Closing months of 2005 portend a busy, challenging 2006.

It's been a remarkably busy fall for TEI and its members. From our educational programs to our advocacy projects, TEI's committees have been both engaged and productive, and they have delivered exceptional value to the membership at large. A highlight of the fall, of course, was TEI's Annual Conference in San Diego. The conference afforded us an opportunity to renew acquaintances with colleagues from across the globe and to stay up to date on developments affecting tax executives, be they related to the tax rules or, increasingly, the non-tax rules that impinge on our time, budget, and professional judgment.

Former IRS Commissioner Larry Gibbs, for example, introduced many members to the term "deferred prosecution agreement" and what it means in the context of practicing tax in 2005. (Larry's remarks--which focused generally on the changing environment of corporate tax executives--are reprinted elsewhere in this issue.) Another of our keynote speakers was Susan Markel of the Securities and Exchange Commission, whose sobering remarks reminded us that, among other things, the SEC is now scrutinizing tax reserves for indications that they are being manipulated to manage earnings. These sessions were complemented by a full range of presentations on FAS 109, privilege, Circular 230, penalties, and document management in the aftermath of Sarbanes-Oxley's internal control rules, as well as sessions on what some people might call "real tax": transfer pricing, the manufacturing deduction, section 965, cross-border mergers and acquisitions, the SRLY rules, etc.

Stated simply, there was no lack of topics to discuss in San Diego and too many of them reminded us (not very subtly) that the consequences of "getting it wrong"--whatever "it" and whatever "wrong" are--have probably never been greater. The resulting frustration led to more than one conversation that either began or ended with the plaintive sentence, "It's sure not fun anymore."

The Changing Rules of the Game

A good part of the frustration owes itself, I think, to what Larry Gibbs talked about: the changing rules of the game. When I was in school, we learned the Code, we learned the regs, and we learned the quotation from Judge Learned Hand (and similar ones from jurists in other countries) that "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible.... To demand more in the name of morals is mere cant."

While Judge Hand's words still ring true as a matter of law, it is not at all uncommon for wholly legitimate transactions to be flayed in the newspapers as improper or unethical, even if the governing rules have not changed. So, too, the intersection of tax with financial accounting. To be sure, successful tax executives have always had to be mindful of the financial statement implications of the positions taken on the tax return and our training and commitment to professionalism have always prevented us from "flying by the seat of our pants." Today, however, an assumption that taxation is a science (rather than an art, or at best a hybrid) suffuses the environment, leading auditors to find "material weaknesses" in how tax departments conduct their affairs, even though (in many, if not most, cases) the "deficiencies" seem to be little more than foot faults. Executive Director Timothy McCormally recently put it differently: He told NYU's State and Local Tax Institute in December that "the square peg of taxes was being crammed into the round hole of accounting," frequently with bad results.

During the Annual Conference, more than one member came up to me to say that TEI should "do something" about the situation other than helping our members keep on top of developments (which I believe we're doing quite well)--and commiserating with one another. I agree and invite your suggestions of how the Institute can bring a better balance to our chosen profession. (My email address is [e-mail].)

On a Happier Note

The Annual Conference gave us an opportunity to thank two long-time participants in Institute programs for their service to the tax community. I was honored to present TEI's Distinguished Service Award to Gerry Goldberg, who recently retired as Executive Officer of the California Franchise Tax Board. During his quarter century with the FTB, Gerry attended more Region 8 Conferences than most TEI members (including myself), and he also had an extraordinary record of reaching out to TEI (and other stakeholders) to improve tax administration. His honor is well deserved.

We also recognized the hard work, dedication, and accomplishments of Jim Murray, a member of the Portland Chapter who served as the Institute's 1996-1997 President. Jim held many positions at the chapter and Institute level and, even more important, selflessly mentored many of us over the years. He and his wife, Shirley, are the epitome of "TEI people," and we all owe them a debt of gratitude.

Speaking of gratitude, I would be remiss if I did not offer thanks for the courtesies extended to my wife, my mother, and me during the conference. The thoughtfulness of those who offered a kind word--or a well-timed joke--is very much appreciated.

Advocacy Agenda Accelerates

Thanks are also due the members of the Institute's technical committees who continue to produce high quality--and effective--technical submissions. If you have any doubts that in-house tax professionals and TEI's staff are second to none in their ability to analyze and persuade, take a look at the submissions in this issue. From our cogent comments on the MTC's model reportable transaction statute, to an absolutely stellar brief in the Cuno case (involving the constitutionality of state tax incentives), to measured but firm comments on the IRS's cost-sharing regulations, our committees have been able to separate the important from the unimportant and, despite the passion with which we approach our jobs, dispassionately put forth the Institute's positions. The tax system is the better for all their efforts.

Special mention must be made of TEI's Canadian committees, who continued the Institute's tradition of excellence in preparing for and conducting the Institute's annual liaison meetings with the Canada Revenue Agency, Department of Finance, and Justice Department. I was pleased to participate in these meetings the first week of December in Ottawa, and despite the cold weather was impressed by the warm reception given to TEI's delegations. I offer personal thanks to Regional Vice President Monika Siegmund, Canadian Commodity Tax Chair Natalie St-Pierre, and Canadian Income Tax Chair Dave Daubaras--and the other members of the committees--for making it look easy.

On the Horizon: Tax Reform and More

At the time of its November 1 release, the report and recommendations of the Tax Reform Panel seemed to set the stage for an active, productive 2006. Subsequent events have made the timing less clear, but it seems inevitable that the U.S. tax system is in for significant, even monumental changes in the next year or so. While much of the focus remains on the taxation of individuals, TEI and its members must keep their eye on the business tax provisions. With the United States having among the highest tax rate in the OECD, a rate cut would seem to be an imperative, but it is far too early to predict "the shape of things to come." By the end of the year, TEI's task force on tax reform will be appointed, and it will begin the difficult job of sorting through the Tax Reform Panel's policy options and developing its own set of recommendations. As I did in my last column, I encourage all members to remain engaged in this topic. It's too important to leave to others.

On behalf of the Institute's Board of Directors and its staff, I extend the season's greetings to all members of the Institute and other readers of The Tax Executive. Special greetings go to the founders and members of TEI's newest chapter in Asia. May 2005 bring us all health, happiness, and professional fulfillment.

Acknowledgments

Tax Executives Institute expresses its appreciation to the following Platinum and Gold sponsors of TEI's 2005 Annual Conference:

Platinum
ADP Tax Credit Services
Baker & McKenzie
Deloitte & Touche LLP
Ernst & Young LLP
KPMG LLP
Mayer, Brown, Rowe & Maw LLP
McKee Nelson LLP
PricewaterhouseCoopers LLP
RIA
Salis, Inc.
Sutherland Asbill & Brennan LLP
Taxware, L.P.
Vertex Inc.

Gold
CrossBorder Solutions
DuCharme McMillen & Associates, Inc.
Fenwick & West LLP
Foley & Lardner LLP
Grant Thornton LLP
Jefferson Wells International, Inc.
Liquid Engines, Inc.
Planitax, Inc.
TALX Corporation
TaxStream, LLC

Michael P. Boyle

International President