Minutes of 1989 TEI-IRS liaison meeting: April 26, 1989.

Minutes of 1989 TEI-IRS Liaison Meeting April 26, 1989

1. Call to Order

   Acting Commissioner of Internal Revenue, Michael J. Murphy, called the meeting to order and welcomed the delegation from Tax Executives Institute. The following individuals comprised the Internal Revenue Service's delegation to the liaison meeting:

   Michael J. Murphy Acting Commissioner of Internal Revenue Charles H. Brennan Deputy Commissioner (Operations) Robert F. Hilgen Assistant to the Senior Deputy Commissioner David G. Blattner Assistant Commissioner (Examination) John D. Johnson Assistant Commissioner (Planning, Finance and Research) Donald E. Bergherm Assistant Commissioner (International) John T. Ader Acting Deputy Assistant Commissioner (Collection) Damon O. Holmes Asst. to the Commissioner (Taxpayer Ombudsman) Gayle G. Morin Acting Asst. to the Commissioner (Legislative Liaison) /Director, Legislative Affairs Division James J. Keightley Acting Chief Counsel/Assoc. Chief Counsel (Litigation) Kenneth Klein Associate Chief Counsel (Technical) Steven R. Lainoff Associate Chief Counsel (International) Charles S. Triplett Deputy Associate Chief Counsel (International) T. Timothy Tuerff Special Assistant to Chief Counsel Kenneth E. Kempson Assistant to Deputy Chief Counsel James D. Bridgeman Special Assistant to Assoc. Chief Counsel (Technical) Bruce N. Davis Special Assistant to Assoc. Chief Counsel (Technical) Leslie S. Shapiro Director of Practice Roger Plate Director, Research Division B. Raiford Gaffney Program Analyst, Executive Secretariat Alvina McHale Public Affairs Tax Executives Institute's delegation to the meeting was composed of the Institute's Executive Committee, the chairs of its Federal and International Tax Committees, and its professional tax staff. The following individuals comprised the delegation:(*)

   (*) Two members of the Institute's Executive Committee - Robert L. Fealy and Paul M. Zagortz - were unable to attend the meeting.

   Larry R. Langdon, TEI President

   Hewlett-Packard Company

   William M. Burk, TEI Senior Vice President

   CPC International Inc.

   Michael J. Bernard, TEI Treasurer

   Mobil Corporation

   Linda B. Burke

   Aluminum Company of America

   Reginald W. Kowalchuk

   Bank of Nova Scotia

   Robert H. Perlman

   Intel Corporation

   Neil P. Wissing

   Weyerhaeuser Company

   Paul H. Freischlag, Jr., Chair, TEI Federal

   Tax Committee

   The Stop & Shop Companies, Inc.

   Bernard J. Jerlstrom, Chair, TEI International

   Tax Committee

   The Lubrizol Corporation

   Thomas P. Kerester

   TEI Executive Director

   Timothy J. McCormally

   TEI Tax Counsel

   Mary L. Fahey

   TEI Assistant Tax Counsel

2. Introductory Remarks

   On behalf of the IRS, Mr. Murphy thanked TEI for the reception held the previous evening at TEI Headquarters, which afforded representatives of both organizations the opportunity to talk informally. Turning to the annotated agenda for the meeting, he said that several interesting topics were scheduled for discussion. He stressed the IRS's willingness to listen to the Institute's concerns and assured TEI that the IRS would continue to be responsive during the interregnum between Commissioners.

   On behalf of TEI, Mr. Langdon stated that the agenda represented the evolving relationship between the Institute and the IRS. He noted that TEI's members were "key customers" of the Internal Revenue Service. He added that the two organizations have had many noteworthy successes throughout the years - as a result of formal liaison meetings and the Institute's submissions and testimony, informal meetings between TEI members and National Office representatives, and the activities of the Institute's local chapters with District and Regional Office personnel. He commended and thanked the IRS for its "open door" policy.

   TEI explained that the theme of its meetings with the Treasury and Joint Committee staff the previous day was the increasing complexity of the tax system and the pressures that complexity placed on tax executives and administrators as well. TEI stated that one solution to "the complexity conundrum" may be increased IRS and taxpayer involvement in the legislative process. TEI suggested that the Treasury and Congress should consult more closely with the IRS in developing legislative proposals in order to prevent the enactment of unadministrable statutes. Although acknowledging IRS concerns with perceived taxpayer abuses, TEI stated that too frequently the abuses are more perceived than real and that too much complexity stems from those perceptions. In other words, in an effort to close "tax pinholes" - to anticipate and prevent any "unintended" benefits - Congress, Treasury, and the IRS create impossibly complex statutory and regulatory provisions. TEI stated that the tax laws would never be "simple" - the economic environment in which business operates will not permit that - but that greater efforts can and should be made to rein in complexity.

3. Corporate Tax Gap

   The first subject discussed was the corporate tax gap. TEI expressed concern about the tendency in recent years to treat corporate taxpayers as a "target" - both legislatively and administratively. This trend has manifested itself, for example, in the somewhat beguiling characterization of proposals to curtail corporate tax benefits or preferences as "reforms" (thereby stifling a policy-based debate on the merits of the proposals). Similarly, the IRS has shifted its audit resources to the corporate community - especially to taxpayers in the Coordinated Examination Program (CEP) - and justified its actions by "yield" statistics and concerns about the growing nature of the corporate tax gap.

   TEI pointed out that CEP taxpayers have historically had an open, straightforward, and professional relationship with the IRS. That is why the CEP program has been successful. Notwithstanding this relationship, concerns about the "tax gap" and about whether the corporate sector is paying its fair share have in recent years contributed to a heightened adversarial relationship. TEI believes that the measurement of "fairness" should be based on solid information and not on questionable statistical analysis. In this regard, the Institute suggested that recent analyses of the corporate tax gap do a disservice to both the corporate community (especially large corporations) and the tax system as a whole.

   TEI referred to the Summer 1988 issue of Statistics of Income Bulletin (Volume 8, No. 1, pages 23-28) which contained a report prepared by the IRS's Research Division entitled "Gross Tax Gap Trends According to New IRS Estimates, Income Years 1973-1992." A detailed rebuttal of the report is set forth in the Institute's written agenda. TEI's principal point was that the report (as well as the underlying tax gap study) sends a series of strong negative - and incorrect - messages about corporate tax compliance. For example, the report suggests that, if a tax incentive (such as the investment tax credit) is eliminated, then taxpayers will utilize an alternative (improper) means to effect the same tax savings. In addition, the report measured the size of the tax gap based on audit adjustments proposed by IRS examiners - even though a large number of such adjustments were reversed by the IRS itself as cases worked their way through the administrative process. TEI added that if the figures were adjusted to reflect assessed amounts, the voluntary compliance rate for corporations in 1988 increased from 83 percent to 86.9 percent - higher than the compliance rate for individuals. TEI concluded that the report created the potential for serious misinterpretation.

   Mr. Murphy replied that the IRS appreciated TEI's concerns, agreeing that it was necessary to place all the facts "on the table." He pointed out that the SOI report dealt with a broad range of corporate taxpayers - not simply those in the CEP program or those represented by TEI's membership. Mr. Plate advised TEI that the IRS was preparing a new research report that would focus on the net tax gap. In this regard, he stated that the IRS itself is reviewing the tax gap estimation methodology and assured TEI that its comments would be taken into account as the new report is prepared. TEI asked whether further adjustments would be made to reflect amounts refunded to taxpayers following successful...