TEI comments on pending tax bills: July 2004.

In July 2004, Tax Executives Institute sent the following letter to the members of the House Ways and Means Committee and the Senate Finance Committee on S. 163, the Jumpstart Our Business Strength (JOBS) Act, and H.R. 4520, the American Jobs Creation Act of 2004. A copy of the letter was also sent to the Senate conferees. The letter follows up on TEI's March 10, 2004, and June 3, 2004, comments on the pending legislation.

The Senate and House of Representatives have both passed tax bills (S. 1637 and H.R. 4520) to repeal the FSC/ETI provisions of the Internal Revenue Code and enact various international, domestic, and administrative provisions. While supportive of efforts to bring our tax laws into compliance with WTO mandates, Tax Executives Institute opposes several provisions that represent poor tax policy.

As the preeminent association of in-house business tax professionals, TEI believes the following provisions should be stricken as ill-advised and counterproductive:

* Reject the "Clarification" of the Economic Substance Doctrine. Codification of the economic substance doctrine is unnecessary and would potentially interfere with legitimate business transactions. The proposal should be rejected.

* Reject the CEO Declaration Requirement. This proposal to require a company's chief executive officer to sign a declaration concerning the federal income tax return would waste corporate resources without enhancing accountability. The provision should be excluded from the final legislation.

* Reject the Whistleblower Provision. The proposal to award a 15-to-30 percent bounty to individuals providing information on underpayments by corporate and other taxpayers and to establish an IRS "Whistleblower Office" is unnecessary and would outsource an inherently governmental function, i.e., the determination of tax. There is no evidence that current law--which already authorizes payment of monetary awards to informants--is ineffective in uncovering and deterring fraud. The high mandatory level of the award--coupled with the lack of a sanction for false reports--could spawn the submission of inaccurate and misleading claims. This proposal should not be adopted.

* Reject Amendment of Section 162. Although intended to clarify what fines and penalties are non-deductible under Code section 162(f), the proposed amendment goes much farther, potentially denying a deduction for "other amounts" such as costs associated with safety recalls, aircraft maintenance, or environmental cleanups. Given the public policy ramifications of hampering these activities, the proposal should be set aside.

* Reject Amendment of Section 269. The proposal to apply a tax-motivation test to routine transactions, including certain liquidations and tax-free reorganizations, threatens to overturn the major simplification effected by the "check-the-box" provisions. Given the broad sweep of this provision, it should be rejected.

If you have any questions, please feel free to contact TEI's Executive Director, Timothy J. McCormally, at 202.638.5601, [e-mail].