Prospects for tax legislation, LMSB initiatives dominate TEI's 54th Midyear Conference: treasury deputy secretary Bodman debuts at conference; Bob Wenzel and Rob Wright honored.
A highlight of the conference was the public debut of recently confirmed Deputy U.S. Secretary of the Treasury, Samuel Bodman, who delivered his inaugural tax policy speech at the conference. Other 2003 keynoters were House Ways and Means Committee Chairman Bill Thomas, IRS Commissioner Mark Everson (making his first conference presentation), and LMSB Commissioner Deborah Nolan.
The conference's technical sessions were both timely and tremendous. Whether the subject was FAS 109 and documentation of tax accruals, tax shelters, capitalization, R&D, Canadian tax developments, or multistate tax audits, participants were treated to practical and insightful presentations. A CD-ROM containing the handout materials will be available later this spring. (It will be available for sale to non-conference registrants.) Photographic highlights of the conference will be reprinted in the May-June issue of The Tax Executive, and will posted to the website by the first of May.
Keynote Addresses Raise TEI's Profile
Ways and Means Committee Chair Bill Thomas opened the Midyear Conference on March 22 with a spirited and sometimes pointed defense of the benefits of the international tax reform provisions in the American Competitiveness Act (H.R. 2896). Mr. Thomas explained that, although the bill was revenue neutral overall, it did not afford the same level of tax benefits to those that currently benefit from the FSC Repeal and Extraterritorial Income Exclusion (ETI) Act. As a result, critics of H.R 2896 have been vigorous in lobbying against the bill. The ETI Act, which has been declared an illegal export subsidy by the World Trade Organization, must be repealed, Mr. Thomas said. He urged supporters of the international tax reform provisions in H.R. 2896, especially broad-based business organizations, to step up their efforts. He averred that the Ways and Means Committee's bill would significantly enhance the competitiveness of American companies vis-a-vis foreign companies.
Mr. Thomas expressed little enthusiasm for a bill reducing the tax rate on domestic manufacturing, noting that such a bill would likely increase the number of taxpayers claiming to be engaged in manufacturing without increasing manufacturing output or jobs in the United States. Mr. Thomas also expressed skepticism about the prospects for passing stand-alone tax legislation during an election year, especially a bill that does not address ETI repeal. Thus, a proposal to extend certain expiring tax provisions may not be enacted unless, he said, the Senate is able to do so without adding nongermane amendments. Mr. Thomas's controversial remarks were widely reported in the press.
(Editor's Note: TEI's comments on FSC/ETI repeal and international reform and other pending legislation are reprinted in this issue.)
IRS Commissioner Emphasizes Balance between Service and Enforcement
At Monday's luncheon, IRS Commissioner Everson said that he hoped to end the perception that there is a "swinging pendulum" between service and enforcement. "Service, plus enforcement," he said, "equals compliance." Noting that the IRS had devoted substantial resources to taxpayer service activities following the enactment of the 1998 IRS Restructuring and Reform Act, he said the agency needed to focus on enforcement programs and initiatives to ensure that enforcement and service are balanced. He assured the audience that the IRS's new compliance enforcement initiatives would not cause the IRS to compromise taxpayer rights or reduce service levels. He added that the IRS will also continue its efforts to target promoters of abusive transactions.
The Commissioner also embraced tax simplification, stating that complexity in the Code is burdening tax-payers and the IRS alike and, indeed, that complexity may hinder taxpayers' willingness (and ability) to comply with the tax laws.
Deputy Secretary Bodman Promotes Tax Cuts
On Tuesday morning, Deputy Treasury Secretary Samuel Bodman delivered his first public remarks since being confirmed for the position by the Senate. In his remarks, Mr. Bodman framed the Treasury Department's goals for the IRS and promoted the Bush Administration's economic recovery plan.
Secretary Bodman explained the Treasury Department's three key goals for the IRS: (1) to improve services, especially by enhancing e-filing; (2) push forward with "right-sized" system modernization; and (3) increase compliance with the tax code.
In ramping up efforts to improve compliance, he said, the Treasury Department expects the IRS to target abusive tax shelters, deter noncompliance among tax-exempt entities, and augment efforts to detect and deter domestic and offshore criminal tax activity. Part of a healthy tax system, he said, "is making sure we rein in tax abuse." As an example, Mr. Bodman referred to the Administration's 2005 budget proposal to curb Sale In, Lease Out (SILO) transactions. The extent of the SILO problem has only recently come to light, he said. "Our data indicate that hundreds of billions of dollars of SILOs have been done in the last four years." Thus, he said, the "transactions represent a clear threat to the viability of the corporate tax base."
Deputy Secretary Bodman then reviewed the effects of the Administration's policies on the U.S. economy. He defended the tax cuts saying that they have reduced the tax burden on American consumers, addressed the rising cost of doing business in the United States, opened foreign markets, and promoted fair competition. Mr. Bodman said it was crucial that the tax cuts be made permanent. While acknowledging that the budget deficit is higher than it should be, Mr. Bodman averred that raising taxes is not the solution to reducing the deficit because higher tax rates are a powerful disincentive for growth.
During his remarks, Mr. Bodman noted that the Treasury Department needs input from organizations, such as TEI, in order to simplify the tax laws and to make the IRS work more effectively. He praised TEI's efforts to promote simplification of the Code (both separately and with the AICPA and ABA Tax Section), and he urged the Institute to continue working with the IRS, LMSB, and Treasury to promote sound tax administration.
During the conference, LMSB officials announced plans for changes in IRS audit procedures to accelerate the IRS audit process. The plan, which is to be formally released after discussion with representatives of the National Treasury Employees Union, is designed to achieve currency of LMSB examinations by quickly moving through the current caseload. Under the initiatives announced during a session led by LMSB Industry Director of Communications, Technology and Media, Thomas Wilson, taxpayers would be required to respond within 20 days following receipt of an IRS information document request. In addition, the initiative calls for more efficient use of Form 5701 for proposing audit adjustments and eliminates automatic extensions of time for taxpayers to respond to 30-day letters.
In a luncheon address immediately after the technical session, LMSB Commissioner Deborah Nolan said the initiatives to reduce audit cycle time and improve currency would enhance compliance. Shortening audit cycle time and bringing taxpayers more current in their examinations will not lead to non-compliance, she said, because the IRS has "systems in place that can ensure that we don't achieve currency and cycle time goals at the cost of compliance." Commissioner Nolan said that cutting the length of audits would allow the IRS to identify compliance problems earlier and issue guidance faster. Taxpayers, through groups such as TEI, have told the IRS that "what's important for you is greater certainty around tax positions sooner rather than the way our current process plays out." Both taxpayers and the IRS benefit from "addressing the issues of controversy on a more contemporaneous basis when the people and the documents involved in the transaction are readily available," she said.
Ms. Nolan explained that the currency and cycle objectives are intended to help the LMSB improve efficiency and redirect its resources toward the smaller businesses that fall within its purview. Currently, the audit rate for the 1,200 largest companies in LMSB is 75 percent, while the rest of the companies have between a 5 and 20 percent risk of being audited. She noted that the "chances of being audited can play into the risk equation that you take in tax positions."
In other comments, Ms. Nolan announced Mr. Wilson's retirement effective June 30, 2004, and said that Frank Ng, the Director of LMSB Prefiling and Technical Guidance, would replace Mr. Wilson. Kathy Petronchak will succeed Mr. Ng.
Other Government Panels
During the conference, Deputy Associate Chief Counsel International Steven Musher addressed the simplified method and other aspects of the proposed rules on intercompany services and intangibles. Among other comments, Mr. Musher said that the tests under the proposed regulations "were specifically chosen to make it clear that the U.S. views of what constitutes a service would coincide with international standards as reflected in the OECD guidelines."
Other government participants at the conference included: Dean Zerbe, Tax Counsel and Investigative Counsel (Republican Staff), and Patrick Heck, Chief Investigative Counsel (Democratic Staff), for the Senate Committee on Finance, and Robert Winters, Chief Tax Counsel (Republican Staff), and John Buckley, Chief Tax Counsel (Democratic Staff), for the House Ways and Means Committee; Les Koenig, Director, Joint Audit Program for the Multistate Tax Commission; and Laura Prendergast, Territory Manager with LMSB Communications, Technology & Media.
CRA Commissioner Wright and Deputy IRS Commissioner Wenzel Honored
On Monday, TEI President Ray Rossi presented Robert G. Wenzel with TEI's Distinguished Service Award for his exemplary service during a career spanning 40 years with the Internal Revenue Service.
"Bob Wenzel rose to become the top career official," of the IRS, Mr. Rossi said, "during a time of great challenge for the IRS in implementing the IRS Restructuring and Reform Act of 1998." "As the IRS's senior career official," Mr. Rossi explained, "Bob was responsible for the day-to-day management of the agency, representing the IRS before Congress and participating on the government's behalf in several international organizations. At the time of his retirement last October, Mr. Wenzel held the position of Deputy Commissioner for Services and Enforcement, responsible for supervision of the agency's four business units, criminal investigation, and the Office of Professional Responsibility." Mr. Rossi noted that Mr. Wenzel continually reached out to TEI and other tax organizations during his tenure and participated in numerous Institute liaison meetings and conferences. "He left the IRS a much stronger and more productive agency," Mr. Rossi concluded.
Mr. Rossi also presented the Institute's Distinguished Service Award to Robert A. Wright. In his remarks, Mr. Rossi noted that Mr. Wright began his career in Canadian government in 1975 and during the next 22 years served in various capacities with the National Energy Board, Department of Energy, and Department of Finance. In December 1996, Mr. Wright was appointed Deputy Minister of National Revenue, the top career position in Revenue Canada. "Three years later," Mr. Rossi said, "he was charged with overseeing the streamlining of Canada's tax and customs activities into one agency." "It was no easy task," Mr. Rossi continued, "but our honoree fulfilled his government role efficiently and wisely, thereby demonstrating his skill as both an administrator and a tax policy innovator in ways benefitting taxpayers and government alike." In recognition of his administrative skills, Mr. Wright was named the first commissioner of the newly independent, reorganized Canadian revenue agency.
During his tenure, Mr. Rossi said, "Rob Wright and his staff worked to enhance CCRA's service to large business, including the development of an audit protocol and real-time audits that served to reduce companies' administrative burdens."
In remarks accepting the awards, Messrs. Wright and Wenzel expressed gratitude to the Institute for the recognition accorded them and acknowledged TEI's assistance in advancing their goals and initiatives in promoting sound administrative practices.
LMSB Bonus Sessions
After the Midyear Conference ended, registrants were offered the opportunity to attend several "bonus" sessions offered by the LMSB Division on the nuts and bolts of managing an audit, international compliance issues, tax shelter developments, and the new Schedule M-3 for Form 1120. Session moderators included IRS Administrative Affairs Committee Chair Paul O'Connor, International Tax Committee Chair Bruce Maggin, and TEI members Nanci Palmintere and Mark Silbiger.
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|Title Annotation:||Tax Executives Institute 54th Midyear Conference|
|Date:||Mar 1, 2004|
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