Corporate accountability, tax shelters are key topics of 57th Annual Conference. (57th Annual Conference Re-cap).

More than 650 TEI members and guests came to celebrate Toronto at TEI's 57th Annual Conference from October 20 to October 23. Held at the Sheraton Centre Toronto in Canada's largest city, the three-day conference continued TEI's tradition of excellence with up-to-the-minute discussions of the effect of the recent Sarbanes-Oxley legislation on tax executives; tax accrual workpapers and penalties; and recent tax accounting developments, as well as a third track of concurrent topics devoted to Canadian and other cross-border tax issues.

Canada's Deputy Finance Minister Kevin Lynch opened the conference on Monday morning with a lively slide presentation on the country's economy. An economist, Mr. Lynch focused on the growth in the Canadian economy vis-a-vis the United States, noting that the country gained 427,000 jobs in 2001. Canada's trade balance remains in surplus, he said, and its foreign debt is the lowest in 50 years.

Referring to the recent legislation to cut tax rates, the Deputy Minister predicted that in 2003 Canadian firms will enjoy a capital rate advantage over those in the United States; this advantage will grow to more than 4 percent by 2005. Mr. Lynch closed his remarks by quoting Thomas L. Friedman: With globalization, "the big don't eat the slow; the fast eat the slow." In public policy, he added, we need to think speed; it wins.

Later that day, Assistant U.S. Treasury Secretary Pamela Olson addressed the Treasury and IRS's recent tax shelter initiatives.

Referring to the proposed tax shelter disclosure regulations, the Assistant Secretary acknowledged that the new rules will impose additional compliance burdens on many taxpayers. "I apologize for that," she stated, adding that the government is trying "to minimize the burden to the maximum extent consistent with transparency and consistency." She pledged to work with TEI to ensure that the rules are the least burdensome they can be without sacrificing their deterrent effect.

Referring to several bills pending in Congress, Ms. Olson said she favored conformity in the definitions of a tax shelter for registration and disclosure purposes. She added that the government seeks to encourage voluntary adoption of that definition for registration purposes under a tax "best practices" approach.

On the audit front, the Assistant Secretary explained that the IRS's Large and Mid-Size Business Division is undergoing a massive change in the way it does business. LMSB must transform itself from an agency that looks at every nook and cranny during an examination to one where auditors perform risk analyses. The future lies in changing the audit process from one that raises issues to one that resolves them, she stated.

Ms. Olson then turned to corporate inversions, noting that the issue highlights two serious problems in the tax system: that opportunities for tax avoidance exist in the law and that the provisions are out of step with U.S. trading partners. More time is needed to craft an appropriate response, she stated. She predicted that although there will be no legislation in 2002, Congress will eventually act. We must remove the opportunity to reduce U.S. income taxes inappropriately without harming foreign investment, she said, and we must re-examine the U.S. tax rules.

Finally, Assistant Secretary Olson addressed the need for tax simplification. She quoted the New York Times that if someone wanted to describe the city of New York, it would look up synonyms for the word "dysfunctional" in the dictionary. "I wouldn't say this about New York," she added, "but I would add it about the tax system." Chuckling that the system is held together by "chewing gum and chicken wire," Ms. Olson reviewed the steps the Treasury Department is taking to address the issue, including replacing the five definitions of a child in the tax code with a uniform definition.

In closing, Ms. Olson paid tribute to outgoing TEI President Robert L. Ashby, noting Mr. Ashby's service in a most difficult year. "You were a calm voice in a cacophonous sea," she concluded, "and I know Drew Glennie [Mr. Ashby's successor] will be as well."

On Tuesday afternoon, Internal Revenue Commissioner Charles Rossotti delivered his valedictory address to the Institute, thanking TEI for its contributions to the tax system. The Commissioner, who retired in early November, stated that the Institute had made it much easier for him and his IRS colleagues to do the things they needed to do. "You looked beyond the narrow interests of your members to the good of the tax system," he added. "Thank you."

Reviewing his five-year term as Commissioner, Mr. Rossotti observed that the public's confidence in the agency has improved. The IRS has also improved its relationships with its stakeholders, he said, adding that the Institute should let the agency know if it "gets off the rails."

Commissioner Rossotti reported that the process is well underway for the improvement of the IRS's computer systems. Replacing the systems is an incremental process, he said, but the opportunities exist to improve productivity. The Commissioner expressed concern, however, about the IRS's ability to cope with the increasing complexity of the tax law. At a time when IRS resources are shrinking, he stated, "there is a real gap between the number of taxpayers who are not filing or reporting their income correctly and the capacity of the IRS to do something about it." The problem has not reached a crisis yet, he added, and we have an opportunity to reverse the trend.

The Commissioner offered one piece of advice to his successor. Quoting baseball sage Yogi Berra, Mr. Rossotti stated that "it's okay to make a mistake so long as it is not the wrong mistake." The IRS must both collect taxes and maintain public confidence, he concluded.

Several representatives of Canada Customs and Revenue Agency also participated in panels during the three-day conference. Participants heard an update on interest deductibility from Paul Lynch, Director of CCRA's Financial Industries Division; a discussion of tax-deferred reorganization with Mark Symes, Manager of CCRA's Corporate Reorganizations Section; and practical issues and solutions in transfer pricing by Mara Praulins, Director of CCRA's International Tax Operations Division.

On Wednesday, Carol Dunahoo, Director of the IRS's International Tax Programs, joined James Gauvreau, Director of CCRA's Competent Authority Services Division, to discuss emerging trends in competent authority and treaty issues. Ian MacGregor, Canada's Assistant Deputy Attorney General, reviewed major trends in Canadian judicial thinking.

Conference participants also heard three former IRS Commissioners discuss the successes and failures of the IRS reorganization and a panel of experts opine on the effect of the Sarbanes-Oxley legislation on taxpayers.

At the Tuesday banquet, the Institute honored four of its own. First, Raoul Gratton of the Montreal Chapter received the President's Award from TEI President Drew Glennie. Referring to Mr. Gratton's nearly 30 years of service to TEI, Mr. Glennie focused on his work as the host for the highly successful Canadian Annual Conference. "Every Vice President for Canadian Affairs and committee chair with whom Raoul has worked--including me," Mr. Glennie stated, "knows that the educational and networking opportunities afforded by the Hull Conference would not have been possible without his unstinting efforts." The friendships he nurtured and the trust he built helped advance TEI's liaison and policy advocacy goals in Canada, the TEI president noted.

Next, Mr. Glennie presented honorary membership to Thomas Nee of the New York Chapter, TEI's president in 1987-1988. "One of Tom's goals during his term as President," Mr. Glennie explained, "was to ensure that TEI was responsive to the accelerating pace of change in business tax laws. By all measures, he succeeded. During his year as President, TEI's technical committees were challenged to keep up with almost daily pronouncements of complex regulatory guidance and proposed technical corrections and substantive legislation flowing from Tax Reform Act of 1986."

The third award went to Reginald Kowalchuk of the Toronto Chapter, TEI's 1991-1992 president. In presenting the honorary membership award, Mr. Glennie singled out Mr. Kowalchuk's role in shifting the emphasis of TEI's advocacy efforts. "While working with the Treasury Department, the Department of Finance, IRS, and Revenue Canada to ensure administrable and sound rules," Mr. Glennie stated, "Reg pushed the Institute to do more before laws were enacted."

The last honoree was Charles Shewbridge of the Atlanta Chapter, who was TEI's 1999-2000 president. Presenting Mr. Shewbridge with honorary membership, Mr. Glennie noted that his term as President was marked by a number of initiatives that have had both immediate and sustained effects on the Institute. "As a longtime sailor, Chuck deftly set a course in the first year of TEI's current long-term strategic plan by establishing task forces on volunteerism, advocacy, and marketing," Mr. Glennie said. "The Task Force reports were adopted by the Institute's Board and have guided the Institute, ensuring continued membership growth and effective government liaison and advocacy."

During the conference, the Toronto Chapter, along with the Canadian Tax Foundation, a special refreshment break featuring delicacies from the 11 provinces.

Photographic highlights of the 57th Annual Conference begin on page 520.