Disclosure of confidential transactions: August 8, 2003.

On August 8, 2003, Tax Executives Institute filed comments with the Treasury Department and the IRS urging the government to narrow the scope of the confidential transactions category of reportable transaction regulations. The comments were prepared under the aegis of TEI's Federal Tax Committee whose 2002-2003 chair was Mitchell S. Trager of GeorgiaPacific Corporation. Contributing substantially to the development of TEI's comments were William J. Sample of Microsoft Corporation and Robert M. Gordon of BP America, Inc. Also contributing were Alice A. Smith of Eaton Corporation, David F. Nitschke of Amerada Hess Corporation, and Neil D. Traubenberg of Storage Technology Corp. Mr. Traubenberg is the 2003-2004 chair of TEI's Federal Tax Committee.

On behalf of Tax Executives Institute (TEI), I am pleased to submit the following comments on the disclosure of confidential transactions under the reportable transaction regulations. Final regulations requiring disclosure of a taxpayer's participation in reportable transactions were issued on February 27, 2003. In public remarks since the rules were issued, Treasury Department and IRS officials have expressed willingness to modify Treas. Reg. [section] 1.6011-4 to sharpen and, to the extent possible without undermining their purpose, narrow their focus to better target disclosure of abusive transactions.

We believe the confidential transaction regulations would be improved by adopting one or more of the following approaches:

* Limiting the required waiver of confidentiality to transactions where a promoter, consultant, or material adviser subject to sections 6111 or 6112 is the beneficiary of the confidentiality restriction.

* Narrowing the waiver of confidentiality language authorizing taxpayers to disclose the tax structure of a transaction by clarifying that waiver is limited to disclosure of the tax structure to the IRS or other government agencies and to independent tax advisers.

* Issuing a revenue procedure to carve out specific types of nondisclosure agreements (NDAs) from the confidential transaction category of the reportable transaction regulations.

The first two recommendations provide general rules for narrowing the scope of the definition of reportable confidential transactions. The "angel list" approach described in the third bullet point would also narrow the scope of taxpayer reporting obligations, but more comprehensive rules will be easier and more efficient for taxpayers and the IRS to apply. An "angel list" would be useful either as a supplement to TEI's suggested comprehensive revisions or, if broader rules limiting unnecessary reporting cannot be formulated, as an alternative approach to eliminate disclosure of many routine day-to-day transactions.

In addition, we recommend:

* Changing the time at which the disclosure of merger and acquisition (M&A) agreements must be permitted by eliminating the "earlier of three events" rule of Treas. Reg. [section] 1.6011-4(b)(3)(ii)(B) and substituting a rule that permits taxpayers to disclose an M&A transaction "no later than 30 days following consummation of such a transaction."

* Revising the definition of confidential transactions to eliminate transactions entered into by controlled foreign corporations (CFCs) for the purpose of reducing foreign or state and local taxes.

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our more than 5,300 members represent 2,800 of the leading corporations in the United States, Canada, and Europe. TEI represents a cross-section of the business community, and is 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. As a professional association, TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply.

These goals can only be achieved through our 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 laws, and to the adoption of sound 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 short, TEI members agree that a balance must be struck between public duty and private right.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the package of rules released by the government to address tax-motivated transactions. TEI members know all too well that the inherent complexity of the...