision. It has really disparate and unfair impact on people," says Olsen. "We are really sorry about the impact of this tax, but it is not for us to rewrite the laws, it's for Congress to act."

For now, it's all victims, like the Speltzs, can pray for.

"When it comes to protecting me, who's my Homeland Security? Because I'm getting relentlessly attacked," says Ron Speltz.

All by a creature of Congress left to run amuck, destroying the very families it was designed to protect.