TEI-Treasury Department's Office of Tax Policy liaison meeting.

• Position: Tax Executives Institute

On February 20, 2008, Tax Executives Institute met with officials of the U.S. Treasury Department's Office of Tax Policy. These minutes were prepared by TEI, and although reviewed by the Treasury Department, they have not been formally approved by the Department.

Introductory Comments

On behalf of the U.S. Treasury Department's Office of Tax Policy, Assistant Secretary for Tax Policy Eric Solomon welcomed TEI President Robert J. McDonough and the other members of the delegation from Tax Executives Institute to the liaison meeting. Mr. Solomon said that he was pleased to meet with TEI, adding that it was important for the Department to hear what issues are on the business community's mind.

The delegations for the Treasury Department and TEI at the liaison meeting are set forth below.

Department of Treasury Delegation

Eric Solomon, Assistant Secretary (Tax Policy)

Karen Gilbreath Sowell, Deputy Assistant Secretary (Tax Policy)

Michael Mundaca, Deputy Assistant Secretary--International Tax Affairs

Michael J. Desmond, Tax Legislative Counsel

John L. Harrington, International Tax Counsel

Eric San Juan, Deputy Tax Legislative Counsel--Legislative Affairs

Henry Louie, International Economist

Gretchen Sierra, Associate International Tax Counsel

Anita Soucy, Attorney-Advisor

Sharon Kay, Tax Specialist

Dennis Tingey, Tax Specialist

TEI Delegation

Robert J. McDonough, Polaroid Corporation, TEI President

Vincent Alicandri, Hydro One Networks, Inc., TEI Senior Vice President

Neil D. Traubenberg, Sun Microsystems Inc., TEI Secretary

Paul O'Connor, Millipore Corporation, TEI Treasurer

Janice L. Lucchesi, Akzo Nobel, Inc., TEI Executive Committee

Kelly A. Nall, Electronic Data Systems Corp., TEI Executive Committee

Michael J. Nesbitt, Paychex, Inc., TEI Executive Committee

Nanci S. Palmintere, Intel Corporation, TEI Executive Committee

Monika M. Siegmund, Shell Canada Limited, TEI Executive Committee

Mark C. Silbiger, The Lubrizol Corporation, TEI Executive Committee

Christopher T. Riley, Archer Daniels Midland Co., Chair, TEI IRS Administrative Affairs Committee

Carita R. Twinem, Briggs & Stratton Corporation, Chair, TEI Federal Tax Committee

Terilea J. Wielenga, Allergan, Inc., Chair, TEI Financial Reporting Committee

Timothy J. McCormally, TEI Executive Director

Eli J. Dicker, TEI Chief Tax Counsel

Mary L. Fahey, TEI General Counsel

Shirley S. Grimmett, TEI Tax Counsel

Jeffery P. Rasmussen, TEI Tax Counsel

Pending Legislation

1. Administration's FY 2009 Tax and Budget Proposals

   Mr. O'Connor referred to the Administration's fiscal year 2009 budget proposals, which were released on February 5, 2008. He thanked Treasury for including extensions of the research and development (R&D) credit and the Subpart F active financing exception. He explained that the expiration of the R&D credit at the end of 2007 has created issues in respect of booking the benefit under FIN 48. Retroactive extensions of the credit do not allow the benefit of the credit to be booked in the period to which the credit relates, he added.

   Mr. Solomon stated Treasury's focus has primarily been on extending the expiring provisions, adding that the department shares TEI's concerns about retroactive extensions. He anticipated that the extenders will be passed this year, but the timing is uncertain.

2. Economic Substance Doctrine

   Ms. Palmintere observed that prior efforts to codify the economic substance doctrine have failed in significant part because of the opposition of Treasury and, more recently, the IRS Chief Counsel. TEI's longstanding view, expressed most recently in its December 2007 letter opposing the doctrine's codification as a "pay-for" in connection with The AMT Relief Act of 2007, is that consistent enforcement is the key to stopping abusive transactions and that enforcement depends upon having adequate information. Although the proposal was removed from the AMT bill, it remains in the pending farm bill. Will Treasury continue to oppose proposals to codify the doctrine?

   Mr. Solomon stated that Treasury's longstanding opposition to codification continues.

3. Tax Gap

   Mr. McDonough referred to Treasury and the IRS's August 2007 report on Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance. Many steps outlined in the report, he said, are consistent with TEI's recommendations to the IRS Oversight Board in March 2007, including ensuring a common definition of the tax gap, accurately quantifying the scope of the gap (and keeping the data current), and implementing balanced remedial measures. He urged Treasury to use a balanced approach in seeking to close the gap, adding that the information reporting proposals in the President's budget will be burdensome to business.

   Mr. Solomon stated that an important first step in addressing the tax gap must be to measure it, noting that the most recent IRS data are for the year 2001. More research is needed, he said. He believes Treasury is taking a balanced approach, weighing the burden on taxpayers with the need for better compliance, especially in the individual and small business areas. Three of the 16...