TEI comments on pending U.S. legislation on international taxation proposals.

• Position: Tax Executives Institute

March 10, 2004

On March 10, 2004, Tax Executives Institute filed the following comments with the tax-writing committees of the Senate and House of Representatives on certain proposals in pending legislation.

On behalf of Tax Executives Institute, I submit the following comments on certain provisions being considered as part of H.R. 2896, the "American Jobs Creation Act of 2003" and S. 1637, the "JOBS Act of 2003," now before the House and Senate. Some of the provisions under consideration in conjunction with the international bills have special merit and should, TEI believes, be contained in the final legislation. Others contain special policy concerns, and TEI would ask that the provisions not be adopted when the legislation is finalized.

Tax Executives Institute

Tax Executives Institute was established in 1944 to serve the professional needs of business tax professionals. Today, the broad membership of the Institute is organized into 53 chapters in the United States, Canada, and Europe. Our diverse membership of more than 5,400 accountants, attorneys, and other business professionals work for 2,800 of the leading companies in North America and Europe. As a professional organization, the Institute is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the costs and burdens of administration and compliance to the benefit of taxpayers and government alike. The Institute is committed to maintaining a system that works one that builds upon the principle of voluntary compliance and is consistent with sound tax policy, one that taxpayers can comply with, and one in which the IRS can effectively perform its audit function without unduly burdening taxpayers. Our background and experience enable us to bring a unique and, we believe, balanced perspective to the legislation at hand.

Provisions That Should Be Included in Final Legislation

TEI recommends favorable consideration of the following provisions.

Five Year Carryback of Net Operating Losses

In general, a net operating loss (NOL) may be carried back two years and carried forward 20 years to offset taxable income in such years. In 2002, Congress temporarily extended the general NOL carryback to five years (from two years), and also provided that an NOL deduction attributable to NOL carrybacks arising in taxable years ending in 2001 and 2002, as well as NOL carryforwards to these taxable years, may offset 100 percent of a taxpayer's Alternative Minimum Taxable Income (AMTI). These provisions allow taxpayers to smooth out swings in business income that result from business cycles, and the carryback is a much more time effective remedy, that is, the relief arrives at or near the time of the economic setback from a recession like the one that many companies have had to endure in the past few years. The Senate bill would provide a three year carryback of NOLs arising in taxable years ending in 2003, and AMTI relief similar to that in the 2002 law. The House bill does not contain the provision, but the House separately passed a five-year relief provision similar to the Senate bill provision in H.R. 3521, the Tax Relief Extension Act of 2003. TEI urges the Congress to pass the five-year relief provision as part of the international bills. An extension of the five-year, or at least three-year, carryback would be a sound investment that pays for itself with healthier companies contributing toward the economy and higher tax receipts in the future.

Pension Related Provisions--Exclusion of ISO and Employee Stock Purchase Plan SOs from Wages

TEI commends Congress for its continuing efforts with respect to eliminating income tax withholding on the exercise of Employee Stock Purchase Plan options and Incentive Stock Options (collectively referred to as "options"). During 2003 alone, Congress has inserted language to clarify the appropriate treatment of...