District of Columbia: Establishment of Appeals Tribunal.

May 23, 2001

On May 23, 2001, Tax Executives Institute submitted the following comments to the District of Columbia City Council on a proposal to establish an office of administrative trials and hearings, which would provide for the independent adjudication of, among other things, tax disputes currently handled internally by the District's Office of Tax and Revenue. TEI's comments, which took the form of a letter to Councilmember Kathleen Patterson, chair of the Council's Committee on the Judiciary, were prepared under the aegis of the Institute's State and Local Tax Committee, whose chair is Bruce J. Reid of Microsoft Corporation.

Tax Executives Institute is pleased to submit the following comments with regard to Bill 14-208, the Office of Administrative Trials and Hearings Establishment Act of 2001.

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our approximately 5,300 members represent 2,800 of the leading corporations through 53 chapters in the United States, Canada, and Europe. One of our chapters is located here in the Washington, D.C. area, and our membership includes representatives of all major local enterprises. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to ensuring a tax system that works -- one that is fair, administrable, and that taxpayers can comply with in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with a myriad of tax law provisions at the federal, state, and local levels relating to the operation and taxation of business enterprises. It is not uncommon for disputes to arise between businesses and local taxing authorities about the proper application of the tax law to their operations. That is why a fair, efficient, and impartial process for resolving such disputes is both a hallmark of equitable tax administration and a necessary component of a business-friendly environment.

Discussion

Bill 14-208 would establish a new Office of Administrative Trials and Hearings to serve as a centralized location for the independent adjudication of administrative litigation by or against District agencies. Mayor Williams has put forth similar legislation, Bill 14-219. TEI understands that, under both Bill 14-208 and the Mayor's bill, the new office would ultimately have jurisdiction over appeals of tax disputes currently handled within the District's Office of Tax and Revenue.

Establishing an independent tax appeals function within the new Office of Administrative Trials and Hearings can further two important goals in tax administration. First, it will ensure that the decisions of the District's taxing authority are reviewed by an administrative law judge well-versed in tax matters and unrelated to the agency determining the tax. As an association of tax professionals, TEI has long sought to level the playing field between taxpayers and taxing authorities. The establishment of an independent tax appeals function, staffed by qualified professionals, is progress toward reaching that goal.

Second -- and perhaps more important -- an independent tax appeals process will convey to taxpayers that the process is fair. Taxpayers' perception that taxing and valuation disputes will be handled in an evenhanded manner -- that the deck is not stacked against them -- is crucial to our voluntary compliance system. Without an independent tax appeals process, taxpayers may easily conclude that they cannot obtain an objective review of their cases outside of going to court. The Office of Administrative Trials and Hearings will help remedy this and underscore the District's commitment to fair tax administration.

While Bill 14-208 and the Mayor's bill are very similar, certain features of the Mayor's bill provide even greater assurance that these two goals will be met. In the Mayor's bill, an independent commission for the selection, tenure, and discipline of administrative law judges is established with representation from all three branches of District government. Additionally, the salary of the Chief Administrative Law Judge is statutorily fixed, so that the independent Chief Administrative Law Judge is not put in the untenable position of having to negotiate his or her salary with the Mayor. In contrast, Bill 14-208 does not establish an independent commission, but rather vests the Chief Administrative Law Judge with the power to appoint and discipline administrative law judges. Combined with a provision that leaves the Chief Administrative Law Judge to negotiate a salary "commensurate with the compensation of members of the Mayor's cabinet," Bill 14-208 comes runs the risk of politicizing the Chief Administrative Law Judge and through him, the cadre of administrative law judges. Because judicial independence is the sine qua non of an effective tax appeals function, TEI believes the Mayor's bill to be the better approach in these areas.

It is also critically important that administrative law judges handling tax matters be qualified to do so. Whether qualification comes from previous experience or through specialized training, highly skilled legal professionals will be needed to efficiently adjudicate complex tax matters. For this reason, TEI commends two other features of the Mayor's bill. First, the Mayor's bill allows for an orderly phase-in of additional major administrative adjudication functions from District agencies, including the Office of Tax and Revenue's appeals function. Moreover, the Mayor's bill excludes the high-volume parking and traffic docket of the Department of Motor Vehicles as has been typically and rightly done in other states' central hearing agencies. The benefits of this approach are readily apparent: It allows time for the recruitment of legal professionals with appropriate credentials and experience, and will permit systemic reform to occur at a realistic pace. It will also allow time for planning and structures to be put in place before the fledgling agency is awash in cases with no ability to handle them efficiently. This will in turn engender success and further a reputation for professionalism -- helping to attract good talent.

Second, the Mayor's bill will provide the Office of Administrative Trials and Hearings with the authority to use qualified temporary administrative law judges to handle unanticipated increases caseload. This provision, absent in Bill 14-208, will ensure that the Office of Administrative Trials and Hearings can properly handle complex cases in exigent circumstances or where a conflict arises. An administrative adjudication process that cannot continually be more efficient, less expensive, and less formal than the court system is not an improvement.

Conclusion

Tax Executives Institute wholeheartedly supports the creation of a new Office of Administrative Trials and Hearings that would ultimately provide an independent, pre-payment tax appeals process.

If you should have any questions about TEI's position, or if there is any way that TEI can be of further assistance, please do not hesitate to contact Timothy J. McCormally, General Counsel and Director of Tax Affairs, at 202.638.5601.

Important CPE/CLE Information

Boards of Accountancy. Tax Executives Institute is registered with the National Association of State Boards of Accountancy (NASBA) (Sponsor No. 103086, Exp. 1/01/01) [renewal pending]. TEI is also registered with the following boards of accountancy:

Illinois (#158-000651, Exp. 12/31/2001); New Jersey (#160, Exp. 12/31/2002); New York (000265, 9/1/99.8/31/02); Ohio (P0087); Pennsylvania (PX613L); Texas (#3512).

Continuing Legal Education. The Institute is registered in the following states as a sponsor of continuing legal education programs: California - Approved provider status from September 1, 1999 to August 31, 2002. New York - Approved provider status from September 1, 1999 to August 31, 2002. Kentucky - 2001 51st Midyear Conference - 19.25 credit hours; 2000 50th Midyear Conference - 21 credit hours; 2000 55th Annual Conference - 15.50 credit hours; 1999 54th Annual Conference - 16.25 credit hours. Minnesota - 2001 51st Midyear Conference - 11.5 credit hours; 2000 50th Midyear Conference - 23 credit hours; 2000 55th Annual Conference - 13 credit hours; 1999 54th Annual Conference - 23 credit hours. Ohio - 2001 51st Midyear Conference - 14.75 credit hours; 2001 Audits & Appeals Seminar - 13 credit hours; 2000 50th Midyear Conference - 21 credit hours; 2000 IRS Audits and Appeals Seminar - 13.25 credit hours; 2000 State & Local Tax Seminar - 10.5 credit hours; 2000 Federal Tax Course Level I - 30.75 credit hours; 2000 State & Local Tax Course - 26.25 credit hours; 2000 Strategic Tax Management Seminar - 12.75 credit hours; 2000 55th Annual Conference - 14.5 credit hours; 2000 Mergers & Acquisitions Seminar - 12.75 credit hours; 2000 International Tax Course - 28 credit hours; 1999 54th Annual Conference - 20 credit hours; 1998 International Tax Course - Level I - 29 credit hours; 1998 Managing Your Company's Worldwide Effective Tax Rate - 9.25 credit hours; 1998 A Practical Update on Consolidated Tax Return Issues - 11 credit hours; Oklahoma - 2001 51st Midyear Conference - 23 credit hours; 2000 50th Midyear Conference - 25 credit hours; 2000 55th Annual Conference - 22 credit hours; 1999 54th Annual Conference - 25 credit hours. Pennsylvania - 2001 51st Midyear Conference - 17.5 credit hours; 2000 50th Midyear Conference - 18.5 credit hours; 2000 55th Annual Conference - 14 credit hours; 1999 54th Annual Conference - 16 credit hours; Wisconsin - 2000 50th Midyear Conference - 22 credit hours; 2000 55th Annual Conference - 20 credit hours; 2000 State & Local Tax Course- 35 credit hours; 1999 54th Annual Conference - 21.5 credit hours. Alabama - 2001 51st Midyear Conference - 19.2 credit hours; 2000 50th Midyear Conference - 21 credit hours; 2000 55th Annual Conference - 19.3 credit hours; 1999 54th Annual Conference - 20 credit hours; 1998 IRS Audits & Appeals: Strategies for Success - 13 credit hours.

Note: TEI provides a continuing professional education form for each registrant at its conferences, courses, and seminars, which should be completed at the conclusion of the program and returned to the TEI Registration Desk for verification and signature. A copy of the form is retained and filed at TEI headquarters.

Tax Executives Institute and TEI Education Fund accord to participants of any race, color, creed, sex, or national ethnic origin all the rights, privileges, programs, and activities generally accorded or made available to participants at their programs, courses, and other activities.

Please note: TEI and TEI Education Fund programs are presented for the benefit of TEI members and others who work in corporate tax departments; private practitioners may not register for the programs.