Recommendations Regarding the 2000 IRS/Treasury Guidance Priority List.

March 6, 2000

On March 6, 2000, Tax Executives Institute submitted to the Internal Revenue Service and Department of the Treasury the following comments outlining TEI's recommendations for the Treasury/IRS 2000 Guidance Priority List. The submission was made under the aegis of TEI's Federal Tax, International Tax, and IRS Administrative Affairs Committees. (Note: The Treasury Department and IRS released their guidance priority list on March 21, and it included most of the items on TEI's list.)

As discussed during the annual liaison meetings between TEI and the Treasury Department and IRS, respectively, and as requested in Notice 2000-10, 2000-5 I.R.B. 451, TEI is pleased to forward the enclosed recommendations regarding the 2000 Treasury/IRS Guidance Priority List.

As an association of corporate tax professionals, TEI is firmly committed to working with the Treasury Department and the IRS to develop and maintain an administrable tax system. We believe that by devoting more time to providing guidance (especially on a pre-filing or assistance basis), the IRS and Treasury can reduce the resources consumed by post-filing activities while nevertheless enhancing compliance. Three areas actively discussed during the annual liaison meetings remain among the Institute's highest priorities for the 2000 guidance priority list. Specifically, we believe that examinations of both capitalization issues and qualifying research activities for the research tax credit consume disproportionate amounts of taxpayer and government resources. Hence, both areas would benefit substantially from additional up-front guidance. In addition, the recently released package of guidance relating to the registration of tax shelter transactions addresses a void that has regrettably contributed to the heightened controversy over tax shelters. TEI welcomes the release of the tax shelter package and looks forward to commenting on its myriad details. Finally, we also enclose, by way of appendix, a list of other items for which we believe guidance is essential in the year 2000.

Capitalization

The 1999 guidance priority list identified a half-dozen discrete issues for which guidance was to be issued clarifying whether the expenditures are deductible or capital in nature. The government addressed three of the items on that list (i.e., the treatment of investigatory expenses, ISO 9000 costs, and the costs of removal). For the three remaining discrete issues -- i.e., cyclical maintenance costs, sales commissions paid to obtain new customers, and mutual fund launch costs -- we encourage the government to provide guidance in 2000.

More important, we encourage the IRS and Treasury Department to work toward issuing guidance that will lead to a more global framework for resolution of capitalization issues. Both taxpayers and the government are frustrated by a guidance approach that resolves capitalization issues on a case-by-case basis (whether in public or private rulings) without providing broader principles that can be applied to facts and circumstances outside those specifically addressed in the ruling. In TEI's view, several areas are ripe for a broadbased approach. For example, a revenue ruling -- or regulations themselves --...