Don’t Rush to Judgment on Tax Shelter Legislation, TEI Urges Ways and Means Committee
It would be premature for the House Committee on Ways and Means to include provisions relating to tax shelters in the bill scheduled for committee action by July 16, Tax Executives Institute said in a letter to committee chair Bill Archer. “Because the Treasury’s proposals continue to raise as many questions as they answer,” said TEI President Lester D. Ezrati, “we believe taking action at this time would constitute an unjustified and potentially counterproductive `rush to judgment.'”
On July 1, the Department of the Treasury released The Problem of Corporate Tax Shelters: Discussion, Analysis, and Legislative Proposals, a 188-page “white paper” that had been promised since the release of the Clinton Administration’s FY 2000 Budget early this year. The white paper represents the Treasury Department’s attempt to synthesize both testimony from congressional hearings and information from other sources. “TEI believes the paper’s authors should be commended for their willingness to listen and respond positively to some of the criticisms leveled at the Administration’s initial proposals,” said Mr. Ezrati. “We are especially pleased that the Administration has moved away from its ill-advised proposal to impose a strict liability penalty.”
Nevertheless, TEI believes that considerable analysis is required before legislative action can be taken. “The Treasury’s proposal continues to be a work in progress,” said Mr. Ezrati. “For example, although TEI agrees that there should be additional incentives for promoters, advisers, and taxpayers to meaningfully disclose select transactions, the Institute is very much concerned about the Treasury’s new proposal to make senior corporate officers personally liable for misstatements on the disclosure form. Similarly, we are skeptical of the Treasury’s proposal to impose the disclosure penalty even where there is a judicial finding that the transaction in question is not a tax shelter.” An even more fundamental concern, according to TEI, is the continuing vagueness of many of the Administration’s proposals, and the implication that has for tax administration. “We remain concerned that the proposals will adversely affect the ability of businesses to engage in routine business transactions,” said Mr. Ezrati.
TEI’s letter urges the Committee on Ways and Means to defer action on the Administration’s proposals until interested parties have an opportunity to analyze the white paper, as well as review the Joint Committee on Taxation’s still-to-be-released interest and penalty study, even if this means that no legislative action can be taken this summer. “Put bluntly,” said Mr. Ezrati, “Congress should focus on doing the right thing, rather than doing something now. A decision to defer action on the Treasury’s proposals does not mean that action to staunch abusive tax shelter activities must be held in abeyance…. The Treasury and IRS have significant tools with which to address tax shelter activities, and we recommend that Congress instruct that these tools be fully utilized. In addition, we recommend that Congress instruct the Treasury Department to proceed with the issuance of regulations under the tax shelter provisions enacted in 1997. These measured steps will send a powerful message while affording Congress a reasonable time to gauge the efficacy of the proposals in the white paper.”
TEI’s comments are reprinted in this issue of The Tax Executive, beginning on page 362.
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