Sarbanes-Oxley will dramatically alter relationships with tax service providers. (President's Corner).

This issue of The Tax Executive is late. Optimally, the September-October issue of the magazine should arrive as TEI members are preparing for the Institute's Annual Conference. Often, in fact, the issue has last-minute news about the conference--reminders of conference highlights, announcements of last-minute changes, and even pleas to non-registrants to double check their calendars and departmental budgets in the hope of freeing up both the time and resources to attend.

That was our intention this year as well. But instead this issue won't arrive on members' desks until after the 57th Annual Conference in Toronto. The reason is Sarbanes-Oxley. Enacted in July in the aftermath of various corporate accounting and other business scandals, the Act (sometimes referred to as SOX) effects major changes in the rules governing the interaction of corporate management with outside auditors. One of the hallmarks of SOX is its effect on auditor independence and, specifically, the provision of non-audit services--including tax services--by an audit firm. Depending on how the legislation is interpreted, auditors are either prohibited outright from providing certain services to their audit clients or, at a minimum, such services can be rendered only if the company's audit committee "pre-approves" them.

It is not difficult to grasp the potential effect of SOX on TEI members and their companies. The new law will cause a substantial reworking of companies' internal procedures as corporate boards implement the auditor independence (and other) rules. Inevitably, tax directors will spend more time with their audit committees, and even if the SEC's implementing regulations do not prevent companies from using their auditors for certain projects, internal company procedures may well circumscribe the scope of services provided by an audit firm. And if the new law or a company's own rules limit the choice of tax-service providers, then relationships will be affected, as the "winners" and "losers" between audit firms and other service providers (be they law, accounting, or other firms) are sorted out. Stated bluntly, tax executives ignore or downplay the significance of Sarbanes-Oxley at their peril.

Advancing Professionalism through Education

The enactment of Sarbanes-Oxley coincided with TEI's development of its goals and objectives for the year. In light of the legislation, as well as ongoing challenges to the tax community's professionalism--including continuing legislative, regulatory, and enforcement thrusts related to tax shelters--the Board of Directors decided to make the promotion of professionalism the Institute's number one operational priority. We thus committed the Institute to stepping up its efforts to educate members about their legal and professional responsibilities, as well as to working with government representatives to craft effective rules that advance legitimate policy goals without overburdening business.

I am pleased to report that we have made major strides toward our goal, especially in respect of understanding and coping with the Sarbanes-Oxley Act. First, nearly all of the Institute's chapters have held or scheduled programs on the new law. From Santa Clara Valley to Denver, from Fort Worth to New England, TEI members are gathering together to hear not only from accounting firm experts and tax lawyers, but from securities lawyers and other experts on the new Act. A key element of each of these programs has been balance. Rather than hearing from only one affected party (whether accounting firm or law firm), the planners have put together programs that put all the issues--and all the open questions--on the table. Indeed, concern about Sarbanes-Oxley is not limited to U.S.-based companies; it applies to all SEC registrants. The legislation was a hot topic of conversation at the Canadian Tax Foundation's recent conference as well, where I was honored to represent TEI.

One measure of the importance of this topic is the September 27th telephone seminar that TEI held on the subject. Our telephone seminars are designed to focus on the here and now--to provide helpful information on fast-breaking developments--and the format seemed ideal for Sarbanes-Oxley. It was. Shattering the previous record, TEI's Sarbanes-Oxley telephone seminar attracted more than 1,000 participants. Building upon what the chapters have done, as well as the foundation laid by the telephone seminar, the Institute's Annual Conference also featured several important sessions related to Sarbanes-Oxley and its implications for the tax department.

That brings us back to why this issue of The Tax Executive is being published later than originally planned. Shortly after President Bush signed the Sarbanes-Oxley Act, TEI began to formulate plans to educate its members about the law. One facet of the Institute's plans involved the magazine, and we were pleased when two practitioners--Mark Oates and Daniel Goelzer of Baker & McKenzie--submitted an article about SOX. The article, which appears in this issue, stakes out the provocative position that the legislation likely forecloses audit firms from rendering a variety of tax services to their clients. Because of the importance of this issue to TEI members and their tax-service providers, a decision was made (with Messrs. Oates and Goelzer's assent) to offer those with "an opposing point of view" with a prepublication opportunity to review and comment on the article. This process--which culminated in the submission of an article by Richard Roberts of Thelen Reid & Priest--took longer than we anticipated, and caused the publication delay.

Upon reading the Oates-Goelzer and Roberts articles--introduced by a foreword by TEI's own Timothy McCormally--I hope you agree it was worth the wait. You should know, moreover, that these articles do not represent the end of TEI's commitment to this issue. Future issues of the magazine will contain further commentator analysis of Sarbanes-Oxley as appropriate. Moreover, we expect that our chapters will continue to hold meetings on the subject and, once the SEC issues implementing regulations (likely by the end of January 2003), the Continuing Education Committee will assess the need for another telephone seminar or conference session. In other words, stay tuned.

Other Pieces of the Professionalism Puzzle

Sarbanes-Oxley is not the only piece of the professionalism puzzle. And it certainly isn't the only topic that TEI has focused on in recent months. Far from it. In Canada, our technical committees are completing plans for the Institute's annual liaison meetings with the Department of Finance and the Canada Customs and Revenue Agency. These meetings serve a dual purpose. First, they afford TEI members an opportunity to raise questions about substantive areas of the law and to advocate changes that advance important tax policy objectives and minimize burden. But equally important, they give TEI and its members the chance to work with one another and with their counterparts in government to improve the tax system. In this regard, I was pleased that Canadian Minister of National Revenue Elinor Caplan recently singled out TEI among the stakeholders that CCRA has reached out to in developing the agency's "future directions."

In the United States, TEI continues to be an effective partner for improving tax administration and promoting the professionalism of the membership. For example, several members are participating in a Large and Mid-Size Business Division task force on developing issue-focused examination plans that encourage audit efficiency. Members also responded to an LMSB survey on streamlining the audit process. In addition, a representative of the Institute participated in an IRS webcast on recent tax shelter initiatives, and TEI chapters and regions continue to invite LMSB officials to participate in their programs. Finally, TEI's U.S. committees have begun work on the agendas for the Institute's 2003 liaison meetings with the IRS, Treasury Department, and Joint Committee on Taxation. We invite your ideas.

TEI's commitment to improving the tax system led us to become involved in several technical projects that deserve mention. First, the Institute submitted comments opposing a proposal to require the CEO to sign the tax return. Second, we reiterated our opposition to codifying the economic substance test in the Internal Revenue Code. Third, we prepared detailed comments on the Pacific Association of Tax Administrators' proposed transfer pricing documentation requirements. And we filed an amicus brief with the U.S. Supreme Court in the Boeing case, which involves the validity of the DISC/FSC regulations. These submissions (and several more) are reprinted in this issue and demonstrate both the breadth of the Institute's technical activities and commitment to making constructive change.

With Appreciation

I want to take this opportunity to thank the firms that have become sponsors of the Institute's 57th Annual Conference. Their support has enabled TEI to advance its education, networking, and advocacy goals.

To Commissioner Rossotti: A Job Well Done

Finally, on the eve of his resignation as Commissioner of Internal Revenue, I want to express the Institute's appreciation to Charles O. Rossotti. Commissioner Rossotti came into the Internal Revenue Service at a challenging time, and he worked hard and effectively to reorganize the agency, to recruit top-notch talent (including several former TEI members), and to restore the confidence of Congress, the public, and the IRS workforce in the agency's mission. Although unknown to TEI (and the tax community in general) at the time of his appointment five years ago, Commissioner Rossotti became a strong supporter of the Institute, speaking in every Annual and Midyear Conference during his tenure and also participating actively in our liaison meetings. We thank him for his service to the tax system and wish him well.

Platinum

Baker & McKenzie * Deloitte & Touche LLP * Ernst & Young LLP
KPMG LLP * Mayer, Brown, Rowe & Maw * McKee Nelson LLP
PricewaterhouseCoopers LLP * RIA

Silver

Alston & Bird LLP * BNA Software
DuCharme, McMillen & Associates, Inc. * Fenwick & West LLP
King & Spalding * Miller & Chevalier Chartered
Sutherland Asbill & Brennan LLP

Bronze

Akin, Gump, Strauss, Hauer & Feld LLP * Burr Wolff
Management Insights * McCarthy Tetrault LLP
McDermott, Will & Emery * Osler, Hoskin & Harcourt LLP
Planitax, Inc. * Smith, Thimm & Associates * Stikeman Elliott

J.A. (Drew) Glennie
International President