TEI responds to OTR notice regarding letter rulings: September 26, 2002.

On September 26, 2002, Tax Executives Institute sent the following letter to the District of Columbia Office of Tax and Revenue regarding their notice on review and revocation of letter rulings. TEI's letter was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Barbara Barton of Electronic Data Systems Corporation.

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On behalf of Tax Executives Institute (TEI), I am writing to request that the Office of Tax and Revenue (OTR) withdraw its notice of July 1, 2002, entitled Recall and Review of OTR Rulings.

As the preeminent association of business tax professionals, TEI has a significant interest in promoting sound tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. As such, TEI commends OTR for its efforts to "standardize written guidance' and otherwise improve administration of its letter ruling process. OTR's July notice, however, is a step in the wrong direction. A preemptory process requiring all taxpayers to submit to OTR copies of all written guidance by the end of the year or have the guidance revoked is at once overbroad and inconsistent with good tax policy and fair tax administration. Therefore, TEI urges OTR to withdraw the notice.

Background

Tax Executives Institute was established in 1944 to serve the professional needs of business tax professionals. Today, the Institute has 53 chapters in the United States, Canada, and Europe. Our more than 5,300 members are accountants, attorneys, and other business professionals who work for 2,800 of the leading companies in North America and Europe. One of our chapters is located in the Washington, D.C., area, and our membership includes representatives of all major local enterprises. Moreover, many of our non-D.C, based members work for companies with substantial sales or operations in the District of Columbia. As a professional organization, the Institute is firmly dedicated to developing and implementing 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. The Institute is committed to maintaining a system that works--one that builds upon the principle of voluntary compliance and is consistent with sound tax policy, one that taxpayers can comply with, and one in which the state taxing authorities can effectively administer the tax laws without unduly burdening taxpayers.

These goals can only be achieved through the members' adherence to the highest standards of professional competence and integrity. To ensure compliance with the law, TEI's Standards of Conduct exhort the members to "present the facts required in tax returns and all the facts pertinent to the resolution of questions at issue with representatives of the government imposing the tax." Equally important, the members "recognize an obligation to make an affirmative contribution to the sound administration of the tax laws, and to the adoption of sound tax legislation, by cooperation and consultation with the persons charged with those functions, having due regard for the interests of society, as well as the interests of the company and its employees." In short, a balance must be struck between public duty and private right.

TEI members are responsible for conducting the tax affairs of their companies and ensuring their compliance with myriad federal, state, and local tax laws. These companies have professional staffs dedicated to minimizing their tax liability while ensuring compliance with the law. We, along with federal, state, and local governments, have the most at stake in crafting a tax system that is administrable and efficient.

The Notice

The recall and review process outlined in OTR's notice, dated July 1, 2002, threatens to frustrate business taxpayers that need certainty to plan and conduct their affairs and potentially violates their constitutional rights. The notice provides that taxpayers must--before December 31, 2002--send OTR a copy of any letter ruling on which they will rely for purposes of all D.C. returns filed after that date; rulings not submitted by the deadline are revoked. According to the notice, OTR wants to gauge the number and scope of letter rulings issued by OTR and its predecessor agency, the Department of Finance and Revenue. The notice, however, is vague. For example, if a taxpayer settled a case and signed a closing agreement in exchange for withdrawing a protest, is the resulting agreement a letter ruling? Are all previous agreements between taxpayers and the tax agency letter rulings? What does it mean to review the appropriateness of a letter ruling in light of "current economics"?

The notice has only been posted on the OTR website. By its action, OTR has put the onus on taxpayers to come forward or risk having their letter rulings revoked. TEI questions the legal sufficiency of a blanket revocation of letter rulings through a notice posted on the OTR website. This is particularly so with respect to rulings which generally specify that revocation by either party must be in writing directly to the other party. Undifferentiated publication on the website cannot reasonably be deemed to satisfy the written notice requirement of the original rulings. Even if a copy of the notice were mailed directly to the affected taxpayers, however, its shortcomings would remain.

TEI feels there are other means in which to review outstanding rulings and the effects on the DC tax revenues. TEI recommends OTR review the most recently filed returns to determine the scope and extent of reliance on letter rulings and consider contacting larger taxpayers directly to ask what rulings are being re lied upon. Alternatively, OTR could adapt the filing process to require a copy of any ruling relied on for a position taken in the return to be included with the return. OTR should work with the taxpayer and tax practitioner community to achieve its laudable goal of better administration of its letter ruling process. Such collaborative efforts have contributed to better tax administration for the District in the past, and would enhance OTR's relationship with the taxpaying business community in the future.

Conclusion

Tax Executives Institute appreciates this opportunity to present its concerns regarding the notice issued by OTR on July 1, 2002, entitled Recall and Review of OTR Rulings. TEI believes that OTR's use of the notice as a blanket revocation of unsubmitted letter rulings fails to provide proper notice, potentially violating taxpayers' due process rights. In the end, the process outlined in the notice disquiets settled expectations and creates administrative problems for both taxpayers and OTR. TEI therefore urges OTR to withdraw the notice.

This letter was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Barbara Barton. If you have any questions about the Institute's views, please contact Ms. Barton at 972.605.1220, or Gregory S. Matson of the Institute's legal staff at 202.638.5601.

Standards of Conduct

Since the Mission, Principle, and Purposes of TEI can be achieved only by the observance on the part of its members of the highest standards of professional conduct, the Board of Directors adopted the following:

Tax Executives Institute, Inc., recognizes the following as the standards of conduct for each member in administering tax affairs for which he or she is responsible:

* The member accepts taxes as the cost of civilization and accepts the laws imposing taxes as the mechanism for distributing that cost among businesses and individuals. The member will comply with those laws, whether or not agreeing with them.

* The member recognizes an obligation to minimize company tax liability, within the bounds of the law and to the extent consistent with policies or objectives of the company, having due regard for the interests of society in sound tax policy, and will advise and support action to obtain that objective, to the best of the member's ability.

* The member recognizes an obligation to make an affirmative contribution to the sound administration of tax laws, and to the adoption of sound tax legislation, by cooperation and consultation with the persons charged with those functions, having due regard for the interests of society, as well as the interest of the company and its employees.

* The member accepts each Government representative as a person devoted to fulfilling the obligation to collect revenue honorably in accordance with law. The member will deal with the representatives on that basis, and will take occasion with others to uphold this view of Government representatives. In case of any deviation of a representative from that standard, the member will present the pertinent facts to the authorities authorized to take action with respect to the deviation.

* The member will present the facts required in tax returns and all the facts pertinent to the resolution of questions at issue with representatives of the government imposing the tax.

* The member will employ assistants and outside representatives upon the basis of their technical competence, always having due regard for the highest standards of professional ethics.

* The member will at all times recognize a duty of professionalism and will not use TEI membership to solicit business or sell products to other members.

TAX EXECUTIVES INSTITUTE, INC.

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