Proposal to require registration of confidential corporate tax shelters.

On November 8, 1995, Tax Executives Institute submitted the following comments to the Joint Committee on Taxation concerning a proposal in the Revenue Reconciliation Act to require the registration of confidential corporate tax shelters. The proposal was among the issues discussed during the Institute's November 2 meeting with the staff of the Joint Committee on Taxation. TEI's submission was developed under the aegis of TEI's IRS Administrative Affairs Committee, which is chaired by Robert L. Ashby of Northern Telecom, Inc.

During our liaison meeting last week, we briefly discussed some of the Institute's concerns about the proposal in the Revenue Reconciliation Act of 1995 that would require the registration of so-called confidential corporate tax shelters (section 12802 of the Senate Bill and section 13602 of the House Bill). You asked us to elaborate on our concerns about the proposal.

General Comments

Tax Executives Institute has grave doubts about the proposal. Although Congress took great strides in 1989 to streamline and improve the Internal Revenue Code's penalty provisions, the proposal suggests that Congress cannot leave well enough alone. The Internal Revenue Code is already replete with provisions aimed at forcing disclosures of questionable positions, curtailing improper "tax shelters," and punishing taxpayers who unduly "push the envelope" in completing their tax returns through explicit penalties (in section 6662) or enhanced interest rates (in section 6621(c)).

Despite this plethora of penalty provisions as well as the registration requirements under section 6111 in respect of tax shelter promoters, Congress seems poised to enact legislation that would require the registration of tax shelters offered under conditions of confidentiality and to apply that registration requirement to taxpayers themselves where the shelter promoter is not subject to U.S. tax laws. Specifically, in such a case, the House and Senate versions of the Revenue Reconciliation Act each provide that a corporate taxpayer that signs a confidential agreement in connection with a "tax shelter" offering must either (i) send a written notice to the promoter of the taxpayer's decision not to participate in the shelter, or (ii) register the shelter with the Secretary of the Treasury, even if the taxpayer ultimately decides not to participate in the shelter.

TEI appreciates the policy concerns that underlie the proposal -- the aggressive use of confidentiality agreements to market 'tax shelter arrangements' and the effect such agreements...