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TEI celebrates 60th anniversary in the big easy: new tax bill, financial reporting issues take center stage at annual conference.

More than 650 TEI members and guests gathered in the Cradle of Jazz in October to review recent developments and celebrate Tax Executives Institute's six decades of service to the tax community. The four-day conference, which convened in New Orleans on October 17, provided timely updates on the recently passed American Jobs Creation Act of 2004, as well as practical guidance on FAS 109 (Accounting for Income Taxes), SEC enforcement efforts, and new IRS Schedule M-3. Other topics included an overview of TEI's forthcoming corporate tax department survey, the use of penalties, acquisitions within the European Union, tax department transitions, permanent establishment, and captive insurance.

The technical program began in earnest on Monday, October 18, with a legislative update featuring Treasury's

Tax Legislative Counsel Helen Hubbard, who was joined two former members of the staff of the Joint Committee on Taxation, Lindy Paull and Richard Grafmeyer. The panel, which was moderated by Michael Boyle of Microsoft, covered the highlights of the 2004 tax bill, which was signed by President Bush shortly after the conference.

Speaking for the Treasury Department, Ms. Hubbard acknowledged the need for prompt guidance, especially in respect of the executive compensation provisions, and predicted such guidance will be forthcoming before the end of the year. She pointed to the extensive use of notices after the enactment of the Tax Reform Act of 1986 as a model that Treasury and the IRS may follow to provide timely answers to the myriad questions surrounding the complex provisions. She invited TEI members to submit suggested priorities for the government in issuing the guidance.

Just like you, Ms. Hubbard remarked, we are studying the bill to identify the guidance that needs to be issued. We are making a list, she added, and encouraged taxpayers to submit their own lists.

Another provision that will likely be the subject of early regulatory guidance is the dividend repatriation provision, which is effective immediately. Treasury and the IRS are also studying the new domestic manufacturing deduction and the other approximately 175 provisions of the new legislation.

Later in the conference, IRS Chief Counsel Donald Korb reiterated the government's request for comments on the new legislation. Speaking at the Tuesday luncheon, Mr. Korb encouraged TEI members to help the government set guidance priorities. He also encouraged TEI members to provide comments on the IRS's policy for issuing section 355 private letter rulings, which was announced in Revenue Procedure 2003-48. He explained that the IRS is reviewing the pilot program, which is aimed at shifting resources from private rulings to more public guidance. The agency is particularly interested in learning whether the more restrictive approach on so-called comfort rulings has prevented taxpayers from undertaking transactions that would have been completed under the old approach.

In addition to receiving full coverage of the 2004 tax bills, conference registrants were able to attend a spirited session on new Schedule M3, a disclosure form that is scheduled to be filed with 2004 returns. Robert Adams of the IRS's Large and Mid-Size Business Division joined TEI Federal Tax Committee chair Neil Traubenberg of Storage Technology to discuss the IRS's reasons for issuing the new form and the difficulties taxpayers may face in updating their systems and providing the extensive data

Schedule M-3 focuses on book-tax differences, Mr. Adams explained, and will enable the IRS to more quickly identify transactions that warrant a closer look. "We want to look at the potential risk in a return as soon as we can," he stated, because "the more we can see of what differences [exist] between book and tax income from the get-go, the quicker we can get the right return" to review.

During a luncheon address, LMSB Commissioner Deborah Nolan thanked TEI for its assistance in commenting on the Schedule M-3. LMSB values its relationship with TEI, she confirmed, adding that the Institute helps the government get its message out and provides feedback on proposed initiatives.

Ms. Nolan cited the IRS's proposed currency initiatives (which among other things would have imposed a 20-day deadline for responding to information document requests) as an area where TEI's comments were critical in persuading the IRS not to implement the proposal. We stepped back because of your comments, she stated, and decided that working through the joint audit planning process was a better route.

Echoing the theme that the IRS intends to re-balance its service with better enforcement efforts that IRS Commissioner voiced at the Midyear Conference last March, Ms. Nolan explained that the IRS is committed to providing better service by reducing its audit and cycle times. She noted that the LMSB's fast track settlement procedure--which has been used in 297 cases--has reduced the average time a takes to resolve a case from 700 to 78 days.

In the enforcement area, Ms. Nolan confirmed that LMSB will increase audit coverage through the better use of the disclosure information it receives. She pledged to TEI that LMSB will use its enforcement tools responsibly, adding that while the IRS will be more aggressive in pursuing penalties for non-disclosure, the agency recognizes that "not one size fits all."

Another focus of the conference were accounting related developments. Tuesday morning opened with a keynote address by the SEC's Chief Accountant Donald Nicolaisen, who observed that FAS 109 is one of the most important financial reporting standards. Tax information is often the most sought-after information in a due diligence statement, he said, and "accurately accounting for income tax consequences in a company's transactions is critical to the credibility of the financial statements." He expressed confidence that, because of the far-reaching effect of the Sarbanes-Oxley Act, there has been a "greater focus on additional procedures that have been asked of you and of your departments."

A balance must be struck, Mr. Nicolaisen continued, between the need for confidentiality and the need for regulators and others to obtain an understanding of a company's financial position. "The auditor's obligation to report," however, "takes precedence over the request for confidentiality" of tax information.

Addressing concerns about creating a roadmap for the IRS, Mr. Nicolaisen pointed out that such concerns are not limited to tax information. Disclosure of sensitive information about litigation reserves is not new, he said, but the level of scrutiny may be more intensive.

During the conference, TEI presented two awards for meritorious service. At Tuesday night's banquet, the Institute awarded honorary membership to former TEI president Betty Wilson, who recently retired from MGM MIRAGE. Also honored during the conference was former Assistant Treasury Secretary for Tax Policy Pamela Olson, who was recognized at the Monday luncheon. (A related article about these awards may be found on page 362.)

Conference materials on CD-ROM will be sent to all registrants by the end of the year. Registrants may also access updated handout material on TEI's website. Photographic highlights of the conference begin on page 448.
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Publication:Tax Executive
Date:Nov 1, 2004
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