TEI Washington liaison meetings.

• Position: Company overview

February 29, 2012-March 1, 2012

On February 29 and March 1, 2012, Tax Executives Institute held its annual liaison meetings with the U.S. Department of the Treasury's Office of Tax Policy, the Internal Revenue Service, and the IRS's Large Business and International Division. The agendas for the meetings are printed below. Items included on the Treasury agenda are marked "OTP"; those on the agenda for the meeting with the Internal Revenue Service are marked "IRS"; and those on the agenda for the meeting with the Large Business and International Division are marked "LB&I." (Where an item was included in more than agenda, the more extensive one is included below.) Minutes of the three meetings will be published in a future issue of The Tax Executive.

Tax Executives Institute has long supported adequate funding for the Internal Revenue Service and, accordingly, has significant concerns about the effect of the fiscal climate on the agency's ability to effectively pursue important service and enforcement initiatives in the interest of sound tax administration.

During our meeting, TEI invites a discussion about the effect of the IRS's stretched resources on the permanent (and expanded) Compliance Assurance Process program, its expanded enforcement efforts regarding offshore accounts, and the enhanced workload engendered by Schedule UTP. Similarly, with many taxpayers reporting delays (e.g., in the resolution of their APAs), will safeguards be developed to ensure that the expansion of CAP and other programs will not adversely affect the taxpayer population?

Pending Legislation (OTP)

1. Administration's FY 2013 Tax and Budget Proposals

   The FY 2013 Budget contains several provisions of interest to the business community:

   1. Tax Incentives for Locating Jobs and Business Activity in the United States and Removal of Tax Deductions for Shipping Jobs Overseas. This proposal would reduce tax benefits associated with "U.S. companies'" moving jobs offshore by disallowing deductions for expenses paid or incurred in connection with outsourcing a U.S. trade or business. The proposal states, "For this purpose, outsourcing a U.S. trade or business means reducing or eliminating a trade or business or line of business currently conducted inside the United States and starting up, expanding, or otherwise moving the same trade or business outside the United States, to the extent that this action results in a loss of U.S. jobs."

      * Does the provision apply only to "U.S. companies" or also to non-U.S. companies doing business in the United States that might "ship jobs overseas"?

      * How will it be determined when a U.S. business has been reduced or eliminated and "the same" business started, expanded, or moved outside the United States?

      * How will be it be determined whether an action results in a loss of "U.S. jobs" and what that term means (for example, does a U.S. citizen employed by a U.S.-based company overseas count as a "U.S. job"?)?

      TEI welcomes a discussion of these issues and how administrable rules might be developed and implemented in the context of the global business environment.

   2. Taxation of Currently Excess Returns Associated with Transfers of Intangibles Offshore. This proposal has been included (in various forms) in the past three budget proposals. While the Green Book states that the proposal would be effective for "transactions" "connected with or benefitting from" a "covered intangible" in taxable years beginning after December 31, 2012, there have been indications that the provision will have retrospective effect. Specifically, there appears to be no temporal limit to the definition of a "covered intangible," so that income of a CFC that benefits from transactions "connected with" a covered intangible that the CFC acquired from a related U.S. person several decades ago would be subject to this rule. We invite a discussion of whether consideration has been given to any temporal limit to past intangible transfers for purposes of this rule (e.g., 5, 10, 20, 50 years), as well as how broadly the phrase "connected with or benefitting from" would be interpreted.

   3. Extension of Section 338(h)(16) to Certain Asset Acquisitions. This proposal would apply the rules of section 338(h)(16) to the seller in a "covered asset acquisition" as defined in section 901(m) (to the extent not already applicable). This proposal appears to vitiate the check-the-box regulations in the foreign tax credit area. The Obama Administration's first Green Book proposed to effectively repeal, via statute, the check-the-box regulations because the regulations "may permit the migration of earnings to low-taxed jurisdictions without a current income inclusion of the amount of such earnings to a U.S. taxpayer." (This proposal was subsequently withdrawn by the administration.) TEI invites a discussion of the Administration's views of the proper approach to foreign entity classification and, in particular, whether requiring "consistent" treatment between the U.S. and foreign tax consequences of certain transactions should be generally applied for U.S. purposes.

2. Tax Reform

   On February 22, 2012, the Obama Administration released its business tax reform framework calling for lowering of the statutory corporate tax rate to 28% and requiring U.S.-based companies to pay an unspecified minimum tax on foreign earnings.

   However, many of the key details for a comprehensive approach to corporate tax reform were not included; for example, the specific minimum tax on foreign earnings, the array of corporate tax expenditures that would be eliminated in order to achieve the 28% rate, and whether business tax reforms would apply to pass-through entities.

   With regard to international tax issues, the framework calls for retention of the worldwide system of taxing foreign earnings. Further, the manufacturing portion of the framework specifically calls for making the R&D credit permanent with an increase in the alternative simplified credit from 14% to 17%. The framework also calls for providing incentives for investment in clean energy.

   We welcome a discussion regarding the policy underpinnings of the framework. Is it realistic to lower the corporate tax rate solely by eliminating tax expenditures while retaining provisions like section 199? What additional options is the Administration considering, e.g., taxation of partnerships as entities, denial of the deduction for interest or further limitations on deferral.

   Regulatory Actions and Other Initiatives (OTP, LB&I)

1. FATCA

   The Foreign Account Tax Compliance Act provisions of the HIRE Act imposes a 30-percent withholding tax on certain "withholdable payments" made to non-U.S. financial institutions and other non-U.S. entities that do not comply with certain due diligence and information reporting requirement with respect to U.S. accounts and U.S. owners of non-U.S, entities. TEI previously submitted comments and met with representatives of the IRS and the Treasury's Office of Tax Policy to discuss its concerns about the FATCA rules.

   The temporary and proposed regulations released on February 8 address many of the identified concerns, and TEI applauds the IRS's efforts to refine these rules. Concern remains, however, about the existence and scope of various exceptions to the FATCA provisions, among other things.

   During the meeting, we wish to address the following specific issues:

   1. Entity Level Exceptions (e.g., Treasury Centers, Pension...