Comments on miscellaneous revenue issues considered at February 21-22, 1990, hearings, March 9, 1990.

• Author: Burk, William M.
• Position: Letter to Charles B. Rangel, Chairman of Subcommittee on Select Revenue Measures of House Committee on Ways and Means

Comments on Miscellaneous Revenue Issues Considered at February 21-22, 1990, Hearings March 9, 1990

On March 9, 1990, TEI filed comments with the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means concerning three international tax proposals on which the Subcommittee held hearings on February 21 and 22, 1990. The Institute's submission took the form of a letter from Institute President William M. Burk to Representative Charles B. Rangel, Chairman of the Subcommittee. Mr. Burk's letter, which was prepared under the aegis of TEI's International Tax Committee, is reprinted below.

On behalf of Tax Executives Institute, I am pleased to provide the following comments on several revenue issues on which the Subcommittee on Select Revenue Measures held hearings on February 21 and 22, 1990.

Background

Tax Executives Institute (TEI) is the principal association of corporate tax executives in North America. The Institute's 4,300 members represent approximately 2,000 of the largest companies in the United States and Canada, and are responsible for coping with the tax laws - from both a planning and a compliance perspective - on a day-to-day basis.

TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting uniform and equitable enforcement of tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayer and government alike. As a professional association, TEI is firmly committed to working with the government in developing and maintaining a tax system that works - one that is consistent with solid tax policy, taxpayers can comply with, and the Internal Revenue Service can audit.

Foreign Tax Credit: Carryback

and Carryforward Rules

(Item A.1.)

TEI supports the enactment of legislation to lengthen from 5 to 15 years the carryforward period in respect of foreign tax credits. As explained below, we further recommend that the carryback period in respect of such credits be lengthened from 2 to 3 years and that the ordering rules for foreign tax credits be modified to permit any carryover credit to be taken into account before the current year's credit.

1. Description of the Problem. Current law provides that any foreign tax credits (FTCs) not used against U.S. tax in the current year may be carried back 2 years and forward 5 years. The rules for the general business tax credit (section 39) and net operating losses (section 172(b)) provide, however, for a 3-year carryback and a 15-year carryforward. The effect of the shortened time periods has been to cause FTCs to expire unused, thereby frustrating the purpose of the credit - the prevention of double taxation.

   There is no readily apparent policy reason for the harsher rules in the foreign tax credit area. In fact, when originally enacted as part of the 1954 Code, the carryback/carryforward provisions in respect of the net operating loss (NOL) and the FTC were identical - two years back and five years forward. Although the rules have been liberized several times for net operating losses since 1954 (most recently in 1981 as part of the Economic Recovery Tax Act), the FTC provisions have been ignored.

   In addition, the ordering rules for FTCs require that the current year's credits be utilized...