Debate, Top Government Speakers Mark TEI Conference in Historic Philadelphia.

Approximately 700 TEI members and guests gathered in the seat of liberty in October to hear debates and commentary on the hottest topic of the year -- corporate tax shelters -- from government representatives, tax practitioners, TEI members, and a single reporter. The four-day conference was held from October 24-27 in Philadelphia and provided participants with an opportunity to discuss effective tax rates, discovery requests, debt instruments, technological changes, and international audit issues.

On Tuesday afternoon, Deputy Treasury Secretary Stuart E. Eizenstat outlined the Administration's four criteria for making tax policy decisions. Any proposal must be fiscally responsible, he said, as well as fair. It must also promote economic prosperity and growth and be simpler for ordinary taxpayers. Mr. Eizenstat called progressive taxation the bedrock of the tax system.

Referring to the recent court decisions in the Compaq and Winn-Dixie cases, the Deputy Secretary asserted that a strong economic substance doctrine is needed to combat abusive tax shelters. Litigation is an inefficient means of resolving such issues, he asserted. He expressed an interest in working with the Institute to resolve this problem. [Editor's note: TEI testified at the November 10 hearing on corporate tax shelters. Its testimony is included in this issue, beginning on page 494.]

Earlier that day, Lindy Paull, Chief of Staff of the Joint Committee on Taxation, provided a succinct outline of two studies by the Joint Committee staff and the Treasury Department on the penalty and interest provisions of the Internal Revenue Code. One major difference between the two studies is the interest-rate differential: The Joint Committee staff recommends eliminating the differential, whereas Treasury would retain it. Another difference is the standards for the accuracy-related penalty. For both taxpayers and return preparers, under the Joint Committee staff proposal, the minimum standard for each undisclosed position on a tax return would be that the taxpayer or preparer must reasonably believe that the tax treatment is "more likely than not" the correct tax treatment under the Code. For disclosed positions, the Joint Committee staff would require both substantial authority and adequate disclosure and would eliminate the reasonable cause exception of section 6664(c)(1). In contrast, the Treasury Department would retain the "substantial authority" standard for undisclosed positions...