TEI Urges SEC to Change Disclosure Rules.

A proposed rule to require the disclosure of additional confidential company information relating to accruals for contingent income and franchise tax liabilities raises serious concerns, Tax Executives Institute told the Securities and Exchange Commission in April. The Institute objected to the issuance of the new rule, adding that at the very least the loss accrual rules of new Item 302(c) should not encompass tax contingencies.

The Institute's comments were made in response to proposed rules issued on January 21, 2000, that would reposition certain supplementary schedule information currently required under Rule 12-09 of Regulation S-X within a new Item 302(c) of Regulation S-K. Item 302(c) would expand the scope of disclosure of information relating to valuation and loss accrual amounts. Under the proposed rules, the amount of tax accrued as a contingency for each material issue or transaction, and the annual changes in the accrual, would be disclosed in publicly available schedules filed with the SEC.

Although the Institute commended the SEC for its goal of enhancing the utility of financial disclosure statements, it questioned whether disclosure of a tax contingency or valuation reserve for material items comprising the issuer's tax reserve would improve the reader's understanding of the statements. "Indeed, we question whether anyone other than the company's competitors or tax authorities will possess sufficient understanding of the significance of the disclosures to make them meaningful," TEI stated.

Equally important, TEI added, "we fear that any improvements in disclosure would come at a substantial cost to the company, to its shareholders, and ultimately to the public." The routine disclosure of confidential information to financially interested parties -- including competitors and tax authorities -- could ultimately lead to increased tax costs for...