CEO signature on corporate tax returns (S. 1971): August 22, 2002.
On behalf of Tax Executives Institute, I am writing to express TEI's opposition to legislation requiring a company's Chief Executive Officer to sign the corporate tax return. The proposal, which has been added as section 511 of S. 1971, the National Employee Savings and Trust Equity Guarantee (NESTEG) bill, would amend section 6062 of the Internal Revenue Code. Because the provision misapprehends the CEO's role in the preparation of company tax returns and could adversely affect tax administration, TEI recommends that it be abandoned. If Congress determines that the integrity of corporate income tax returns warrants an expanded scope and higher level of internal scrutiny than is currently required, TEI suggests requiring a company's independent audit committee to annually authorize the chief tax officer to sign the corporate income tax return. Additional measures to complement the annual authorization are suggested below.
As the preeminent association of business tax professionals, TEI has a substantial interest in maintaining the integrity and vitality of America's self-assessment tax system. TEI's 5,300 members are accountants, attorneys, and other business professionals who work for 2,800 of the leading companies in the United States, Canada, and Europe. TEI's members work on tax issues, and with the IRS, on a daily basis. They are responsible for conducting the tax affairs of their companies and ensuring their compliance with the tax laws. As a professional organization, the Institute is firmly dedicated to the development and effective implementation of 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 IRS can effectively perform its audit function 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." As 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 this latter regard, TEI has consistently supported adequate funding for the IRS and has worked with both IRS personnel and Congress to restructure the organization and to enhance taxpayer compliance.
Section 6062 of the Code currently requires that the income tax return of a corporation be signed by the president, vice-president, treasurer, assistant treasurer, chief accounting officer, or any other officer of the corporation authorized by the corporation to sign the return. (1) Section 511 of S. 1971 would amend section 6062 to require that the income tax return of a corporation be signed by the chief executive officer (CEO) of the corporation. (2) The Secretary of the Treasury would be authorized to designate other officers who may sign the income tax return where the corporation does not have a CEO. According to the Committee report, the intent of the provision is that the highest ranking corporate officer (regardless of title) sign the tax return. (3)
The proposal is reminiscent of proposals, which were previously considered during the debate over abusive tax shelters, to require CEOs or other senior officers to certify that the facts disclosed (or reported) on a return are true and correct. Specifically, a senior officer tax return attestation proposal was set forth in the Senate Finance Committee's Preliminary Staff Discussion Draft of proposed legislation to curb abusive tax shelter transactions. (4) TEI and other commentators criticized the senior corporate officer attestation proposal as misdirected and ill-founded and the proposal was subsequently removed from the Revised Senate Finance Committee Staff Discussion Draft of tax shelter legislation. Furthermore, the provision was not included in the Tax Shelter Transparency Act (S. 2498), which was recently approved by the Committee. Although TEI shares Congress's and the Administration's shock and disappointment over recent financial reporting failures, TEI does not believe the CEO signature proposal will advance the goal of minimizing such failures. In TEI's view, the CEO signature proposal will be no more effective in curbing misleading financial reporting practices than the senior officer attestation would have been in curbing abusive tax shelters.
The tax affairs of major corporations are extraordinarily complicated and their management is routinely delegated to the Chief Tax Officer (or similarly titled individual) who has been especially trained. While the senior officers (including the CEO and CFO) remain ultimately responsible for the company's compliance with the tax laws--and all other laws--it would be rare that a CEO could be personally involved in, or knowledgeable about, the plethora of tax rules that apply to literally thousands of transactions that are reflected in the company's tax returns. Indeed, the level of detail and specialized knowledge demanded in the preparation and submission of complex corporate tax returns demands that the responsibility for signing the return--and affirming under penalties of perjury the completeness and accuracy of the return--be delegated to an employee with a significant level of professional tax expertise, training, and experience. In TEI's view, the senior tax official is the person in the best position to assess--and state affirmatively--that the return fulfills the company's legal obligations.
Although TEI has consistently supported efforts to enhance the disclosure of transactions justifying IRS scrutiny and supported IRS appropriations sufficient to adequately fund the IRS, the Institute believes the proposal to require a CEO to sign a corporate tax return is flawed. We regret that it misapprehends the role of the tax department as well as that of the CEO. And while we believe it unjustifiably impugns the integrity and professionalism of both CEOs and corporate tax professionals, our fundamental concern is that the proposal is misdirected: It would force companies to devote substantial time and resources to educating CEOs about the intricacies of the company's tax affairs, distracting them (and the company's tax personnel) from activities that put their respective professional expertise to their best uses--including, in the case of the CEO, overarching issues of corporate governance and accountability.
The CEO signature proposal seemingly proceeds from the unproven premise that the people who currently prepare and sign billion-dollar corporate returns do so cavalierly. Corporate tax returns are already filed under penalties of perjury. To intimate, as the proposal does, that the CEO signature requirement is necessary because the CEO would otherwise permit misreporting on their company's tax returns or financial statements is without basis. Unless modified, the proposal would unwisely increase compliance burdens and unfairly diminish CEOs and corporate tax officials by suggesting that the former may be too craven and the latter too weak to ensure compliance with the tax law. Members of TEI who sign their company tax returns take their obligations to file correct tax returns seriously? While recent reports unfortunately document that some corporations have engaged in improper conduct, there has been no showing that the noncompliance is due to the lack of sanctions. Indeed, in a typical year, corporate tax officials will sign under penalties of perjury hundreds, sometimes thousands, of federal, state, and local income, excise, and property tax returns--and the penalties can be quite severe. (6)
Equally important, the CEO signature proposal would impose undue burdens on compliant taxpayers. Since most CEOs are not experts in the complexities of the tax law, they will of necessity turn to others (specifically, corporate tax officials or outside tax advisers) to compile the necessary background documents and review the thousands of pages and multiple volumes that constitute a complex, multinational corporate consolidated income tax return. (7) The CEO's review of the income tax return would be redundant to the review process currently undertaken by the chief corporate tax officer and the added resources required to comply with the proposal, again without demonstrable need, should not be ignored, especially since it would distract both CEOs and tax department personnel, including (in the latter case) dealing with the IRS to resolve outstanding tax issues. Moreover, Congress has recently undertaken steps to strengthen the accountability of CEOs and CFOs for corporate financial matters. Under the Sarbanes-Oxley Act, CEOs and CFOs are required to certify--under sanction of civil and criminal penalties--the accuracy of the company's financial statements, including the tax provision. In order to certify that the taxes provided in the financial statements are materially correct, the CEO and CFO must be informed about, and engaged in, the oversight of significant tax matters, including the company's internal controls for tax compliance. Thus, the financial statement certification required under Sarbanes-Oxley Act provides CEOs and CFOs with a substantial incentive to (1) be informed about significant tax matters and (2) provide a proper level of oversight of the company's tax compliance processes.
If Congress determines that ensuring the integrity of corporate income tax returns warrants an expanded scope and higher level of internal scrutiny than is currently required of or practiced by companies, TEI suggests that a public company's independent audit committee be required to annually reaffirm its appointment of the Chief Tax Officer (or other similarly knowledgeable employee trained in tax matters) as the individual authorized to sign the corporate income tax return. (8) In addition, the audit committee might also be required to review significant tax matters with the designated individual. This approach would place responsibility for oversight of corporate tax accounting matters in the same independent corporate governance committee responsible for oversight of financial accounting matters. As an additional safeguard, the independent audit committee might also be required to establish procedures for the receipt, retention, and treatment of confidential, anonymous submissions by employees of the company regarding questionable tax accounting matters.
In summary, the proposal to require CEOs to sign corporate tax returns would impose a burden on CEOs that most are ill-trained to bear, would unnecessarily saddle companies with additional compliance costs, and represents a step backward for efficient tax administration since the person signing the return would not be the employee in the best position to ensure the accuracy or completeness of a complex multinational tax return. TEI urges that the proposal either be abandoned or revised substantially.
Tax Executives Institute appreciates this opportunity to present its views on the proposal to amend section 6062. Any questions about the Institute's views should be directed to either Timothy J. McCormally, TEI's Executive Director, or Fred F. Murray, the Institute's General Counsel and Director of Tax Affairs. Both individuals may be contacted at 202.638.5601.
(1) Under Treas. Reg. [section] 1.6062-1, returns required to be made by corporations under the provisions of Subtitle A (Income Tax) or F (Procedure and Administration) of the Code or regulations, with respect to any tax imposed under Subtitle A of the Code, must be signed for the corporation by the president, vice-president, treasurer, assistant treasurer, chief accounting officer, or any other officer duly authorized to sign such returns.
(2) Section 1001 of the Public Company Accounting Reform and Investor Protection Act of 2002, also known as the "Sarbanes-Oxley Act of 2002," states a "Sense of the Senate Resolution" that CEOs should sign a corporate tax return. The provision, however, does not amend section 6062 of the Internal Revenue Code, which expressly authorizes other officers to sign corporate tax returns. The effect of that provision is unclear, though it would be mooted by enactment of section 511 of S. 1971.
(3) Senate Finance Committee Report on S. 1971, National Employee Savings and Trust Equity Guarantee Act, reprinted in BNA DAILY TAX REPORT, L-1 (August 5, 2002), at L-30.
(4) The senior corporate officer attestation proposal was put forward by the ABA Tax Section and embraced by the Joint Committee on Taxation in its Study of Present-Law Penalty and Interest Provisions as Required by Section 3801 of the Internal Revenue Restructuring Act of 1998 (Including Provisions Relating to Corporate Tax Shelters), JCS-3-99 (July 22, 1999). TEI opposed the proposal in its November 1999 testimony before the House Ways and Means Committee and during its March 9, 2000, testimony before the Senate Finance Committee on hearings relating to the interest and penalty provisions of the Internal Revenue Code as well as corporate tax shelters. The Senate Finance Committee's Preliminary Staff Discussion Draft of tax shelter legislation was released on May 24, 2000. A revised Staff Discussion Draft was released on October 5, 2000, and the proposal requiring senior officer tax return attestation was not included in that draft or in subsequent proposed legislation relating to tax shelters.
(5) Some proponents of previous attestation proposals have expressed surprise at TEI's opposition, suggesting that the requirement would take in-house tax professionals "off the hook" by transferring responsibility to another senior corporate officer. Such statements both misapprehend the professionalism of our members and the expectations of the senior corporate management who supervise them.
(6) At a minimum, the provision must be clarified to apply solely to the Federal income tax returns (Form 1120) filed by corporations. If this provision extends to other federal tax returns, or worse, is copied by other jurisdictions, CEOs will have little time to properly perform their other substantial duties. Moreover, depending on the size and scope of the company's Form 1120, chief tax officers currently devote considerable time to the ministerial act of signing dozens, if not hundreds, of different forms, schedules, statements, and elections within the return that are subject to a signature requirement. Presumably, regulations would clarify whether the CEO signing on page one of Form 1120 would also be required sign each form or statement subject to a separate attestation, but the sheer number of such attestations reinforces our concern about the demands the proposal would impose on the CEO's limited time.
(7) Requiring a CEO to sign the corporate tax return is tantamount to requiring the chief administrative officer of a hospital rather than the chief medical officer to certify the correctness of every surgical procedure performed at the hospital. Such a requirement would establish accountability at the highest level of the hospital, but if the administrator is not a surgeon, does the administrator have the requisite knowledge and training to certify the correctness of the procedure? In other words, is the certification meaningful or reliable? The same questions arise in respect of the CEO tax return signature proposal. The CEO signature proposal would clearly establish the CEO's accountability for the return, but would the company's tax return or reported tax liability be more accurate or complete because the CEO signed the return? The conclusion does not follow from the premise. TEI believes that only one attestation is required and that it should come from an individual--i.e., the chief tax officer--who possesses a high degree of professional expertise, competence, and training in corporate tax matters.
(8) In the case of private companies that do not have an audit committee comprised of independent directors, the periodic designation of the chief tax officer might be a matter for consideration by the full board of directors.
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|Date:||Sep 1, 2002|
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