TEI Urges Congress to Clarify Definition of Tax Shelter.

Institute Also Comments on Code's Interest and Penalty Provisions, Encourages Supreme Court to Overturn California Interest Offset Statute

Concerns about the definition of a corporate tax shelter cannot be cavalierly dismissed, Tax Executives Institute President Charles W. Shewbridge, III recently cautioned the House Ways and Means Committee. Mr. Shewbridge represented TEI at the committee's November 10 hearing to determine the nature and scope of the perceived corporate tax shelter problem. The hearing focused on recent proposals by the staff of the Joint Committee on Taxation and the U.S. Department of Treasury to combat so-called tax shelter abuses.

In his testimony before the Committee (which is reprinted in this issue beginning on page 494), TEI's president said, "It is critical to know what we are talking about." The definition must be as objective and as clear as possible -- a requirement that is now lacking -- in order for solutions to be found, he added.

Questioning the inflammatory rhetoric that has been used to discuss the tax shelter issue, Mr. Shewbridge explained that he had been a tax professional for nearly 30 years. "As BellSouth Corporation's senior tax official," he stated, "I am ultimately responsible for the 40,000 federal, state, local, and foreign returns we file annually. BellSouth's 1998 federal income tax return reflects aggregate tax payments of more than $1.6 billion. Given the size of those numbers and given the fact that I sign BellSouth's tax returns under penalties of perjury, it should go without saying that I take my job, including my responsibility to the tax system, seriously. So do my colleagues at TEI."

Mr. Shewbridge also noted that the proposal to require a company's chief financial officer or other senior officer to certify that the facts disclosed about a tax-shelter transaction are true and correct "misses the mark." The proposal "misapprehends the role of the tax department as well as that of the CFO, it impugns the integrity and professionalism of both, and it ignores how the provision would adversely affect the examination process," he said. If enacted, the proposal could lead to focusing not on the underlying transaction but on the CFO's statement. "Hence, the key would not be whether a transaction passes muster under the law, but rather `What did the senior officer know and when did he know it?'," Mr. Shewbridge stated. "We regret that the proposal could easily spawn suspicion and distrust comparable to that which existed in the 1970s concerning questionable payments to foreign persons."

Turning his testimony to areas of agreement among the Institute, the government, and other professional groups, Mr. Shewbridge stated, "We agree that over-aggressive tax-advantaged products are being marketed. We agree that the IRS must do more to challenge and curtail these transactions, including raising practitioner standards and, where...