TEC Initiatives

Editor:
Thomas J. Purcell III, J.D., Ph.D., CPA
Associate Professor of Accounting and Professor of Law
Creighton University
Omaha, NE

Editor's note: Professor Purcell is a member of the Tax Executive Committee. This column heightens awareness of the AICPA Tax Divisions work and apprises readers of Division activities involving tax policy, technical issues and other practice support matters.

As a senior technical committee of the AICPA, the Tax Executive Committee (TEC) has the authority to speak for the AICPA on tax matters and to act as a standard-setting body, as designated by the governing Council. However, many other committees, technical resource panels (TRPs) and task forces initiate and develop proposed solutions to policy issues and technical and tax administration problems for TEC consideration and approval. They also initiate proposals for products and services, valuable to members in tax practice.

Since the last cut-off date for this column (Sept. 1, 2002; see TEC Initiatives, TTA, November 2002, p. 732), the TEC met once (Oct. 2930, 2002) and exercised its review function on several projects. TEC actions taken after Dec. 15, 2002 will be reported in a future column. The October meeting also marked the passage of the TEC chair responsibilities from Pam Pecarich to Bob Zarzar.

Sarbanes-Oxley

As reported in the May 2002 column, the TEC established the Scope of Services Task Force (chaired by Ron Katch) to monitor developments on proposed restrictions on members ability to provide tax services to audit clients. The Task Force submitted its report, in which it concluded there is no inherent impediment to independence in the provision of traditional tax services to audit clients, to the TEC at the October 2002 meeting. At that meeting, the TEC established the Sarbanes-Oxley Task Force to review and provide responses to the proposed SEC rules implementing legislation. Those proposed rules are being studied and responses are being prepared at this writing.

Tax Division Administrative Issues

At the October meeting, the TEC also approved a strategic planning process for the Tax Section. Drawing from members of the Tax Division, the Strategic Planning Task Force (with Phase I chaired by Steve Corrick) met and developed proposed revisions to the mission statement and identified strategic goals to be considered by the TEC at its January 2003 meeting. Phase II (to be chaired by Tom Purcell) will develop strategies and tactics to meet and implement the goals once the TEC approves them. Comments from the membership about the mission, goals, strategies and tactics will be solicited during spring 2003 and considered prior to TEC approval of the final plan (anticipated at the June 2003 meeting).

Self-Governance Activities

In October, the TEC approved an exposure draft, Interpretation No. 1-2, Tax Planning, of Statement on Standards for Tax Services (SSTS) No. 1, Tax Return Positions, for public comment. The Interpretation was drafted by the SSTS Tax Shelter Task Force (chaired by Mike Mares) and can be found at www.aicpa.org/members/div/tax/sstsint.asp. The comment period ends on April 30, 2003.

Technical Activities

K-1 matching program. The TEC, through the IRS Practice and Procedures Committee (chaired by Jim Dougherty), continues to monitor and comment on the IRS K-1 matching program. Since the submission of the first batch of notices to taxpayers, the Committee has collected dozens of examples and comments from CPAs on problems.

Simplification. On Sept. 13, 2002, a collaborative group for tax simplification, comprised of representatives from the AICPA, American Bar Association and Tax Executives Institute, submitted a letter to Pam Olson, Assistant Secretary of the Treasury for Tax Policy, suggesting a focus on (1) a uniform definition of child; (2) phaseouts; and (3) alternative minimum tax (AMT), for both individuals and corporations, because they represent obvious areas of significant complexity that would be relatively easy to rectify.

The TEC and other Tax Division Committees and TRPs developed comments on HR 5166, Representative Rob Portmans (R-Ohio) Tax Simplification Act of 2002. Anticipating that this legislation will be reintroduced in the 108th Congress, the comments were completed for submission in early December 2002. They endorse HR 5166s proposed repeal of the AMT (for both individuals and corporations) and modification of the definitions and qualifications for filing status, dependency exemptions and credits.

The AICPA continues to support repeal of the inconsistent phaseouts that make tax planning difficult for individuals and result in confusing marginal rates. It believes that the Code would be more consistent, rational, fair and transparent (particularly for low- and middle-income taxpayers) if it were amended to incorporate these changes. The AICPA agrees with the proposed legislation that other areas on which Congress might concentrate simplification efforts to reduce complexity for a broad range of taxpayers include (1) capital-gain taxation; (2) education incentives; (3) repeal of the collapsible corporation provisions; and (4) rationalization of the estimated tax safe harbors.

Tax shelters. The TEC continues to actively monitor tax shelter developments. On Sept. 19, 2002, Pam Pecarich (then TEC chair) submitted a letter to House Ways and Means Committee Chair Bill Thomas, commenting on HR 5095. The comments, prepared by the Corporate Tax Shelter Task Force and reviewed by the Tax Shelter Regulations Task Force (chaired by Debbie Pflieger), noted that HR 5095s approach would affect all tax returns filed, because it would elevate the reporting standard for taxpayers on all return items to the more likely than not standard. The bill would subject taxpayers to penalties, unless a position was specifically disclosed or the taxpayer reasonably believed the return position was more likely than not the correct position. The TEC recommended retaining the current approach for handling nonreportable transactions.

International. On Oct. 1, 2002, the TEC provided comments on the international tax provisions contained in HR 5095 Titles II and III. The comments, prepared by the International Tax TRP (chaired by Andy Mattson), generally supported many of the provisions, some of which would simplify the taxation of U.S. businesses operating abroad. However, some concerns were expressed about the corporate earnings-stripping proposals.

Split-dollar. On Oct. 21, 2002, the TEC provided comments to Commissioner Rossotti on the proposed split-dollar regulations. The comments were developed by members of the Split-Dollar Task Force (chaired by Steve Leifer) and approved by the TEC. The letter to the Commissioner expressed concern that the proposed rules fail to (1) clarify the specific benefits that would be subject to taxation on a nonowner employee; (2) consistently apply the rules on granting basis in the insurance contract; (3) properly account for cost-sharing between owners and nonowners; and (4) account for repayment of policy loans by nonowners.

Valuation service standards. The TEC formed a task force to review and develop comments on the draft of Statement on Standards for Valuation Services, No. 1. At this writing, the task force had not finalized recommendations. The TEC will take up this matter at its January 2003 meeting.

General. On Dec. 2, 2002, several members of the TEC and Tax Division staff met with staff from the House Ways and Means Committee, the Joint Committee on Taxation and the Senate Finance Committee, and with the Assistant Secretary of the Treasury for Tax Policy and her staff. The meetings, chaired by Bob Zarzar, addressed current issues of concern, many of which are discussed above. In addition, general issues of anticipated future tax legislative and regulatory activities were discussed.

Conclusion

Through various task forces, TRPs and committees, the TEC continues to monitor numerous other projects. Along with other Tax Division committees, it is committed to providing the best service possible to AICPA members. Members who would like to volunteer to assist in Tax Division activities should contact Ed Karl at (202) 434-9228 or ekarl@aicpa.org. Members with suggestions for new services or products should contact Bill Stromsem at (202) 434-9227 or wstromsem@aicpa.org.