TEI Washington liaison meetings.

March 1-2, 2011

On March 1 and 2, 2011, 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." Minutes of the three meetings will be reprinted in a future issue of The Tax Executive

Welcome and Introductions (OTP, IRS, LB&I)

Program Priorities (OPT, IRS, LB&I)

Administration's FY 2012 Tax and Budget Proposals (OTP)

The FY 2012 Budget contains several provisions of particular interest to the business community:

1. Research and Development Credit

   We applaud the Administration for proposing to enhance and make permanent the research and development credit. Uncertainty about the future availability of the credit diminishes its incentive effect. For example, it is difficult for taxpayers to factor the credit into long-term decisions to invest in research projects that will not be initiated and completed prior to the credit's expiration.

2. Outbound Transfers of Intangible Property

   The Administration's proposal on outbound transfers of intangible property would subject to taxation under Subpart F so-called excessive returns on income from intangibles shifted out of the United States to related controlled foreign corporations subject to a low effective tax rate. We invite a discussion about the method chosen to provide a backstop to section 482 to prevent abuse and its effect on competitiveness.

3. Deferral of Interest Expense

   The Administration proposes deferring the deduction of interest expenses allocable to foreign-source income to the extent the U.S. taxation of such income is deferred and to make changes to the interest allocation rules to prevent "inappropriate" decreases in interest expense allocated to foreign source income. We invite a discussion regarding what represents an inappropriate decrease in the amount of interest expense allocated to foreign-source income, and in particular what changes Treasury believes are necessary to prevent such inappropriate allocations.

4. Determination of Foreign Tax Credits on a Pooling Basis

   The Administration proposes requiring taxpayers to determine foreign tax credits from the receipt of a dividend from a foreign subsidiary based on the consolidated earnings and profits and foreign taxes of all of the taxpayer's foreign subsidiaries. The Green Book explanation indicates that the provision is necessary due to taxpayers' enhanced ability to reduce residual U.S. tax on foreign source income through "cross-crediting" as a result of a reduction in the number of foreign tax credit baskets under the American Job Creation Act of 2004. To the extent enhanced cross-crediting was enabled by the reduction of foreign tax credit baskets, has consideration been given to returning to the pre-2004 Act rules? How does Treasury envision the proposal applying where there is more than one shareholder of a foreign subsidiary or the interests of a shareholder shifts over time?

   Tax Reform (OTP)

   In October 2009, TEI published "Guideposts for Tax Reform," arguing that the time was ripe for an open and comprehensive examination of the U.S. tax code, and, in particular, how the United States taxes corporations and other business enterprises. TEI continues to believe that such a critical examination is necessary, utilizing the guideposts we outlined. President Obama and Treasury Secretary Geithner have signaled their support for broad-scale tax reform, including a significant reduction of the corporate tax rate. What process does the Treasury Department foresee in the coming months in respect of tax reform?

   Treaty Update (OTP)

   TEI welcomes an update on the status of ongoing bilateral tax treaty and exchange of information negotiations.

   Administration of Codified Economic Substance Doctrine and Penalty (OTP, IRS, LB&I)

   The codification of the Economic Substance Doctrine (ESD) in section 7701(o) of the Code, coupled with enactment of the related strict liability penalty in section 6662(b) (6), has simultaneously exacerbated the uncertainty about the application of ESD and substantially raised the stakes for taxpayers who "get it wrong." We have several concerns about the administration of these provisions.

   Notice 2010-62 states that the Treasury and the IRS "do not intend to issue general administrative guidance regarding the types of transactions to which the economic substance doctrine either applies or does not apply." Although appreciating the government's concern with issuing "angel lists" of acceptable transactions, TEI believes guidance is necessary to guard against the misapplication of...