On November 20, 1996, Tax Executives Institute held its annual liaison meeting with the staff of the Joint Committee on Taxation. The agenda for the meeting is reprinted in the November-December 1996 issue of The Tax Executive. The minutes of the meeting are reprinted below.
On behalf of the staff of the Joint Committee on Taxation (JCT), Chief of Staff Kenneth J. Kies welcomed the delegation from Tax Executives Institute. On behalf of Tax Executives Institute, TEI President James R. Murray thanked the JCT representatives for meeting with the Institute. The members of JCT's and TEI's delegations to the meeting are set forth in the box on the following page.
National Commission on
Internal Revenue Service
Mr. Murray summarized his November 8, 1996, testimony before the National Commission on Restructuring the Internal Revenue Service. He explained that his testimony focused on the burdens imposed by current laws and the steps that can be taken to reduce those burdens. Specifically, Mr. Murray identified the following issues:
* The Desirability of Establishing an Administrability Index. The tax-writing committees should ask the IRS -- as well as the public -- to testify on the compliance burdens posed by all proposed tax legislation. Ideally, this testimony would be designed to ensure that clear, administrable, and cost-sensitive rules are enacted into law.
* Instability in the Tax Law. Congress needs to keep in mind that change itself is a complicating factor. In 1996 alone, six bills were passed that effected major changes in the Internal Revenue Code. The magnitude and rapidity of change only compound the already complicated nature of the law.
Ms. Schmitt inquired whether the Institute's proposed "administrability index" would be similar in purpose or effect to the "regulatory review" law that Congress enacted in order to curb excessive administrative regulations. Mr. Murray acknowledged the analogy. Ms. Schmitt inquired whether the Institute had developed a standardized taxpayer cost of compliance model that could serve as the cost component of the index. Mr. Murray replied that the cost of any tax proposal should be viewed as an offset to the congressional revenue estimate, and he suggested that the analysis be broader than just taxpayer's costs. The IRS and Treasury, he said, incur substantial one-time and ongoing costs to administer new tax provisions and the combined public and private-sector costs should serve as the base against which to measure whether a tax proposal should or should not be adopted.
Mr. Thomas said that the index represented a laudable goal theoretically, but that it would be difficult to implement. Enacting tax law changes depends, he said, upon whether a temporal -- often fleeting -- consensus can be achieved. The legislative give-and-take necessary to achieve consensus may be inhibited by the requirement to consider such an index. In addition, Mr. Thomas said, the not infrequent delegation of rulemaking authority to the Treasury would prevent Congress from fully assessing the cost or burden of compliance until such further rules were issued.
Ms. Schmitt opined that members of Congress would be reluctant to institutionalize a procedure that inhibits decision-making in the short-time frame within which members must achieve consensus. She said that a different approach to achieve the same goal is for more companies to provide information earlier in the legislative process about the potential costs and difficulties in complying with a particular provision. Mr. Rossi said that the ebb and flow of the legislative process and the incremental nature of decision-making in Congress made it difficult for companies to determine whether provisions from different bills (or even different Congresses) were likely to be incorporated in any particular tax bill. He said that adopting the administrability index proposal -- institutionalizing the assessment of cost-benefit trade-offs contained in any bill -- would trigger greater company input. Mr. Thomas averred that the JCT staff sometimes failed to hear from anyone in the business community in respect of legislative proposals regardless of how long legislative proposals are extant. As examples, he cited the revisions to section 1494(c) in the Small Business Job Protection Act of 1996 and the uniform capitalization provisions in the 1986 Tax Reform Act. Mr. Thomas urged business taxpayers to analyze legislative proposals and bring administrative and compliance concerns forward well before a bill lands on the President's desk.
Mr. Murphy said that Mr. Murray's testimony before the IRS Restructuring Commission identified the complexity of the tax law as a primary source of both IRS and taxpayer frustration. Ms. Schmitt queried whether simplification can be achieved without fundamental tax reform. Mr. Murray replied that the tax code may never be simple, but that it could be made simpler and easier to comply with. Ms. Schmitt said that numerous tax simplification proposals had been introduced since 1989, but that the simplified pension provisions contained in the 1996 Small Business Job Protection Act were the only significant achievement of the simplification constituency. She said that there was little momentum -- an insufficient constituency -- to impel the enactment of other simplification provisions.
Mr. Tann said that international tax simplification provisions had been passed by Congress but vetoed by the President in 1992. Ms. Schmitt acknowledged that a general consensus existed for simplification of the international corporate tax provisions. Mr. Thomas added that the staff of the Joint Committee was sympathetic to the Institute's concern and had no desire to complicate the Code. The tough task, he explained, is to raise the profile of administrative and compliance burdens -- to make those concerns visible -- to members of Congress. Mr. Tann...