TEI-Treasury Department's office of tax policy liaison meeting agenda.

• Position: Tax Executives Institute

On February 20, 2008, Tax Executives Institute held its annual liaison meeting with the Assistant Secretary (Tax Policy) of the U.S. Department of the Treasury, Eric Solomon, and other Treasury Department representatives. The agenda for the meeting follows.

1. Introduction

2. Pending Legislation

   1. Administration's FY 2009 Tax and Budget Proposals

      The Administration's fiscal year 2009 budget proposals were released on February 5, 2008. TEI invites a discussion of the tax provisions affecting business included in the proposals including those relating to the research and development credit and Subpart F.

   2. Economic Substance Doctrine

      Prior efforts to codify the economic substance doctrine have been forestalled in significant part because of the opposition of the Treasury Department 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. Together with the IRS's stepped-up enforcement efforts, the disclosure regulations under section 6011, new penalty provisions, the revision of Circular 230, and the development and enhancement of Schedule M-3 have done much to enhance disclosures and, more important, curb objectionable transactions.

      TEI invites a discussion whether the Treasury will continue to oppose proposals to codify the economic substance doctrine. We also invite a discussion whether the current tools to stanch abusive transactions are working or whether other targeted legislative or regulatory provisions are under consideration.

   3. Tax Gap

      The Treasury Department and IRS released their August 2007 report on Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance. The report acknowledges that compliance rates have remained at about 85 percent for several decades and that reducing the tax gap and improving voluntary compliance will require a comprehensive, integrated, sustained commitment to multiple goals, including reducing opportunities for evasion (e.g., new third-party information reporting and withholding requirements), increased research efforts, continued improvements in information technology and enforcement activities, enhancing taxpayer service, simplifying the tax laws, and coordinating with other stakeholders such as state and foreign governments and practitioners. Many of the steps outlined in the report are consistent with recommendations and comments that TEI made 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. In addition, TEI was pleased to co-sponsor the National Conference on the Tax Gap on June 22, 2007.

      The data demonstrate that the tax gap is predominantly an individual and small business tax problem stemming from underreporting of income or overstatements of deductions or credits. That said, many or most of the legislative proposals to close the gap (i.e., reduce opportunities for evasion) involve compliance-related steps creating of expanding corporate obligations or burdens (e.g., third-party reporting to all corporate payees, basis reporting to individuals, reporting of credit card and auction transactions). While there may be no substitute for pursuing information from the payor community, collection costs should be weighed (in terms of dollars, time, and intrusion) against the dollars to be collected. In addition, consideration should be given to compensating the payor community for the additional burdens incurred in assuming a greater role in tax administration. For example, many states provide a so-called vendor allowance to merchants to partially offset the costs of collecting and remitting sales taxes.

      The Administration's 2009 budget includes several proposals to expand information reporting, including information reporting on payments to corporations and basis reporting on sales of securities. TEI invites a discussion regarding Treasury's strategy in selecting these approaches as well as any new proposals it is contemplating.

   4. Legislation Relating to State and Local Taxation

      Congress is considering numerous bills that would affect state and local taxation. A common theme reflected in these bills is a concern over state taxing schemes that unduly burden interstate commerce. Two of the bills would (1) limit the States' power to tax nondomiciliary corporations and (2) limit a State's ability to impose a tax collection obligation on employers that have employees who perform work duties in various states. Specifically,

      * S. 1726, Business Activity Tax Simplification Act of 2007, would establish a...