Tax Executives Institute--U.S. Department of the Treasury Liaison Meeting Minutes.

February 22, 2000

On February 22, 2000, a delegation from Tax Executives Institute met with acting Assistant Secretary of the Treasury Jonathan Talisman and other representatives of the Treasury Department's Office of Tax Policy. The minutes of that meeting are reprinted below.

1. Introductory Comments

   On behalf of the U.S. Treasury Department's Office of Tax Policy, Acting Assistant Secretary Jonathan Talisman welcomed TEI President Charles W. Shewbridge, III, and the other members of the delegation from Tax Executives Institute to the liaison meeting. On behalf of TEI, Mr. Shewbridge thanked the Treasury representatives for meeting with the Institute. The U.S. Treasury Department's and TEI's delegations at the liaison meeting are set forth below.

   Mr. Shewbridge thanked the Assistant Treasury Secretary for agreeing to speak at the Institute's upcoming Midyear Conference. TEI values its relationship with the Treasury Department, he said. Although we may disagree on particular issues, he stated, we have many common goals and shared successes, e.g., the recent legislation to protect the confidentiality of advance pricing agreements.

   Mr. Talisman stated that it is always helpful to have TEI's thoughts on issues. He noted that the Treasury Department is in the process of drafting its business plan for the year and invited TEI's comments on what items should be included. [Note: The Institute's comments on guidance priorities was submitted to the Treasury Department on March 6, 2000.]

   Mr. Shewbridge noted that the Administration's FY2001 Budget was released after the Institute's agenda for the meeting was submitted. He invited the Treasury representatives to discuss the items affecting corporate taxpayers. Mr. Talisman explained that the Administration's budget proposals include a $250 billion net tax cut and $100 billion in revenue offsets, many of which are designed to address abusive corporate tax shelters. The budget also includes several new international initiatives, including provisions to target so-called tax havens. The latter provisions are designed to foster more information sharing, he stated.

   Mr. Mikrut stated that the nonshelter initiatives primarily focus on specific transactions, particularly in the financial area. He cited the proposal in respect of tracking stock, which he said was not contemplated by the drafters of Subchapter C. Other proposals address divisive "D" reorganizations and downstream mergers. He invited TEI's comments on the various provisions. Mr. Talisman added that taxpayers often view the release of the budget as the end of the process, not the beginning. He noted that TEI's comments on the Treasury Department's White Paper on corporate tax shelters were carefully reviewed by Treasury and changes were made to the provisions set forth in the FY2001 Budget. We welcome the same input on all our proposals, he emphasized, adding that Treasury valued the Institute's real-world perspective. He cautioned, however, that taxpayers should not wait until the end of the process to make their concerns known.

   Mr. Murphy noted that the budget again includes a proposal to tax the investment income of section 501(c)(6) organizations. The Institute believes the proposal reflects unsound tax policy and will submit comments, he said. Mr. Talisman remarked that the Treasury Department and TEI have policy differences about the proposal. He asked whether there were ways in which the proposal could be amended to address the Institute's concerns, perhaps by permitting a certain build up of reserves. If so, please let us know, he added. [Note: The Institute's comments on the proposal were submitted on March 8, 2000.]

   Mr. McCormally referred to the Administration's proposal to require all payments to entities located in "identified tax havens" to be reported on the taxpayer's tax return. He noted that the proposal is reminiscent of the boycott list of section 999. The proposal generates process concerns, he added, such as how countries will be selected and how often the list will be updated. Mr. Talisman replied that the proposal focuses on certain criteria that will encourage countries to be more open and willing to dealing with the Treasury Department, for example, through information sharing. We want to expand information exchange, he stated, adding that Treasury is committed to working with the Organisation for Economic Cooperation and Development on its unfair tax competition project.

   Mr. Rossi inquired whether the tax haven initiative is intended to complement or supplant the Treasury's Subpart F study. Mr. Talisman explained that the Subpart F study will address deferral and policy questions, while the tax haven initiative is aimed at encouraging countries to cooperate with the United States' information needs. The Subpart F study will not obviate the tax haven proposal in the President's budget.

2. Tax Simplification

   Turning to the written agenda, Mr. Shewbridge explained that the Institute's agenda for the meeting has a common theme of simplification of the tax laws. TEI's mission is to encourage compliance with the law at the least cost to government and the taxpayer. If the laws were less complex, there would be fewer opportunities for taxpayers to engage in corporate tax shelter activity. Mr. Shewbridge explained that TEI has undertaken a joint simplification project with the American Bar Association's Section of Taxation and the American Institute of Certified Public Accountants' Tax Division. The report of these three organizations will be released later in the week and will include recommendations for simplifying provisions affecting both individual and business taxpayers. Given the budget surplus, he stated, TEI believes that the time is ripe for simplification.

   Mr. Glennie remarked that there is a recognition in both the United States and Canada that complex legislation acts as a brake on commerce. Complexity is counterproductive to a self- assessment system of taxation and makes it difficult for the taxing authorities to audit taxpayers efficiently. Governments need to raise revenue, he concluded, but they must do so in an efficient manner.

   Mr. Talisman stated that Treasury's Office of Tax Policy strives for simplification, but admitted that such a goal may not always be achieved. The budget does contain several simplifying proposals, for example, in respect of the alternative minimum tax. The Assistant Secretary cited the pressure to put new social programs in the Code and added that Treasury has tried to craft new initiatives -- such as the long-term care credit -- as simply as possible. At the same time, he recognized that there is a concern that the Code has reached its equilibrium. Is there a better mechanism to implement the policy? he asked rhetorically. He noted that the focus of simplification efforts has traditionally been on individuals and invited the Institute's comments on areas that concern corporate taxpayers.

   Mr. Glennie referred to several recommendations in the joint TEI-ABA-AICPA simplification project that would affect business taxpayers: the permanent enactment of the so-called extenders package, a safe harbor for corporate estimated taxes, and the repeal of the...