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Comments on IRS's 1993 Business Plan.

On December 1, 1992, Tax Executives Institute filed the following comments with the Internal Reven Treasury Department on projects that should be included in the IRS's 1993 Business Plan. The Institu on guidance in the domestic tax, international tax, administrative, and employee benefits areas, and Commissioner Shirley D. Peterson and Assistant Treasury Secretary Fred T Goldberg, Jr. The Institute submitted under the aegis of its IRS Administrative Affairs Committee, whose chair is W Remi Taylor its International Tax Committee, whose chair is Lisa Norton of the Ingersoll-Rand Co.; its Federal T is David F. Nitschke of Amerada Hess Corporation; and its Employee Benefits Subcommittee, whose chai of Westinghouse Electric Corp.

Transmittal Letter

On October 29, 1992, the Department of the Treasury and the Internal Revenue Service requested comments on projects that should be included in the IRS's 1993 Business Plan. On behalf of Tax Executives Institute, I am pleased to submit the enclosed list of projects that the Institute believes should be given priority in 1993.

TEI commends Treasury and the IRS for undertaking to outline the IRS's agenda for the upcoming year. Mapping out a plan for 1993 constitutes the exercise of good business sense and will provide taxpayers with needed guidance on the IRS's priorities.

I believe it would be helpful to describe the process TEI used to develop the enclosed list of projects for inclusion in the 1993 Business Plan. The Institute circulated the IRS's announcement and a copy of the 1992 Business Plan for comment to its committees that have substantive responsibility for guidance that emanates from the IRS and the Treasury Department. Our committees were asked not only to identify issues on which guidance was needed but to assign a priority to the projects, taking into account the overall reach of the guidance (i.e., the number of taxpayers affected by the guidance) and the importance of the guidance to individual companies (i.e., the number of transactions affected by the guidance). The list of projects, broken down into "A," "B," and "C" groupings, was then reviewed and approved by the Institute's Executive Committee.

Obviously, what one company or industry segment considers to be important may have little or no effect on another company or industry. There are some projects, however, that cut across a broad range of companies. In particular, the Institute would assign the highest priority to the issuance of the "Accelerated Issue Resolution" revenue procedure, the application of the Indopco decision to repairs and maintenance charges (and to other expenses), the guidance on record retention agreements (in the form of a revision to Rev. Proc. 91-59), the guidance on the application of the alternative minimum tax to consolidated groups, the section 6662(e) penalty regulations, and the section 367(a) and (b) regulations.

Tax Executives Institute appreciates this opportunity to present our views on the IRS's 1993 Business Plan. If you have any questions, please do not hesitate to call me at (408) 765-1202.

Note: The following items are grouped as "A," "B," and "C" according to the priority assigned by TEI's members, with the "A" group having the highest priority. Within each group, the items are listed in random order. An "*" denotes an item as listed in the IRS's 1992 Business Plan.

Administrative

"A" GROUP

Coordinated Examination Program

* Revenue procedure on "Accelerated Issue Resolution."

Taxpayer Identification Number

* *Proposed regulations and revenue procedure to establish

a taxpayer identification number (TIN) matching

program to allow a payor to pre-check whether a

name/TIN combination provided by a payee matches

a name/TIN combination in the IRS's records.

Rev. Proc. 91-59

* Guidance on record retention agreements.

* Guidance on electronic data interchange.

Penalties

* Revision of Rev. Proc. 85-26 on disclosure for Coordinated

Examination Program taxpayers to permit the

IRS and taxpayers to agree on the time frame for

submitting adjustments to income.

* Adoption of a reasonable cause rule to eliminate penalties

when taxpayers make a good faith effort to

comply with the TIN rules.

Miscellaneous

* *Proposed regulations under section 6611(b)(1) on

the erroneous allowance of interest on overpayments

credited against certain underpayments.

Revision of Form 5471.

* Computerization of the interest calculation on deficiencies/overassessments

and provision of a copy to

taxpayers.

International

"A"GROUP

Reorganization of Foreign Corporations

* Final regulations under section 367(a) and (b).

Transfer Pricing Issues

* Guidance on the "reasonable cause exception" under

section 6662(e).

* *Final regulations.

Foreign Currency Issues

* Revenue procedure on section 988 advance rulings.

* *Final section 985 regulations involving DASTM.

Characterization of Entities

* Clarification of Rev. Rul. 77-214 concerning the partnership

status of limited liability companies where

owners are commonly controlled.

Foreign Tax Credit

* *Final regulations under section 905(c) providing procedures

for adjusting the foreign tax credit and penalties

for failure to do so.

* Regulations under section 902 to take into account

the changes made by the Tax Reform Act of 1986.

Earnings and Profits

* *Final regulations under section 964 relating to the

transition rules for earnings and profits of foreign

corporations.

* Final regulations under section 964 on the GAAP

E&P method.

Withholding Taxes

* *Final regulations under section 1441 to clarify the

withholding tax rules.

Transition Rule under Section 1503(d)

* Guidance on the application of the transition rules

under the final dual consolidated loss rules concerning

the availability of the election to use a loss against

U.S. consolidated income for years beginning prior to

the effective date where the conditions under the

temporary regulations were not satisfied (i.e., the

loss was not unusable as a matter of foreign law, but

the loss was in fact not used in the foreign country).

"B" GROUP

Foreign tax credit

* *Proposed regulations under section 904(i) limiting

the use of deconsolidations of corporations to avoid

foreign tax credit limitations.

Subpart F/Deferral

* *Proposed regulations under section 898 determining

the required taxable year of certain foreign corporations.

* *Final regulations under section 954 containing subpart

F definitions.

Inbound Transactions

* *Proposed regulations under section 163(j) involving

the guaranty rules for earnings stripping.

* *Final regulations under sections 163(c) and 267(a)(3)

relating to deduction of interest and certain other

amounts owed to related foreign parties.

Outbound Transactions

* *Final regulations under section 367(e) involving certain

corporate distributions to foreign corporations.

* *Proposed regulations under section 936 relating to

qualified possessions source investment income.

Foreign Currency Issues

* *Final regulations under section 985 involving changes

in functional currency and weighted average exchange

rate.

Sourcing Issues

* *Proposed interest regulations under section 864(e)

on hedging and interest equivalents, integrated financial

transactions, and nonrecourse debt.

* *Final regulations under section 864(e).

Miscellaneous

* Amendment of section 1502 regulations to permit

aggregation of members of a consolidated group for

purposes of section 902.

"C" GROUP

Foreign Sales Corporations

* Safe harbor rule for underpayment of estimated taxes

by a FSC where estimated taxes are based on 1.83

percent of foreign trading gross receipts.

* Final regulations under sections 923-927.

Inbound Transactions

* *Proposed regulations relating to the definition of a

bank for purposes of the portfolio interest exemption.

Miscellaneous

* Guidance on revocation of an existing election under

section 1504(d) to treat contiguous country corporations

as domestic corporations.

* *Proposed regulations under section 6503(k) concerning

designated summons.

Domestic

"A"GROUP

Section 162: Indopco

* Application to environmental clean-up expenditures,

repairs and maintenance costs, and other recurring

expenditures.

* Clarification of the interaction between sections 263

and 263A with the ordinary and necessary repair

provisions of section 162, especially in the area of the

unit of property" level at which the rules are to be

applied, taking into account existing regulations under

section 168.

Tax Accounting

* Development of an elective, simplified method based

on historic results of each taxpayer under the uniform

capitalization rules.

* *Final regulations under section 263A(f) on the requirement

to capitalize interest to certain property

produced by taxpayer.

* Guidance on when charge-offs of bad debts by entities

other than banks will be respected.

* Final regulations under section 448(d)(5) concerning

the components of the nonaccrual formula and the

definition of uncollectible amount.

* *Revenue ruling under section 461(h) on state taxes

paid "shortly after" the filing of a federal return.

Inventory

* Inventory Shrinkage: guidance on the timing of a

deduction where physical count is not taken on yearend

date.

* Inventory Methods: resolution of conflicts in how to

apply the components-of-cost method.

* Proper treatment of "shelving allowances."

Alternative Minimum Tax

* *Proposed regulations on application of AMT to consolidated

groups.

* *Final regulations under Treas. Reg. [sections] 1.56(g)-1 simplifying

inventory computations for purposes of adjusted

current earnings and alternative minimum

taxable income.

Consolidated Returns

* *Final regulations under sections 382 and 1502 relating

primarily to limitations on net operating losses of

consolidated and controlled groups.

* *Proposed regulations revising the rules for intercompany

transactions and distributions in consolidated

groups.

* *Final regulations on the option rules of section

1504(a)(5).

Financial Products

* Guidance the proper tax accounting treatment

for certain hedging and integrated financial transactions.

* Characterization of gain or loss on hedging transactions

involving notional principal contracts.

* Clarification of the application of Arkansas Best.

Research Activities

* *Guidance under section 174 on the definition of research

and experimental expenditures.

* Guidance under section 41 on the credit for increasing

research activities.

Miscellaneous

* Section 460 regulations.

* Final section 338 regulations.

"B" GROUP

Loss Corporations

* Revenue ruling under section 382(l)(5) on when shareholders

own stock "as a result of" being shareholders

or creditors of the old loss corporation.

Insurance Companies and Products

* *Final regulations under section 848 on deferred acquisition

costs.

Demolition of Structures

* Definition of the term "structure' under section 280A.

* Clarification that the term "demolition' does not apply

to the removal of tanks, walls, etc. in the ordinary

course of renovating manufacturing and processing

facilities.

Miscellaneous

* Regulations on the conditions and steps necessary to

make an election pursuant to section 336(e).

"C" GROUP

Alternative Minimum Tax

* Duplication of noninventory installment sales in both

ACE and BURP.

Loss Corporations

* *Proposed regulations under section 382(b)(3) on allocating

income to pre- and post-change periods based

on a closing of the books.

* *Proposed regulations under section 382(l)(6) on applying

section 382 in certain insolvency transactions.

* *Final regulations on what indebtedness qualifies

under section 382(l)(5)(E) when stock is transferred

to creditors.

Insurance Companies and Products

* *Final regulations under section 846 on discounted

unpaid losses.

Tax Accounting

* *Final regulations on the application of section 263A

to producers and resellers.

* Guidance under section 461(h) that utilities receiving

refunds from upstream suppliers that they are

obligated to pass through to downstream customers

may accrue the obligation to match the income, even

though economic performance may not have occurred.

Stock Purchases

* Guidance on how much depreciation is allowable in

the year of acquisition for assets acquired pursuant

to section 338 in ACRS years -- full year or part year.

Consolidated Returns

* Regulations on normalization of utility consolidated

tax adjustment.

Health Maintenance Organizations

* Clarification of the treatment of advance premiums.

* Application of section 461(h) and Subchapter L to

HMOSs.

Employee Benefits

"A"GROUP

Definition of Wages

* Regulations under section 3121 concerning the application

of FICA to deferred benefits.

Cafeteria/Dependent Care Plans

* Final regulations under section 125 and 129, especially

with respect to the hardship rules and the

definition of insurance.

Qualified Plans

* Re-issue section 401(a)(4) non-discrimination regulations

incorporating changes made by administrative

pronouncements during 1992.

* Re-issue section 414(r) separate line of business regulations.

* *Revenue procedure to simplify data collection for

purposes of demonstrating compliance under various

nondiscrimination regulations.

* Revenue procedure expanding determination letter

program to include plans utilizing separate lines of

business.

"B" GROUP

Qualified Plans

* Revenue ruling to clarify the exception for collectively

bargained VEBAs under the deduction limitations

of section 419A with respect to funding post-retirement

health benefits.

Miscellaneous

* Guidance concerning leased employees.

"C" GROUP

Qualified Plans

* Guidance on deductibility under section 404(k) of

dividends paid with respect to employer stock that

are used to repay ESOP notes.

* Guidance on "age-weighted" defined contribution

plans.

Foreign Pension Assets

* Proposed regulations under section 404A relating to

deduction for certain foreign deferred compensation

plans.

Miscellaneous

"A" GROUP

Gasoline Excise Tax

* Final regulations under section 4081, et seq.

* *Proposed regulations on the registration and information

reporting requirements.

"B" GROUP

Miscellaneous

* *Final regulations on general procedural issues relating

to excise taxes.

* *Proposed regulations under section 4682(d)(3) on

exports of ozone-depleting chemicals.

* *Final regulations under section 149(e) on information

reporting for tax-exempt bonds.
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