TEI welcomes spring with blizzard of advocacy activity: FSC/ETI repeal, international reform, simplification, and host of other congressional proposals headline TEI efforts; testimony before oversight board, submissions to treasury, IRS, and European union; and first-ever filing with Canadian court round out activity.

It happens ever year. Just as surely a spring follows winter, the level of Tax Executives Institute's liaison and advocacy activity picks up as the first quarter turns into the second, clocks spring ahead an hour, and legislative and administrative initiatives of significance to the tax community advance. 2004 has been no exception, and so far has witnessed the Institute's liaison meetings with government officials in Washington, participation in congressional hearings, submissions on pending legislation, an amicus brief with the Supreme Court of Canada, and filings with the European Community, as well as a series of meetings or submissions on the IRS's new Schedule M-3, Form 8858, and section 987. (Note: TEI's liaison meetings are discussed in a separate story in this issue.)

FSC/ETI Commands Attention

On March 10, TEI sent two letters to the tax-writing committees of Congress on pending international tax legislation. One letter presented the Institute's views on the proposed legislation to repeal of the FSC/ETI regime (as mandated by the World Trade Organization) and associated international reform and simplification proposals. The second submission addressed a number of other provisions, including the proposed codification of the economic substance doctrine and related tax-shelter penalty provisions, the requirement that CEO sign corporate tax returns, the extension of the net operation loss carryforward period, the research tax credit, and the employment tax treatment of stock options. The proposals are contained in the American Jobs Creation Act of 2003 in the House, and the JOBS Act of 2003 in the Senate.

In setting forth the Institute's position on pending international legislation, TEI's letter noted the diverse nature of its membership and observed that FSC/ETI repeal would affect different companies differently, exacting a potentially heavy tax cost from sectors benefitting from the current regime. TEI also reviewed the overall competitiveness of the Internal Revenue Code in respect of income from international operations, from compliance and policy perspectives, and stated that significant reform and simplification of the foreign provisions were desirable and should be effected as part of FSC/ETI reform.

TEI submissions are reprinted in this issue, respectively, on pages 148 and 153.

Embracing Tax Simplification ... One Step at a Time

In February, TEI teamed up with the American Institute of Certified Public Accountants and the American Bar Association's Section of Taxation to support several specific simplification provisions in the Bush Administration's 2005 budget. The comments, which took the form of a letter to Treasury Secretary John W. Snow, is an outgrowth of the continuing efforts of all three organizations to promote for tax simplification of the federal income tax for both businesses and individuals. The alternative minimum tax, which the Treasury Department has been directed to study, continues to be a growing problem. TEI, ABA, and AICPA urged completion of the AMT study this year, and offered technical assistance in developing an immediate, permanent solution. The letter to the Treasury Department is reprinted in this issue, beginning at page 143.

IRS Oversight Testimony

On March 30, TEI Executive Director Timothy McCormally testified before the House Ways and Means Subcommittee on Oversight during a hearing on the tax filing season and the IRS budget. The Institute's testimony asserted that if the IRS is to respond to taxpayer needs and to administer the tax code in a fair and efficient manner, it must have adequate resources, and suggested that the need for full funding is critical in the following areas: recruiting, retaining, and training quality tax professionals; and achieving currency on audits.

Mr. McCormally urged Congress to act forcefully to simplify the tax law because complexity strains the resources of both the IRS and taxpayers alike. Noting the simplification provisions in the Bush Administration 2005 revenue proposals, Mr. McCormally said "incremental steps toward simplifying the tax code are commendable, but longer strides must be taken to address structural and systematic complexity."

In addition to ensuring the IRS receives funding to maintain a qualified workforce, the Subcommittee was urged to ensure the funding necessary to maintain effective enforcement strategies. Mr. McCormally described recent efforts between TEI and IRS's Large and Mid-Size Business Division to develop initiatives that bring greater efficiency to the examination process through collaboration between taxpayers and IRS personnel.

TEI's testimony is reprinted in this issue, beginning on page 169.

Form 8858--Foreign Disregarded Entities

On March 2, the Institute provided comments on Announcement 2004-4 in respect of information reporting regarding disregarded entities, along with proposed Form 8858, Information Return of U.S. Persons with respect to Foreign Disregarded Entities, and Schedule M. Proposed Form 8858 was developed to enable the IRS to administer the tax laws more efficiently with respect to U.S. persons that own foreign disregarded entities (FDEs). In its comments, TEI asserted that the new form significantly erodes the simplification of the U.S. tax system provided by the check-the-box rules, noting that in some cases the proposed form would require taxpayers to submit more information in respect of disregarded entities than is currently required for controlled foreign corporations. The Institute pointed out that the form would require taxpayers to collect a significant amount of non-financial information, as well as include an income statement, balance sheet, current earnings and profits reconciliation, and details of intercompany transactions for each FDE. TEI urged the IRS not to undermine the simplified approach of the check-the-box rules by imposing a strenuous annual reporting regime and provided several specific comments on various aspects of proposed Form 8858.

The Institute's comments begin on page 144.

Another First--TEI Files Affidavit with Supreme Court of Canada

On February 6, 2004, TEI filed an affidavit with the Supreme Court of Canada in support of a company's appeal of a decision denying its amendment of a notice of appeal. TEI's affidavit, which came in a case involving the Potash Corporation of Saskatchewan, marks the first time TEI has become involved in a court case in Canada. In its filing (which is analogous to a brief amicus curiae in a U.S. tax case), TEI urge the Supreme Court to review the case because the issues have national significance affecting all large corporations. Specifically, TEI stated that requiring affected taxpayers to state the "particular elements" of a computation would impose an undue burden on large corporations because of the complexity of the Canadian tax law, the large volume of transactions reported by large corporations on their returns, the plethora and scope of issues, and the substantial number of steps and computations involved in the proper determination of a large corporation's tax liability.

The affidavit is reprinted in this issue beginning on page 165.

Other Canadian Activity

On March 5, TEI submitted comments to the Canadian Department of Finance on proposed legislation to restrict the deductibility of interest and other expenses. In its comments, the Institute suggested that the proposed legislation is much broader than necessary to achieve the Department's objectives.

On March 11, TEI sent another letter to the Department of Finance, urging the Government to introduce legislation repealing the Term Preferred Share (TPS) provisions of the Canadian Income Tax Act because those rules significantly restrict the design of Canadian equity instruments and reduce the depth and vibrancy of Canada's capital markets. The letter notes that the TPS rules are redundant with other rules in the Act affecting preferred shares, increase the cost of preferred-share financing over debt financing, and add significant complexity to ordinary business transactions.

TEI's letter on proposed legislation that would restrict the deductibility of interest and other expenses is reprinted beginning on page 159. TEI's letter urging repeal of the TPS provisions is also reprinted in this issue, beginning at page 157.

Assessing VAT Practicalities of Pending EU Accession

On March 1, TEI sent a letter to the European Commission concerning the practical implications of making intra-EC supplies of goods to VAT-registered customers in Acceding Countries. On May 1, the European Union will admit an additional 10 countries to its existing total of 15, and existing VAT provisions in those countries will be replaced by the rules of the EC Sixth VAT Directive. The Institute's European Chapter, working with the International Tax Committee, prepared the letter because many businesses will not receive their EU VAT registration number until at least April 2004. Among the recommendations in TEI's letter are the following: (1) Acceding Countries and current Member States should relax the requirement for an EU-compliant VAT registration number to support zero-rating for a transitional period lasting from May 1, 2004 until December 31, 2004, and (2) suppliers should not be required to reissue or amend any invoices issued to customers in acceding Countries for intra-EU supplies made during the transition period where an old VAT registration number has been used or evidence of the VAT application has been obtained.

The Institute's letter is reprinted in this issue, beginning on page 167.