Repeal of section 956A: excess passive assets.

• Position: Tax Executives Institute International Tax Committee

On December 8, 1995, Tax Executives Institute filed the following comments with budget negotiators from the House of Representatives, Senate, and the Clinton Administration, endorsing the repeal of the "excess passive assets" test for inclusion of controlled foreign corporation earnings under section 956A of Subpart F. TEI's comments were prepared under the aegis of its International Tax Committee, whose chair is Phillip J. Bergquist of Apple Computer, Inc.

As Congress and the Clinton Administration work together to craft a budget agreement, Tax Executives Institute recommends that the final legislation retain the provision of H.R. 2491 that would repeal section 956A of the Internal Revenue Code. Section 956A was a bad law when it was enacted in 1993 and it remains a bad law today. It is needlessly complex and acts precisely the opposite of what was intended when it was passed.

Background

Tax Executives Institute is a volunteer association of nearly 5,000 professionals who are responsible for managing the tax affairs of their companies. TEI represents more than 2,700 companies, many of whom are engaged in extensive international trade and development activities. TEI represents the business community at large and abstains from taking positions on proposals that are narrow in scope or benefit specific industries. Our members must contend daily with business tax laws, from both tax planning and tax compliance perspectives. The Institute is firmly committed to maintaining a tax system that works -- both for taxpayers and the IRS. We believe the diversity and training of our members enable us to bring a uniquely balanced and practical perspective to your attention.

Discussion

Section 11489 of H.R. 2491 would repeal section 956A of the Code, effective for U.S. shareholders for taxable years beginning after September 30, 1995. Enacted as part of the Omnibus Budget Reconciliation Act of 1993, section 956A requires the 10-percent shareholders of a controlled foreign corporation (CFC) to include in current income their share of the CFC's earnings to the extent invested...