TEI comments on Multistate Tax Commission draft model uniform statute: September 27, 2005.

• Position: Tax Executives Institute

On September 27, 2005, Tax Executives Institute submitted the following written comments and testified in respect of the Multistate Tax Commission Draft Model Statute on Reportable Transactions and Inconsistent Filing Positions. The Institute's comments were prepared under the aegis of its State and Local Tax Committee, whose chair is Janet M. Wilson.

On June 16, 2005, the Executive Committee of the Multistate Tax Commission (MTC) approved for public hearing its Draft Model Statute on Reportable Transactions and Inconsistent Filing Positions. The public hearing is scheduled for September 27, 2005. Tax Executives Institute (TEI) appreciates the opportunity to submit written comments and testify in respect of the draft model uniform statute. The makeup of TEI's membership, as well as the Institute's experience in addressing these issues at the federal level, allows us to bring a unique and important perspective to this uniformity proposal.

Background

TEI was established in 1944 to serve the educational, networking, and advocacy needs of business tax professionals. Our more than 5,400 members are accountants, attorneys, and other professionals who work for 2,800 of the leading companies in North America, Europe, and Asia. The Institute is firmly dedicated to developing and implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden 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 state taxing authorities can effectively administer their tax laws without unduly burdening taxpayers.

TEI members are responsible for conducting the tax affairs of their companies and ensuring their compliance with myriad federal, state, and local tax laws. We, along with federal, state, and local governments, have the most at stake in crafting a tax system that is administrable and efficient. Because TEI does not represent tax shelter promoters or their advisers, our comments relate, except for the definition of "material advisor," primarily to the draft model uniform statute provisions that require taxpayers to file statements with their returns disclosing "reportable transactions."

Because the Commission's draft model uniform statute draws heavily upon the federal statutes, regulations, and guidance in respect of reportable transactions, TEI's ongoing efforts to assist in identifying and curbing abusive tax avoidance transactions at the federal level merit review. TEI has consistently urged policymakers to focus on enhancing tax return disclosures. Thus, in a January 23, 2004 letter to the MTC, we stated,

... 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. By identifying and targeting indicia of transactions that are characteristic of "tax shelters" and requiring enhanced disclosure of such transactions, tax officials can properly focus examination resources on questionable transactions Hence, TEI's 2000 and 2003 comments on the federal reportable transactions regulations commended the government for emphasizing objective criteria for the determination of reportable transactions. Our comments, however, cautioned the Department of Treasury and the Internal Revenue Service to refine the federal reportable transactions regime to make it more administrable.

Despite our concerns at the federal level, TEI believes that the best method for States wanting to adopt a disclosure regime is to conform with federal rules governing reportable...