New realities of 2002.

No multi-year plan, strategic plan, or crystal ball could have predicted how differently the tax world is today from a year ago. A year ago, the country was looking at budget surpluses, and the debate was over how to spend excess revenues most effectively. Today, the prospect of budget deficits looms large, and efforts to enact an economic stimulus bill seem almost futile, supplanted by preoccupation with the implications of the Enron collapse on topics as far ranging as retirement security, tax shelters, stock options, and the relationship of outside auditors to their clients.

On the regulatory front, too, the contrast is equally dramatic, though more positive. A year ago, companies were contending with provocative, even hostile, research tax credit regulations and resigned to fighting "the INDOPCO wars" on a foxhole-by-foxhole basis. Today, we are busy analyzing a new set of R&D credit rules that, while far from perfect, are more reasonable and grounded in reality, and we are studying a framework for comprehensive guidance on capitalization issues that hold the promise of moderating the drain those issues have been on both IRS and taxpayer resources.

Finally, on the tax compliance front, we are clearly living in a new world, with the IRS's Large and Mid-Size Business Division seeking to issue more guidance, more quickly (through its Industry Issue Resolution process among other things), and to streamline what is now known as "the post-filing process" through Fast Track Appeals and other programs. We are dealing, too, with a refocused effort on tax shelters, with a renewed emphasis on disclosure that features both the carrot of a penalty waiver and the stick of mandatory IDRs.

Educational Initiatives

The ying and yang of the tax world in 2002 makes this year a particularly challenging one for tax executives. As it has for more than a half a century, Tax Executives Institute has striven to be in the thick of things, through a balance of educational, networking, and advocacy activities. For example, in January the Institute hosted a telephone seminar on the new research tax credit regulations that teed up significant policy and tax compliance issues and, based on the evaluations received from the record number of participants, was successful in giving TEI members what they needed to cope with the new rules. In late February, we held our annual seminar on IRS audits and appeals, which featured the best practitioners in the country discussing the most pressing issues of tax administration. And as this issue goes to press, we are approaching the Institute's 52nd Midyear Conference, which will provide our members with an unparalleled opportunity to hear from the experts and to network with each other.

The Midyear Conference deserves special mention. Our keynote speakers will include IRS Commissioner Rossotti, Assistant Treasury Secretary Weinberger, IRS Chief Counsel B. John Williams, and Senator Max Baucus, the Chairman of the Senate Finance Committee. The topics will range from the use of statistical sampling by the States to Canada's general anti-avoidance rules, to data mining, to the FSC/ETI controversy, to TEFRA audits, transfer pricing, and the aforementioned R&D and tax shelter rules. In addition, although we have retained the practice of beginning our educational sessions on Monday morning, we have teamed with the IRS's LMSB Division to schedule several "bonus sessions" on Wednesday afternoon. These sessions will feature key IRS officials and enable TEI members to maximize their CPE credits and their learning opportunities. (Details are available on TEI's website.)

Two other items about the conference. First, on Tuesday evening, March 19, the Institute will honor its former Executive Director Mike Murphy for his nearly 40 years of service to the tax profession, including a decade as Executive Director. Second, the conference will offer TEI members an opportunity to express their appreciation to the firms that have chosen to become conference sponsors. I want to personally thank the firms (acknowledged at the end of this column) that responded positively to the Institute's invitation. I hope to see all of you at the conference.

Education and Advocacy: Hand in Glove

What makes TEI unique is the way in which its advocacy efforts dovetail with its educational initiatives. Thus, the Institute not only hosted a telephone seminar on the research tax credit regulations, but it met with the IRS and the Treasury Department on how the revised regulations should be implemented. It not only planned a seminar on IRS controversies and scheduled a conference session on the new disclosure initiative, but also staked out its own position on how the rules should be modified.

And it not only published articles by top-notch practitioners on new LMSB programs (witness the two articles in this issue), but also met repeatedly with government officials to fine tune the initiatives.

The fruits of these advocacy efforts can be seen in the pages of this magazine. Whether it is our amicus brief in the Microsoft case, our comments on "Code V" reporting, our testimony before the IRS Oversight Board or support for adequate IRS funding, or our comments on administering R&D claims, TEI has stressed the practical implications of government actions or inactions. And we have endeavored to punctuate our concerns by real-world examples and realistic suggestions. In this regard, the Institute's government liaison meetings -- with officials from the Treasury Department, the LMSB organization, the staff of the Joint Committee on Taxation, and their counterparts in the Canadian Department of Finance and CCRA -- have long served two purposes: to educate (both ourselves and the government) and to advocate worthwhile changes. The Institute is grateful for the time and effort that our colleagues in government devoted to the meetings, and we remain hopeful that the positions we advanced will be adopted.

The Breath of Fresh Air

The Institute's recent liaison meetings gave us an opportunity to do something else: Say thank you. From my vantage point, although many challenges remain, this past year has been a remarkable one for tax administration. Accordingly, following our liaison meetings, TEI sent a letter to the Treasury Department that read, in part:

   The clarity, responsiveness, and level-headedness of the guidance that
   Treasury and IRS have issued recently are at once remarkable and
   commendable. Several areas deserve special mention.

   First, the Treasury and IRS's response to September 11 demonstrated that
   tax administration cannot only be sound; it can be compassionate.. .. At a
   time when some may have counselled cautious, even timid actions, the
   government responded with intelligence, with humanity, with common sense.
   The times demanded bold action, and the Treasury and IRS acted boldly.

   Boldness was not limited, however, to September 11 relief. In the
   capitalization area (with the issuance of an advanced notice of proposed
   rulemaking), the research tax credit area (with the issuance of new
   proposed regulations), the tax shelter area (with the issuance of a
   disclosure initiative), and the consolidated return area (with the issuance
   of an announcement relating to section 337(d) and the Rite-Aid case), the
   Treasury Department demonstrated again and again its concern for, and
   commitment to, improving tax administration. To our mind's eye, the
   dedicated women and men of the Office of Tax Policy thought outside the
   box, guarded against overreaction, and took important steps toward
   developing creative solutions to long vexing problems. By its actions, the
   government acknowledged that if the rules cannot be administered by
   taxpayers or the IRS, they should not stand.

   Stated simply, as an organization 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, TEI believes that much progress has been made during the past year.
   To be sure, and as our comments during the liaison meeting confirmed, TEI
   believes that much work remains to be done. But the areas of disagreement
   should not overshadow our appreciation. The Treasury's openness and
   commitment to improving tax administration are like a breath of fresh air.

Many challenges do lie ahead, but if we work together, I am confident we can make progress. Please help us in that effort.

Robert L. Ashby
International President