Simplification isn't simple: government, private sector focus on ways to fix the code. (Recent Activities).

Approximately 125 people gathered on Capitol Hill in December to discuss ways in which to simplify the tax law. Representatives from congressional offices, the tax-writing committees, the Treasury Department, and the Internal Revenue Service joined tax executives and practitioners at the December 4 joint tax law simplification conference in the Cannon House Office Building sponsored by Tax Executives Institute, the American Institute of Certified Accountants, and the American Bar Association's Tax Section. The four panels focused on, and expanded upon, the simplification study issued earlier this year by the staff of the Joint Committee on Taxation.

In his comments opening the program, TEI President Bob Ashby noted that the Institute's 5,300 members "know that the tax system will never be truly simple for them and their companies. But we sincerely believe that the tax code can be simpler--for individuals, small business, entrepreneurs, and large corporations." He explained that the joint conference was "an attempt to move us forward by bringing a greater focus on the need for simplification of the tax law. We hope that the discussions will serve as a spring board for action."

Lindy Paull, chief of staff for the Joint Committee on Taxation, agreed that a constituency for simplification is needed and expressed hope that the conference would help in achieving that goal. C. Eugene Steuerle of the Urban Institute--who provided the keynote address--noted that government is not in the business of simplifying itself. Mr. Steuerle praised the three organizations for seeking simplification for the public good, noting that dealing with complexity is what the groups' members get paid to do. Studies such as the Joint Committee staff's recent report do have an effect, he stated. He suggested that one way of achieving simplification is to hold a day-long hearing on amendments to the tax law before they are passed. These types of processes have to be put in place if we are to succeed, Mr. Steuerle added.

Later that day, House Ways and Means Committee Chairman Bill Thomas urged the participants to get behind the elimination of the corporate alternative minimum tax (AMT), noting that the House of Representatives has provided for repeal in its economic stimulus legislation. Congressman Thomas added that he believes the Ways and Means Committee is appropriately named because its job is "to find ways of separating people from their means." You can help us become "tax smart," he stated, by structuring the law in a way that makes the AMT unnecessary.

Ways and Means minority tax counsel John Buckley had a slightly different view of the corporate AMT. In an afternoon panel moderated by TEI's Richard Millerick of Freddie Mac, Mr. Buckley questioned the wisdom of repealing the corporate AMT without repealing the individual provision; he called it "unfair" to do one without the other. In addition, he predicted that "Congress is not going to permit large corporations to zero out their income tax liability." Treasury's Deputy Assistant Secretary for Tax Analysis Andrew Lyon countered that "we shouldn't be embarrassed if a large corporation pays no tax." Individuals end up paying the AMT because corporations pass along the tax as a cost of doing business, he argued.

That same panel also discussed whether the answer to the capitalization quagmire was legislative or regulatory. Brian Meighn of the staff of the Joint Committee on Taxation noted that capitalization problems are so broad, that a statutory fix is not the answer. Specific guidance is useful, he stated, but a general guidance framework is needed. Pamela Olson, Deputy Assistant Treasury Secretary for Tax Policy, agreed. "We need to develop a consistent set of principles of what we think should be capitalized," she said. Mr. Buckley suggested that simplification may lie in greater book-tax conformity. Such an approach would create competing pressures that "would wash a lot of complexity out of the system," he stated. Members of the audience, however, took issue with that approach.

The conference closed with a panel on simplification of the international provisions of the Code. Barbara Angus, Treasury's International Tax Counsel, noted that the goals for simplification in this area differ from those in the individual sections. We need to reduce instances where the tax law drives taxpayers to take steps that are unnecessary or lack economic effect, she stated. More coordination of the anti-deferral regimes and expansion of the same country concepts may be needed, she added.

Hugh Hatcher of Congressman Amo Houghton's staff reported that the Ways and Means Committee's Oversight and Select Revenue Subcommittees intend to hold hearings early next year. Congressmen Houghton is preparing a bill that will focus on reducing complexity and improving competitiveness in the international arena. The bill will offer 31 areas of reform, including the repeal of the foreign personal holding company provisions and the elimination of the 90-percent limitation on the use of foreign tax credits.

Cary Pugh of the Senate Finance Committee staff and Raymond G. Rossi of Intel Corporation, TEI's Secretary, also participated in the international panel. Government participants in other panels included Michael Prucker of Congressman Neal's office; Barbara Pate of Congressman Portman's office; Bob Winters of Congressman Thomas's office; Russell Sullivan and Mark Prater of the Senate Finance Committee staff; and Oren Penn, Mary Schmitt, and Carolyn Smith of the staff of the Joint Committee on Taxation. The first two panels of the conference focused on simplification of the individual provisions of the Code, including the earned income tax credit, the education incentives, and the personal interest provisions.

The joint conference was the result of more than two years of work by TEI, the AICPA, and the ABA Tax Section. The joint project began in 2000 with the development of recommendations for simplifying the individual and business provisions of the Code. The recommendations ranged from repealing the AMT for all taxpayers to eliminating the phase-outs to reforming the definitions of dependent. Earlier this year, TEI's 2000-2001 President Betty Wilson testified before the Senate Finance Committee on the simplification initiative. That testimony is reprinted in the May-June 2001 issue of The Tax Executive.