TEI comments on Multistate Tax Commission's tax sheltering study: January 23, 2004.

• Position: Tax Executives Institute

On January 23, 2004, Tax Executives Institute sent the following letter to R. Bruce Johnson, Chair of the Multistate Tax Commission, to relay the Institute's growing concerns about aspects of the Commission's stance in respect of corporate activity to minimize income tax liability. The letter was prepared under the aegis of the Institute's State and Local Tax Committee, whose chair is Barbara Barton of Electronic Data Systems Corp.

Tax Executives Institute is concerned about some aspects of the Multistate Tax Commission's activities in respect of corporate activity to minimize income tax liability. While TEI appreciates the concerns of federal and state tax authorities regarding the marketing of inappropriate tax-advantaged products, we regret that the Commission's recent approach to so-called tax sheltering activity (epitomized in its July 15 press release on the topic) may prove counterproductive. Simply stated, the Institute has consistently held that the key to stopping tax abuses lies not in demonizing taxpayers or draconian penalties, but in the effective administration of the tax law, including the ability of examiners to identify and analyze transactions, and, where necessary, to challenge them. To this end, TEI has urged both federal and state policymakers to focus on disclosure-based approaches to address tax shelters.

Taxpayers have a real interest in promoting compliance with the law, both in the sense of their public duty and also in the sense of minimizing the overall tax burden. They also have an interest in promoting good tax administration and a good relationship between tax administrators, taxpayers, and advisors--one that respects their different roles as well as their professionalism. These interests are advanced by a positive agenda and restraint by both tax administrators and taxpayers in the rhetoric used to describe the problems that both groups seek to address. Regrettably, certain statements by the Commission, particularly in connection with the July 15 corporate "tax sheltering" report, potentially undermine the advancement of these mutual goals.

Background

TEI was established in 1944 to serve the professional needs of business tax professionals. Today, the Institute has 53 chapters in the United States, Canada, and Europe. Our more than 5,400 members are accountants, attorneys, and other business professionals who work for 2,800 of the leading companies in North America and Europe, and deal with the day-to-day...