Significant problems encountered by corporate taxpayers: comments submitted to IRS Taxpayer Advocate.

• Position: Tax Executive Institute's comments submitted May 9, 1997

On May 9, 1997, Tax Executives Institute submitted the following comments to Lee R. Monks, Taxpayer Advocate of the Internal Revenue Service, on the significant problems faced by corporate taxpayers. The comments were prepared under the aegis of TEI's IRS Administrative Affairs Committee, whose chair is Robert L. Ashby of Northern Telecom Inc. Other members of the Institute participating in the development of TEI's comments were Stephen W. Boocock of Allegheny Teledyne, Inc.; Patrick J. Ellingsworth of Atlantic Richfield Company; John A. Gurovich of US West, Inc.; Sheldon A. Kimel of Brunswick Corporation; Robert J. McDonough, Jr. of Wang Laboratories, Inc.; Thomas B. Rogers of Apple Computer, Inc.; and Karen N. Wilson of NL Industries, Inc.

On behalf of Tax Executives Institute, I am pleased to submit the following comments on significant problems encountered by corporate taxpayers in their dealings with the Internal Revenue Service. We understand that the comments will be used in formulating the Taxpayer Advocate's annual report to Congress, which is due to be filed by December 31, 1997.

Tax Executives Institute is the principal association of corporate tax executives in North America. Our 5,000 members represent more than 2,700 of the leading corporations in the United States and Canada. 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.

Last year, Congress passed the Taxpayer Bill of Rights 2, which requires the IRS's Taxpayer Advocate, among other things, to report to Congress on the top problems facing taxpayers. It came as no surprise to the Institute that your first report under TBOR 2 identified complexity as "the single most burdensome aspect of taxpayer compliance." TEI wholeheartedly agrees.

Simplification and the need to address tax law complexity have been major themes of TEI submissions for the past decade. We recognize that some complexity is unavoidable. TEI members conduct business in a complicated, sophisticated, and everchanging marketplace. It would be foolhardy to think that corporate tax law will ever be truly simple. It would also be wrong to assign the responsibility for the law's complexity exclusively to the Internal Revenue Service. There is plenty of blame to go around, with a full measure belonging to those who propose and enact our tax laws and to those who administer them. It would similarly be in error to conclude that the situation is hopeless. The law can be simpler -- and the IRS can clearly play a major role in the simplification effort. For example, the recent check-the-box regulations significantly streamlined the entity classification rules to the benefit of taxpayers and the government alike. The new entity classification rules demonstrate that both the tax laws and their administration can be improved. TEI believes that the tax system could generally benefit from more of the kind of "outside the box" thinking that produced these regulations.(1) Laws and implementing regulations can be simplified, recordkeeping requirements can be reduced, tax forms and schedules can be streamlined, audits can become more efficient, and burdens can be minimized.

Simplification has many facets. It lies not only in crafting legislative rules and regulations that are comprehensible and easily administered, but in providing timely guidance on what those rules and regulations mean. If taxpayers know what the tax system demands of them, they will be able to adapt their recordkeeping and compliance practices accordingly. If the IRS interpretation is not known until years after the fact, taxpayers cannot possibly comply with the laws. Hence, we believe that many of the burdens imposed by the Internal Revenue Code are attributable to the IRS's not publishing sufficient, timely guidance on the law's scope. The best example of this is perhaps the Treasury Department and IRS's issuance of only limited guidance on...