Tax Executives Institute-U.S. Department of Treasury Office of Tax Policy Liaison meeting minutes.

February 8, 2006

On February 8, 2006, The Tax Executives Institute met with representatives of the Office of Tax Policy and of the Department of Treasury. Note: These minutes were prepared by Tax Executives Institute, and although reviewed by the Treasury Department, they have not been formally approved by the Department. The Treasury's and TEI's delegations to the meeting are listed on page 253.

1. Introductory Comments

   On behalf of the U.S. Treasury Department's Office of Tax Policy, Acting Deputy Assistant Secretary for Tax Policy Eric Solomon welcomed TEI President Michael P. Boyle and the other members of the delegation from Tax Executives Institute to the liaison meeting. Mr. Solomon said that he was pleased to be able to meet with TEI. Mr. Boyle thanked the government representatives for taking time to meet with the Institute.

2. Pending Legislation

   A. Budget Proposals and Extension of the Research Credit.

   Mr. Boyle observed that the Administration's fiscal 2007 budget proposals were released two days prior to the meeting. The American Competitiveness Initiative announced during the President's State of the Union message includes a proposal to make the research credit a permanent part of the Internal Revenue Code. He said that TEI supports making the credit permanent. Mr. Solomon said that the Treasury Department looks forward to working with Congress on the President's proposal. He invited TEI to submit comments on the Administration's other budget proposals.

   B. Codification of Economic Substance Doctrine.

   Ms. Bauer said that TEI submitted a letter to the congressional tax-writing committees in January urging them to reject the proposal to codify the economic substance doctrine that is included in the Senate-passed version of the fiscal 2006 tax reconciliation bill (S. 2020). Ms. Bauer explained that in TEI's view codifying the economic substance doctrine is unnecessary and counterproductive. She observed that in the past the Treasury Department has expressed opposition to codification of the economic substance provision and inquired whether the Treasury Department remains opposed to the proposal. She also asked whether the Treasury Department is currently considering other regulatory initiatives to curb tax shelter transactions.

   Mr. Solomon acknowledged that the Treasury Department remains opposed to the codification of the economic substance doctrine. [Note: On February 23, 2006, Treasury Secretary John Snow sent a letter to the chairs of the congressional tax-writing committees urging them, among other things, to reject the proposal to codify the economic substance doctrine.] In respect of other tax shelter initiatives, Mr. Desmond explained that the Treasury Department is working with the IRS to finalize regulations on the disclosure, penalty, and tax shelter registration provisions that were part of the 2004 Tax Act.

3. Tax Reform

   Mr. Boyle noted that President's Advisory Panel on Tax Reform presented its recommendations to Treasury Secretary Snow on November 1, 2005. Mr. Boyle inquired about the Treasury Department's timetable relating to tax reform as well as the best avenue for TEI and others to submit input to the Treasury Department. Mr. Solomon said the Treasury Department is studying the recommendations submitted by the Advisory Panel and others. He acknowledged that the Treasury Department's tax reform activities have not been visible in the press, but assured the TEI group that tax reform is a very active topic within the Department. He invited TEI to submit its views on various tax reform issues, noting that the organization's diverse membership enables it to reflect the overall business community's reaction to various proposals. In addition, TEI can provide meaningful input on the administrability of the proposals. Mr. Boyle agreed that TEI is a broad-based business group with diverse views, especially on legislative issues. There is a strong consensus, though, that the business tax burden should not be increased to "pay for" individual tax relief. Mr. Solomon acknowledged that criticism is frequently expressed about the 1986 Tax Reform Act. Mr. Hicks said that a number of international tax provisions of the Code are ripe for reform because they are more than 40 years old and based on an outdated model of the U.S. and global economies.

4. Circular 230

   Ms. Twinem noted that the Treasury Department and IRS issued final regulations in May 2005 amending the rules governing practice before the IRS. The rules clarify that in-house tax practitioners are to be treated as a distinct category of tax professionals for purposes of Circular 230 and that written advice provided by in-house counsel to the employer for purposes of determining the employer's tax liability is excluded from the definition of a covered opinion under section 10.35 of Circular 230. She commended the Treasury and IRS for recognizing that the application of section 10.35 to in-house tax practitioners would have raised numerous issues and might have impaired the provision of sound and timely tax advice to the practitioner's employer. She said that regulations do not define the term "employer" and urged the Treasury Department to provide a broad definition. She explained that in-house counsel are often called upon to render advice for numerous entities beyond the W-2 employer, and invited the Treasury Department's views on TEI's recommended clarification of the scope of the term "employer" as well as an update on the timing of, and prospects for, changes to the Circular 230 regulations.

   Mr. Solomon acknowledged that it would be helpful to clarify the meaning of the term "employer" in Circular 230. Numerous comments from members of the American Bar Association, the American Institute of Certified Public Accountants, and other professionals have stimulated a broad scope review of the effect of the final Circular 230 regulations on public practitioners. Clarifying the definition of employer is important, but of narrower interest overall. Moreover, given the scope of the review, it is unclear when additional guidance might be issued.

5. Other Regulatory Actions and Initiatives

   A. Notice 2006-6.

   Ms. Bauer said that at the previous day's liaison meeting, Internal Revenue Service officials said they would clarify that Notice 2006-6 applies to all book-tax differences reported on tax...