Tax planning at the ballpark.

The ongoing controversy about corporate tax shelters and what to do about them has attracted much attention lately. Whether you view the problem as one of perception or reality or both, it is clear that advocates on both sides of the issue have proven creative in their rhetoric. One analogy that captured my attention was the comment by Deputy Treasury Secretary Lawrence Summers that action was necessary to staunch corporate tax shelters because the corporation that enters into a questionable transaction is like the fan who stands up at the ballpark. As Mr. Summers explained in his address to TEI's Midyear Conference, his concern is that if one person stands up, more will follow, until all will be standing up, straining to see the game. All spectators, he argued, would be better off if all remained seated. Anyone who has been a ball game will agree with Mr. Summers that it is generally more pleasant to watch the game from a seated position rather than standing the entire game.

On April 27 -- not coincidentally just hours after I testified on TEI's behalf concerning corporate tax shelters at a Senate hearing -- I traveled to Baltimore to attend a baseball game and had a chance to put Mr. Summers's analogy to the test. As I entered Camden Yards to watch the Orioles take on the Kansas City Royals, I considered how large and how relentlessly a penalty should be imposed on the standers. My thoughts began to swirl as I considered how the baseball equivalents of the Clinton Administration's tax shelter penalties would be applied.

Since subjecting her company to a 40-percent penalty would be a career-ending move for any vice president of taxes, I thought it appropriate to compare the proposed tax shelter penalty to a lifetime ban from all baseball games. Subject to how egregious the stander was, this could be extended to all sporting events and perhaps all events where standing is to be discouraged.

Entering the seating bowl, I realized that there were all sorts of standers in my way. For example, just as I was getting settled, the public address announcer instructed everyone to stand for the national anthem. Surely this was a standing that the Commissioner (Bud Selig or Charles Rossotti) would say was "contemplated by Congress." We all stood, sang the Star Spangled Banner and then most sat down. Not everyone did, however, and because a few folks remained standing -- people watching I guess you would say -- I wasn't able to watch the ceremonial first pitch.

I looked for an usher to enforce the penalty. Why an usher? Well, in the tax world the Administration's penalty for corporate tax shelters would be enforced by employees in the field, with very little, if any, guidance from management. I think the ballpark equivalent is the usher. Knowing that his job was to encourage compliance, the usher walked up to the stander. "I'm sorry sir, you will have to leave. Oh, and by the way, you are banned from baseball games for life, including your daughter's Bobbie Sox softball games on Saturday mornings." The guy protested that he thought standing was permissible because the game really hadn't started, but the usher was unmoved.

Just then I noticed someone else standing -- a late-arriving family trying to sneak to their seats before being caught. No luck. The usher told them to leave and, indeed, said they, too, were banned from baseball for life. But this family had a defense. "We're okay," said the father. "I called the stadium and disclosed we would be late. What's more, I have a good reason to be late. I relied upon Fox Sportscaster, a noted expert in this area, and the announcer said the game would start at 8:05. As soon as I found out he was wrong, we rushed here as soon as possible. So, you see, I disclosed, I had reasonable cause, and I acted in good faith." The usher looked sympathetic, but he said his hands were tied. "I wish I could help, sir, but this is a strict liability penalty. There are no exceptions for reasonable cause or good faith. Your disclosure is noted, and Major League Baseball thanks you for that. In fact, your disclosure alerted us to the fact you would be late. We probably would have missed you if you hadn't called. Since you disclosed that you would be standing, you and your family are only banned from baseball for half of your remaining life -- 20 years."

I was getting comfortable about this new get-tough policy on standers, when a foul ball came soaring my way. Should I stand to try to catch it? Would that be permissible? Well, I'm personally quite conservative in such matters. I not only didn't stand; I ducked. But as soon as things settled down, I began to get hungry. I realized I would have to stand if I wanted to get something to eat. Or I could buy something from one of the vendors. Ah, a congressionally authorized stander was right in front of me -- blocking my view.

I struggled to get to my wallet without standing and bought the hot dog from the vendor. As I was eating it, someone in front of me stood up and started walking to the aisle. I couldn't believe it. How aggressive, I thought. But I was wrong. A few minutes later he came back with a hot dog and a beer. Some more congressionally authorized standing. A few minutes later another fan stood and left the section. She came back a few minutes later with a soft drink. As she made her way to her seat, the usher rejected her. I asked why. "Oh, we've been watching her. Didn't you see how slowly she walked? And she went half-way around the ballpark just because the Cokes are a little bit cheaper there -- and because it gave her a better view of Brady Anderson. She may have thought lowering the overall cost of coming to the game was okay, but in my book it was a prohibited purpose. I have to hand it to her, though: She argued persuasively about her right to structure her soft drink purchases to minimize her cost and maximize game-watching standing time, but I demurred. I didn't know the Mrs. Gregory she was referring to, but I know if she had stood in my section, I would have thrown her out."

This guy was good. I asked him if he had ever found any other standers mischaracterizing their activities. He said the worst were the bathroom guys. "These guys stand up, stretch, look around, and then slowly move to the aisle. They walk slowly up the stairs. Then they circled the park. You stop them and they claim they have a favorite stall located next to Boog's barbeque. Some ushers buy it, but not me. Out they go. My rule is you always have to walk with your back to the game and always go to the closest restroom -- even if you don't even know where it is. Remember, good faith is no excuse."

Later, B.J. Surhoff missed hitting for the cycle as he hit one down the right field line that, for a moment at least, held the promise of the needed triple. I didn't see it, though, because the people all around me stood up. I was going to complain, but I personally wanted something to drink and there were no congressionally authorized vendors in my area. I decided to ask my usher for help. "Can you tell me where the nearest concession stand is and how to get there?" He said that he couldn't. It seems that ushers are not permitted to dispense guidance, though the usher told me I could request a ruling from the Commissioner's office. He told me I should submit a request for a ruling, enclose a check for $3,000, and mail it to Bud Selig. I should hear back in six to nine months, except for rulings regarding restrooms, which had been common-sensically classified as comfort rulings. I skipped the drink.

After the Royals batted in the top of the seventh, I started to stand, but caught myself. The woman next to me shook her head. "Many people fall into that trap. After all, the seventh inning stretch was a custom started by President Taft and so you might have thought you had `substantial authority.' And fans have been standing during the seventh inning for more than 60 years, so you probably had reasonable cause. But no one is quite sure, especially given what some of the ushers have been doing, so we all just remained seated."

In the top of the ninth, Mike Timlin came in to try to save the game for the Orioles. After giving up a hit, he got the next batter to hit a ground ball to Mike Bordick, the shortstop, who tried to turn the double-play. Normally, I would have jumped to my feet, not to see the play (a prohibited purpose) but to cheer my team (a legitimate fan activity). But would my usher believe me? I wasn't sure, so I sat and applauded quietly, as did the others in my compliant section. Then I noticed that almost the entire ballpark was standing. Noticing my confusion the kid behind me explained. "The penalty applies to fans whose seats are purchased by corporations. Other fans aren't subject to the penalty. See those guys over there? They work for a real estate partnership. Those other guys bought the tickets themselves (some with inherited money), so they don't have to worry about the standing penalty at all."

The game ended with a Timlin strikeout, and the usher smiled at me as I worked my way to the exit. As I left the park I wondered why the old remedies for standing hadn't been enough. After all, when I was growing up if some jerk stood up for too long either the other fans would shout him down or an usher would tap him on the shoulder and tell him to sit down. The abusive cases were handled efficiently. Sometimes new rules are promulgated. For example, in some ballparks people are asked to limit their coming and going to between innings or to other breaks in the action, such as a pitching change. To be sure, not everyone abided by the rules, but the violators were usually caught. The no-standing rule will surely curtail improper standing at ball games, but I fear that many legitimate fan activities will also stop. Whether the joy will be sapped from the game in the process remains to be seen.

Editor's Note: Following the publication of this article in Tax Notes, Pamela Olson of Skadden, Arps, Slate, Meagher & Flom -- a frequent speaker at TEI's educational programs -- asked the following question: What about the wave?

Lester Ezrati is General Tax Counsel for Hewlett-Packard Company in Palo Alto, and International President of Tax Executives Institute. This article originally appeared in TAX NOTES.