Photo of Martin Tittle
      Martin B. Tittle  
        International Tax Attorney
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(734) 846-3864



P.O. Box 1541
Ann Arbor, MI 48103


*You should be very cautious about the information you reveal in an initial contact or inquiry. I have no duty to keep confidential any information that is communicated to me before you sign an engagement agreement.



  • * July 23, 2014: A toe-hold for individuals with international compliance questions is available on the Taxpayer Advocate Service's "Resources for International Taxpayers" web page.
  • July 12, 2014: The Intergovernmental Agreement (IGA) between Canada and the United States for the enhanced exchange of tax information under the Convention between Canada and the United States with Respect to Taxes on Income and on Capital entered into force on June 27, 2014.
  • June 30, 2014: On June 27, 2014, Treasury and the IRS published a revised Qualified Intermediary (QI) agreement in Revenue Procedure 2014-39, 2014-29 I.R.B. 151. Entities are encouraged to obtain or renew the QI Agreement by July 31, 2014.
  • June 24, 2014: The IRS announced Rev. Proc. 2014-38 today, saying "Revenue Procedure 2014-38 updates the Model FFI Agreement applicable to foreign financial institutions (FFIs) wishing to enter into an FFI Agreement with the IRS to be treated as a participating FFI under section 1471(b) of the Code. Rev. Proc. 2014-38 also provides guidance to FFIs and branches of FFIs treated as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA) on complying with the terms of the FFI Agreement, as modified by the Model 2 IGA. Rev. Proc. 2014-38 updates the Model FFI Agreement to reflect the temporary regulations released on February 20, 2014, under chapters 3, 4, and 61 of the Code, and section 3406. Rev. Proc. 2014-38 modifies and supersedes Rev. Proc. 2014-13.
    Revenue Procedure 2014-38 will appear in the Internal Revenue Bullentin, IRB 2014-29, dated July 14, 2014."
  • Feb. 5, 2014: Documents related to the U.S.-Canada FATCA agreement signed in Ottawa today are available here.
  • Jan. 21, 2014: Today, the New York State Bar Association Tax Section submitted its report to the IRS and Treasury regarding guidance implementing Rev. Rul. 91-32. As noted in the cover letter accompanying the report, Rev. Rul. 91-32 "addresses the tax consequences of the disposition of a foreign partner's interest in a partnership that conducts a trade or business through a fixed place of business or has a permanent establishment in the United States (an 'ECI Partnership')."
  • Jan. 7, 2014: The NYSBA Tax Section has published its Report No. 1295. This report addresses the FATCA Final Regulations under Sections 1471 through 1474 of the Internal Revenue Code: PFFI ["Participating Foreign Financial Institution"] Rules; IGAs ["Intergovernmental Agreements"]; Interaction Between the Regulations and Chapters 3 and 61.
  • Oct. 29, 2013: From IRS Guidewire: "Notice 2013-69 provides guidance for foreign financial institutions (FFIs) entering into an FFI agreement with the IRS to be treated as a participating FFI or Reporting Model 2 FFI under the provisions commonly referred to as FATCA. This notice includes a draft copy of the FFI agreement, which will be finalized before December 31, 2013. Notice 2013-69 will be published in Internal Revenue Bulletin 2013-46 on November 12, 2013."
  • July 13, 2013: From IRS Guidewire: "Notice 2013-43 revises the timelines included in the final chapter 4 regulations for withholding agents and foreign financial institutions to begin their due diligence, withholding, and reporting requirements under sections 1471-1474 of the Code (commonly referred to as FATCA). Specifically, this Notice provides a six-month extension for when withholding will begin (i.e., payments after June 30, 2014) and for implementing new account opening procedures as well as related requirements to comply with FATCA. The timeline for foreign financial institutions to register as (among other things) participating foreign financial institutions is also extended under the Notice, with the registration portal expected to open on August 19, 2013. Finally, the Notice provides that financial institutions operating in jurisdictions that have signed an intergovernmental agreement (IGA) covering their financial institutions' compliance with FATCA will be treated as having an effective IGA.
    "Notice 2013-43 will be published in Internal Revenue Bulletin 2013-31 on July 29, 2013."

    See also Lynnley Browning, "Foreign Banks Win New Delay in Tax Evasion Rule," The New York Times, July 12, 2013.
  • June 21, 2013: The IRS has issued TAM 201325012, which provides for allocation of certain interest earned by a foreign bank between ECI and non-ECI pursuant to the "10 percent rule" in Treas. Reg. Sec. 1.864-4(c)(5)(ii)(b)(3).
  • Aug. 20, 2012: The current issue of the Internal Revenue Bulletin contains announcements of two new competent authority agreements regarding the U.S. tax treaties with Belgium and Canada.
  • Dec. 12, 2011: The IRS has issued a new fact sheet, FS-2011-13, titled "Information for U.S. Citizens or Dual Citizens Residing Outside the U.S." It is divided into seven sections: 1. U.S. income tax return filing requirement; 2. Penalties imposed for failure to file income tax returns or to pay tax; 3. Possible additional penalties that may apply in particular cases; 4. FBAR filing requirement; 5. How to file an FBAR; 6. Possible penalties for failure to file FBAR; and 7. New reporting requirement for foreign financial assets.
  • June 21, 2011: Earlier today, the IRS released Notice 2011-55, which "suspends [the] information reporting requirement under sections 6038D and 1298(f) for taxpayers that may be subject to reporting under those sections for taxable years beginning on or after March 18, 2010, until the IRS releases new Form 8938 (Statement of Foreign Financial Assets) and a revised Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund). Notice 2011-55 will be published in Internal Revenue Bulletin 2011-29 on July 18, 2011.
  • May 14, 2010: Notice 2010-41: "The Treasury Department and the IRS intend to issue regulations providing that, under certain circumstances, an otherwise domestic partnership will be classified as foreign solely for purposes of identifying the U.S. shareholders of a controlled foreign corporation (CFC) that are required to include in gross income the amounts determined under Code Sec. 951(a) with respect to the CFC. This treatment applies to Subpart F income partnership blocker transactions, which were identified as transactions of interest in Notice 2009-7, 2009-1 CB 312, and were added to the list of transactions of interest in Notice 2009-55, I.R.B. 2010-31, 170. Notice 2009-7 will continue to apply, as appropriate."
  • April 15, 2010: Today, the U.S. Senate approved, by an 85-13 vote, the "Sense of the Senate" amendment proposed yesterday by Sen. John McCain (R-Arizona) regarding a U.S. value added tax. The amendment, in its entirety, reads as follows: "It is the sense of the Senate that the Value Added Tax is a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery and the Senate opposes a Value Added Tax."
  • April 7, 2010: The IRS has released Announcement 2010-22, requesting "comments from the public regarding guidance projects and issues concerning the interpretation and implementation" of the "FATCA" provisions in the HIRE Act of 2010, P.L. 111-147.
  • Oct. 27, 2009: Here's the text of the Foreign Account Tax Compliance Act of 2009, introduced today by Ways and Means Chair Charles Rangel and Senate Finance Chair Max Baucus. Click here to download the JCT's technical explanation of the Act from the Joint Committee on Taxation web site.
  • Mar. 3, 2009: As predicted in my recent colloquy with Roger Russell, the Stop Tax Haven Abuse Act has been reintroduced in the Senate. For more, see the TaxProf Blog's collection of hyperlinks.
  • Jan. 9, 2009: Happy New Year! U.S. International Tax Outlook begins its third year of publication with today's issue. Included are the text for Notice 2009-7, which details the "Subpart F Income Partnership Blocker"; notes regarding a new Sec. 965 study (plus a cumulation of several 965 sources that appeared last year); and links for TD 9441 and REG-144615-02, which address a Sec. 482 issue, and TD 9438, which gives foreign base company sales income guidance.
  • Dec. 19, 2008: Today's U.S. International Tax Outlook provides the body text for Announcement 2008-115, which “describes issues that the IRS and Treasury Department are considering addressing in a notice of proposed rulemaking (REG–130342–08)” regarding the applicability of FIRPTA to “certain rights granted by a governmental unit that are related to the lease, ownership, or use of real property.”
  • Dec. 12, 2008: This week's USITO briefly discusses Notice 2008-111, provides abstracts for two new tax policy articles, draws on Rita de la Feria's research for a summary of the Marks and Spencer VAT case, and culls highlights from the Fall SOI Bulletin, two tax treaty developments, the CIIT conference, TD 9433, and the Treasury's Statement of Regulatory Priorities.
  • Nov. 21, 2008: Today's U.S. International Tax Outlook provides excerpts from CCH's report on Eric Solomon's Notice 2008-20 comments at the Philadelphia ABA Tax Conference.
  • Nov. 14, 2008: This week's USITO briefly addresses Bob Peroni's presentation today of "Better Than Exemption" at University of Toronto.
  • Nov. 6, 2008: Today's U.S. International Tax Outlook provides abstracts for two recent tax policy articles and a comment by Reuven Avi-Yonah regarding the ways that President-Elect Obama may try to fulfill his promise to "end tax breaks for corporations that send jobs overseas."
  • Oct. 23, 2008: This week's issue of USITO notes, with a sense of deja vu, a VAT complaint that appeared in this week's Journal of Commerce Online; provides the full text for Notice 2008-91, which expands the 30-day exclusion rule of Notice 88-108; and concludes with a link to an article proposing residence-based taxation of individuals in the U.S.
  • Oct. 16, 2008: Today's U.S. International Tax Outlook analyzes an article in The Washington Times that discusses VAT rebates on exports and suggests that the best antidote for the WTO's anachronistic distinction between direct and indirect taxes may be a new, capped U.S. foreign tax credit for value added taxes.
  • Oct. 9, 2008: This week's issue of USITO provides details on two technical papers released by the U.S. Treasury and discusses three tax policy papers: two on the worldwide-vs.-territorial debate, and one on the application of tax expenditure analysis to deferral, cross-crediting, and the export sales source rule.
  • Oct. 2, 2008: Today's issue of U.S. International Tax Outlook provides an overview of four interesting tax policy articles: two on treaties, one on tax competition in offshore financial centers, and one on the Sec. 965 "repatriation holiday."
  • Sept. 25, 2008: This week's USITO briefly addresses a recent article on U.S. state tax liability in the absence of a PE, provides extensive excerpts from a recent Canada Revenue technical interpretation regarding the Canadian tax consequences of the conversion of a Delaware LLC to a Delaware LP, and gives details and links for T.D. 9425 (regarding IRC Sec. 6707A penalties) and the IRS International Tax Gap series of articles.
  • Sept. 18, 2008: Today's U.S. International Tax Outlook discusses two recent PE decisions by the Tax Court of Canada (Knights of Columbus and AIL) and provides the abstract for an interesting transfer pricing paper I ran across this past week.
  • Sept. 11, 2008: This week's issue of U.S. International Tax Outlook discusses selected parts of the recently released Government Accountability Office (GAO) report on effective tax rates for U.S. multinationals and hyperlinks the full text of a tax policy paper that many USITO readers expressed interest in a few months ago: "The Interaction of Tax Systems and Tax Cultures in an International Order for Taxation."
  • Sept. 4, 2008: Today marks the first anniversary of my weekly newsletter, U.S. International Tax Outlook. Today's issue gives a heads-up regarding next week's Senate Permanent Subcommittee on Investigations hearing on dividend tax abuse, briefly discusses two new tax policy papers by Michael Graetz and Michael Knoll, and provides the executive summary for the AICPA's comments on the new contract manufacturing regs.
  • Aug. 21, 2008: This week's U.S. International Tax Outlook notes the publication yesterday of REG-209006-89, "Transfers by Domestic Corporations That Are Subject to Section 367(a)(5); Distributions by Domestic Corporations That Are Subject to Section 1248(f)"; provides an outline for the NYSBA comments on the contract manufacturing regs; and gives details regarding three international tax articles in the Summer 2008 SOI Bulletin. To subscribe to USITO, click here.
  • Aug. 14, 2008: Today's USITO notes the signing of the U.S.-Malta tax treaty on 8 August, provides highlights from Tax Analysts' interview with Dan Berman, gives details regarding a new tax arbitration paper, and touches on two recent IRS releases regarding withholding tax on the U.S.-source income of foreign taxpayers.
  • Aug. 7, 2008: This morning's U.S. International Tax Outlook provides perspective on the prior versions of the two international revenue raisers in H.R. 6595, the "Middle Class Tax Fairness Act of 2008," which was introduced by Rep. Timothy Walz, R-Minn., on 24 July.
  • July 31, 2008: Today's issue of USITO provides a follow-up regarding last week's HSGAC tax haven hearing, gives details about a recently published tax arbitration paper, and briefly notes the review of my PE book in the current issue of Canadian Tax Journal.
  • July 24, 2008: Today's U.S. International Tax Outlook provides details regarding the Senate Finance Committee hearing this morning on the Cayman Islands and the continuation tomorrow of the HSGAC hearing on financial institutions in offshore tax havens.
  • July 16, 2008: Today's issue of USITO discusses the permanent establishment portion of the technical explanation for the U.S.-Canada Fifth Protocol, provides details about tomorrow's U.S. Senate hearing on financial institutions in offshore tax havens, gives a heads-up regarding the structured passive investment regulations released today, and notes publication of two interesting tax policy papers by Christopher Hanna and Alex Khachaturian.
  • July 9, 2008: Today's U.S. International Tax Outlook is devoted entirely to an in-depth discussion of the 26 June Senate Finance Committee hearing on international tax reform. Here's the opening paragraph: "The witnesses at the 26 June Senate Finance hearing presented three distinct points of view on reforming U.S. international tax policy. One was to "reinvent 1986" by broadening the corporate tax base, this time via elimination of deferral, and lowering the corporate tax rate. Another was to throw worldwide taxation from the train and switch to territoriality. The third was to abolish the corporate tax." To read the rest, send your contact information, including email address, to
  • July 3, 2008: Today's issue of USITO provides follow-up information about last week's SFC international tax hearing and gives a heads-up regarding three recently released documents: Ernst and Young's comments on the new contract manufacturing regs, Tom Brennan's interesting repatriation article, and Chief Counsel Advice 200826036 ("Proposed Disallowance of Foreign Tax Credits Attributable to Cross-Border Trust and Financing").
  • June 26, 2008: Today's U.S. International Tax Outlook briefly discusses the new "Killer 351" regulations, provides information regarding the JCT report prepared in connection with today's Senate Finance Committee hearing, and gives details on two newspaper articles prompted by Melissa Redmiles's Sec. 965 report. To subscribe, click here.
  • June 23, 2008: Another one-page edition of USITO provides additional details on the testimony Jim Hines can be expected to give at Thursday's Senate Finance Committee hearing and gives preliminary information on S.3162, the international tax reform bill that Sen. George Voinovich, R-OH, introduced last Thursday.
  • June 20, 2008: A special one-page edition of USITO provides details regarding next week's Senate Finance Committee hearing on international tax reform and the four witnesses who are scheduled to testify.
  • June 19, 2008: Today's issue of USITO surveys two new reports that address U.S. taxation of foreign sovereigns, reviews both the analysis of Sec. 965 (the dividends received deduction) in the Spring SOI and Lisa Nadal's critique of that analysis, gives details on Shannon McCormack's new tax shelter paper, and briefly addresses Sen. Ben Nelson's reportable transactions bill, the recently released IRS APA report, Sen. Barack Obama's comments to the Wall Street Journal on corporate taxes, and the treaty revenue raiser in Charlie Rangel's AMT relief bill (H.R. 6275).
  • June 16, 2008: Today's USITO hits the high points of Ernst & Young's comments on the -8T GRA regs and the New York City Bar's comments on derivative benefits in treaties, gives a heads-up on Rev. Rul. 2008-31, and calculates a combined state-and-federal effective tax rate for the U.S.
  • June 12, 2008: This week's U.S. International Tax Outlook recounts the Kerry-Graham tax colloquy on "This Week with George Stephanopoulos" last Sunday, gives details regarding the hearing now scheduled in July on the new contract manufacturing regs, comments briefly on the court decision in the AWG Leasing SILO case, and explores the two international revenue raisers proposed by Senate Finance Committee Chair Max Baucus in his substitute amendment to H.R. 6049.
  • June 5, 2008: This week's USITO provides highlights of Aviva Aron-Dine's new corporate tax reform paper, gives details on the Fortune magazine tax shelter article, lists interesting discussion topics from the recent Law & Society annual meeting, includes information regarding the TCPI presentations in the current issue of TAXES -- The Tax Magazine, and briefly notes Gene Steuerle's recent career move, a WSJ article on the Sala case, and the passing of U.S. international tax expert Walter Diamond.
  • May 29, 2008: Today's U.S. International Tax Outlook explores the "plain vanilla preferred stock" 7874 regs; provides the complete text for Rev. Proc. 2008-31, which expands the APA program to include inbound transactions; briefly notes the "Killer B" regs, the NYSBA comments on Notice 2008-20, and the ABA comments on Treas. Reg. Sec. 1.367(b)-4; gives details regarding the second edition of Gene Steuerle's tax policy book; touches on John Swain's comparative, international/state-and-local paper; and surveys the "raise taxes" arguments that former U.S. Treasury Secretary Larry Summers and Martin Wolf presented earlier this month in the Financial Times.
  • May 22, 2008: This week's issue of U.S. International Tax Outlook provides an update regarding the upcoming SFC multinational hearing, gives details about two interesting papers -- "Cross-Border Relief Post Marks & Spencer" and "[U.S.] Business Taxes and International Competitiveness" -- and briefly notes several WTO news items.
  • May 15, 2008: Today's USITO notes two recent tax policy papers, one on a code of conduct for cooperation in combating international tax evasion and the other on corporate taxation and international charter competition, and briefly discusses three issues: the possibility of a new clampdown on tax havens by the EU, the deferral discussion last Sunday between George Stephanopoulos and "McCain Victory 2008" Chair Carly Fiorina, and the new FIRPTA revenue procedure.
  • May 8, 2008: Today's issue of USITO presents the abstract and a hyperlink for Ilan Benshalom's new article “The Quest to Tax Interest Income: Stages in the Development of International Taxation.”
  • May 1, 2008: Today's USITO examines the final foreign partner regulations in T.D. 9394, notes two interesting items regarding treaties and tax arbitrage in the latest Canadian Tax Journal, and briefly discusses two sources that address tax havens: the press conference that Sens. Warner and Levin held earlier today, and Anthony Infanti's review of J. C. Sharman's book Havens in a Storm: The Struggle for Global Tax Regulation.
  • Apr. 23, 2008: Today's U.S. International Tax Outlook harks back to the inaugural issue last September by extracting the international topics from the First Periodic Update to the UST/IRS 2007-2008 Priority Guidance Plan, correcting two errors, and providing hyperlinks to most of the cited sources. To subscribe, click here.
  • Apr. 17, 2008: Today's U.S. International Tax Outlook provides abstracts or excerpts for three recent international tax policy papers and gives details on the 15 April Senate Finance Committee (SFC) hearing, a SFC hearing to be held in July, and Andy Grewal's Boulware podcast.
  • Apr. 10, 2008: Today's issue of U.S. International Tax Outlook outlines the foreign tax credit "solution" for the UK's new remittance basis charge for nondomiciliaries.
  • Apr. 3, 2008: Today's U.S. International Tax Outlook highlights a recent article that advocates source taxation for emerging economies.
  • Mar. 20, 2008: Today's issue of U.S. International Tax Outlook draws attention to three tax policy papers -- a new article on transfer pricing for intangibles and two papers that continue the income vs. consumption tax debate -- and includes a postscript on the disproportionate impact a consumption tax could have on the elderly.
  • Mar. 13, 2008: Today's U.S. International Tax Outlook argues that the precedential status of Cudd Pressure, the 1998 Canadian PE case, will not necessarily be affected by the incorporation of OECD guidelines in the diplomatic notes that accompany the Fifth Protocol to the U.S.-Canada tax treaty. It also notes briefly the IRS Abusive Tax Avoidance Scheme Talking Points, the excise tax compliance program for foreign insurers, and two online sources for the IRC.
  • Mar. 6, 2008: Today's issue of U.S. International Tax Outlook highlights four tax treaty issues, including the new 2008 protocol to the still-pending U.S.-Bulgaria treaty; provides links and abstracts for four tax policy papers and one interesting comment; and touches on two minor subjects: this week's visit to the Caymans by U.S. GAO investigators, and the advisability of migrating from mechanical, go/no-go tax rules to principles-based rules similar to those enunciated in the WTO agreements. To subscribe, click here.
  • Mar. 1, 2008: Paul Caron has blogged The Integrated 2006 United States Model Income Tax Treaty, which Reuven Avi-Yonah and I recently completed, on the TaxProf Blog and has linked a .pdf of the table of contents and introduction.
  • Feb. 28, 2008: Today's U.S. International Tax Outlook hits the high points of the new contract manufacturing regs and provides links and brief discussion on several topics, including the Third Circuit's opinion in Swallows, the Liechtenstein bank scandal, REG-209060-86, the latest version of Ed Kleinbard's business enterprise income tax, LII's online IRC, a new listed transaction, and OFII's comments on draft IRS Form 8926.
  • Feb. 22, 2008: The Integrated 2006 United States Model Income Tax Treaty, which Reuven Avi-Yonah and I recently completed, is now available on the Amazon and Barnes and Noble web sites.
  • Feb. 21, 2008: Today's issue of U.S. International Tax Outlook touches on the Swallows reversal, discusses TAM 200807015, mentions two new patent and tax strategy patent sources, gives details on Larry Lokken's new "losses and FTC" article, and hits the high points on five issues: the upcoming BNAI conference in London, U.S. creditability of the new UK non-dom fee, Monday's DC Bar FTC program, Venuti et al's great flow chart treaty articles, and Announcements 2008-9, -11, and -12.
  • Feb. 14, 2008: Today's U.S. International Tax Outlook outlines the process that Massachusetts uses to classify a foreign entity, notes three themes in JCT Chief of Staff Ed Kleinbard's talk at Buchanan Ingersoll a few days ago, and provides details and links for two CRS reports, the IRS 2005 Corporation Source Book, Announcement 2008-8, and the imminent demise of the "super-LOB" provision in the Farm Bill.
  • Feb. 7, 2008: Today's issue of U.S. International Tax Outlook discusses four sets of comments on the U.S.-Canada Fifth Protocol, examines a new OECD discussion draft and recently released comments on two past discussion drafts; notes four international items in President Bush's fiscal year 2009 budget; extracts the international responses from MilChev's annual Tax Policy Forecast Survey, and briefly mentions the upcoming ATAX conference, IRS Form 5713, and the Ernst & Young Transfer Pricing Survey.
  • Jan. 31, 2008: Today's issue of U.S. International Tax Outlook discusses the recent GAO study documenting weaknesses in FDAP withholding; provides a one-chapter, 26-page excerpt from The Integrated 2006 United States Model Income Tax Treaty, a book that Reuven Avi-Yonah and I recently finished and that Vandeplas Publishing will be releasing at the end of February; and briefly mentions JCT Chief Ed Kleinbard's presentation on the JCT revenue estimating process and a CRS report that contradicts current thinking regarding the burden of corporate tax. The tripleheader of OECD reports that was released this week -- on proposed changes in the model tax treaty and/or commentary regarding services taxation, REITs, and transfer pricing -- will have to wait until next week.
  • Jan. 24, 2008: The 24 January issue of U.S. International Tax Outlook explores application of the Comiskey case to U.S. tax strategy patents, announces a new book on the U.S. model tax treaty, provides abstracts and brief comments on several papers being presented at the 20th Annual Australasian Tax Teachers Association Conference, and briefly mentions the "U.S. Presidential Candidates' Tax Matrix," the introduction of H.R.5101, and Notice 2008-20.
  • Jan. 17, 2008: Today's issue of U.S. International Tax Outlook provides background on the new OECD report on tax intermediaries, addresses the issue of tax strategy patents, analyzes the Isle of Man's recent S.681 blacklist protest, and touches briefly on two miscellaneous matters: the "WTO at 60" video and the recently released NatWest IV decision. To subscribe, send your contact information, including email address, to
  • Jan. 10, 2008: This week's issue of U.S. International Tax Outlook is out. It provides a summary of the NYSBA's comments on the 987 QBU regs; gives details about an interesting article on the final 704(b) regs; outlines the changes in Rev. Proc. 2008-7 regarding international issues ineligible for rulings; summarizes a Sec. 367(a) PLR; touches on the recent corporate tax incidence paper from Treasury; and culls some interesting quotes from Tax Analysts' biennial Quotations About Taxes.
  • Jan. 3, 2008: I hope your holiday was restful and safe. Today's issue of U.S. International Tax Outlook takes a brief look at Mike McIntyre's mandatory arbitration objections, notes the elimination of an international provision from the Tax Technical Corrections Act, surveys the Sec. 367(a) problem addressed by Notice 2008-10, touches on the AICPA's Sec. 1.901-2(e)(5) comments, and finally provides abstracts for three very different tax policy papers: one each on flat taxes, the U.S. branch profits tax, and tax information exchanges.
  • Dec. 21, 2007: Yesterday's U.S. International Tax Outlook surveys the portions of the recent CIIT conference that I found most interesting, critiques the finding of the last week's mini-conference on corporate tax burden, provides hyperlinks and abstracts for two new Reuven Avi-Yonah articles, and concludes with mention of six miscellaneous matters, including the foreign tax credit regulations that were released on 20 December and the 19 December TEI letter regarding Protocol 5 to the U.S.-Canada treaty. If you haven't received your e-copy, let me know by email and I'll resend it.

    On a related note, earlier today, Richard Murphy of UK Tax Research Ltd. posted a short quote from Accountancy Age regarding the Treasury policy report released yesterday. My response to the posting is, at the moment, awaiting Richard's approval, so I'm reproducing it here on a temporary basis:

    For those who would like to look further, a summary of the U.S. Treasury report "Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century," as well as a hyperlink to an Acrobat copy of the report, is available at Lowering of the corporate tax rate is linked to base broadening so that, at least nominally, the same amount of tax would be collected at the lower rate.

    Another subject discussed in that part of the report is a shift from worldwide to territorial taxation. This sort of change is proving a hard sell in the U.S. because, at least on a theoretical level, it requires disallowance of domestically incurred expenses that are properly allocable to the foreign-source income -- income that, in a territorial regime, would be tax-exempt. A research paper released in the last few weeks argues that all domestically incurred expenses should continue to be deductible in a territorial system, but I remain unconvinced.

    The business activity tax, or "BAT," is structured as a subtraction VAT, so, unless it were permissible for businesses to add it on to the bottom line of consumer invoices, it might not be shifted forward to consumers more than the current corporate tax is. In at least one U.S. state, similar additions to consumer invoices (reflecting certain taxes the seller had to pay) have been proscribed. That said, I think it would certainly be tempting for businesses to leave their retail prices where they are and try to add on an amount for the new BAT.

    In a statement released contemporaneously with the report, Assistant Treasury Secretary for Tax Policy Eric Solomon said "[t]he report outlines several broad approaches to business tax reform. The study also outlines specific business tax areas that can be addressed. There are no policy recommendations in this study. We believe it will provide significant substance for discussion, and will further the effort to inform the public policy debate." The full text of his remarks is available at

    The lack of policy proposals in the report caused dismay for many in the U.S. tax community. One commentator this morning said "the report makes sure not to give the impression that any specific plan is being advocated or even considered. . . . [F]or those who expected to see concrete policy recommendations, it is like searching under the Christmas tree for a Nintendo Wii and finding socks instead."
  • Dec. 15, 2007: If you don't subscribe to my weekly newsletter, U.S. International Tax Outlook,* take a look at my Letter to the Editor in the Dec. 17 Tax Notes (p. 1175). In last week's Tax Notes, Lee Sheppard said that the treaty benefits provision in Charlie Rangel's Tax Reduction and Reform Act of 2007 (H.R.3970, sec. 3204) was essentially the same as the Doggett provision in sec. 12001 of the farm bill, H.R.2419 (see also July 29 commentary, infra). I see them as very different, and I explain why.
    *Subscribers received the analysis included in my Tax Notes letter on Oct. 25, the same day H.R.3970 was introduced.
  • Dec. 13, 2007: In the13 December issue of U.S. International Tax Outlook, I discuss two international provisions in the pending AMT Relief Act, give updates regarding creditability of the new Mexican business flat tax and Senate approval of the new Belgian treaty and German protocol, provide links and brief descriptions or excerpts for several recent treaty and tax policy articles, address the topic of an upcoming corporate tax conference, and conclude with brief mention of Rev. Rul. 2008-1 and the new CBO Director's Blog. To subscribe, send your contact information, including email address, to
  • Dec. 6, 2007: This week's issue of U.S. International Tax Outlook begins with brief comments on Jim Hines' new foreign income paper. Then it gives details regarding the financial oversight limitations in the UK Overseas Territories, outlines an objection in the Senate to the Levin/Rangel UBIT provision, provides links to commentary about the U.S. presidential candidates' tax positions, and concludes with notes on four miscellaneous matters.
  • Nov. 29, 2007: This week's edition of U.S. International Tax Outlook discusses Jersey and the economic conflicts that TIEAs can bring, briefly touches on Luxembourg's S.681 blacklist protest, explores the AJCA reports that Treasury issued a few days ago, gives details on the Sub F changes in store if S.2380 passes, outlines Larry Lokken's suggestions for improving the U.S. ECI rules, and mentions several miscellaneous matters, including Bill C-28 in the Canadian House of Commons, the World Bank/PwC "Paying Taxes 2008" study, and Mercer's 2007 Worldwide Individual Tax Comparator.
  • Nov. 20, 2007: This week's edition of my newsletter, U.S. International Tax Outlook, came out early due to the U.S. Thanksgiving holiday. It outlines two international provisions in the 2007 Tax Technical Corrections Act, gives details on several treaty issues, provides information about two international tax policy articles, explores the current U.S. thinking on territoriality, and mentions several miscellaneous matters, including an interesting populist motion introduced in the UK House of Commons. To subscribe, send your contact information, including email address, to To view a sample issue from last month, click here.
  • Nov. 15, 2007: Today's issue of my newsletter, U.S. International Tax Outlook, begins by discussing the proposed Canadian withholding tax exemption for interest and a PE problem that may accompany it. It then provides an update on the Mexican flat tax, presents details on the new Netherlands withholding tax regs, and gives brief descriptions and links for the recent CRS tax treaty legislation report, the IRS Sec. 965 directive, and the animated transfer pricing illustration on the Guardian Unlimited's web site.
  • Nov. 9, 2007: Richard Murphy of Tax Research UK has blogged an interesting, animated illustration of transfer pricing that is available on Guardian Unlimited's web site. Click here to jump to it.
  • Nov. 8, 2007: Today's issue of my newsletter, U.S. International Tax Outlook, explores and links to the new Mexican flat tax, mentions the Avi-Yonah-Clausing formulary apportionment papers, addresses a concern about my PE-by-agent article in this week's Tax Notes International, discusses Guernsey's effort to extract itself from S.681, and notes recent IRS guidance on foreign tax redeterminations. To subscribe, send your contact information, including email address, to
  • Nov. 1, 2007: Today's issue of my e-newsletter, U.S. International Tax Outlook, provides several tax treaty updates, gives a heads-up regarding an upcoming article on PE by agent in the U.S., and briefly discusses the Bouma-Mason paper on nondiscrimination provisions in tax treaties. It also notes yet another attack on the worldwide interest expense allocation rules in H.R.3920, mentions and provides a link for Marty Sullivan's tax haven project papers, and includes information regarding the proposed Sec. 901, compulsory payments of foreign taxes regulations.
  • Oct. 25, 2007: Today's issue of my e-newsletter hits the international high points in Ways and Means Chairman Rangel's tax reform bill (H.R. 3970), runs down some of the international topics at the Chicago and New York PLI Tax Strategies conferences, gives details on a recent U.S.-UK competent authority agreement, and discusses the Kerry-Emanuel Offshore Deferred Compensation Reform Act. (S.2199, H.R.3923). Other fun topics, like the IRS Servicewide Approach to International Tax Administration, the OECD tax haven initiative, the S.681 protests, and the U.S.-Angola diplomatic notes on international shipping, will have to wait until next week unless I find time for an interim issue.
  • Oct. 24, 2007: The "About the Book" blurb on the Vandeplas web site for my book Permanent Establishment in the United States -- A View Through Article V of the U.S.-Canada Tax Treaty still doesn't include any information regarding the structure and organization of the book, so (hopefully temporarily), I'm presenting that information here. The book begins with a three-part introduction: first, a brief, general outline of the concept and scope of PE; next, an overview of  the individual paragraphs in Article V; and finally, a comparison of  the current PE provisions with those in the 1942 U.S.-Canada treaty,  to illustrate the limitations presented by older cases and rulings. Following the introduction are vignettes of ten aspects of U.S. taxation that either underlie the application of treaties or would apply in the absence of a treaty. Next, every paragraph and subparagraph of Article V is analyzed from  three points of view. First, each significant term in the text is defined. (For terms not defined by the treaty, possible definitions from domestic tax law are presented.) Next, the relevant parts of the two model tax treaty authorities -- the OECD Commentaries and the U.S. model technical explanation -- are reviewed and discussed. Finally, relevant cases, rulings, and secondary authorities are presented. An appendix provides six primary sources: the texts of Protocols 1, 3, and 5, each of which makes changes to the treaty's PE provisions; the combined U.S. Treasury technical explanation for the original treaty and the first and second protocols; the technical explanation for the third protocol; and a 1984 Competent Authority Agreement that addresses offshore U.S. drilling rigs.
  • Oct. 19, 2007: My new book Permanent Establishment in the United States -- A View Through Article V of the U.S.-Canada Tax Treaty is now available on the Vandeplas Publishing web site and will soon be available through I anticipate having an Article VII, business profits companion book ready for publication next summer. Between now and then (and hopefully no later than February 2008), Vandeplas will be publishing an expanded version of the article Reuven Avi-Yonah and I wrote last summer for IBFD regarding the new U.S. model tax treaty.
  • Oct. 18, 2007: Today's issue of my e-newsletter, U.S. International Tax Outlook, discusses the proposed regs regarding Sec. 1441 withholding on distributions pursuant to self-tenders (REG-140206-06), the proposed regs on "event basis" sourcing of income for some athletes and entertainers (REG-114125-07), and a recent update regarding loss importation transactions (LMSB-04-09-07-61). It also briefly addresses a correction to the "taint-purging" PFIC regs and an OECD report on corporate tax revenues. To subscribe, send your contact information, including email address, to
  • Oct. 11, 2007: Today's issue of my e-newsletter briefly addresses and provides hyperlinks for the recent U.S.-Netherlands competent authority agreement, the PFIC "taint-purging" rules, the proposed regulations regarding intercompany debt, and the "on again, on again" case of Parker Drilling Co. v. Finance Ministry of Kazakhstan.
  • Oct. 4, 2007: Today's issue of my e-newsletter discusses U.S. expansion of the consistency rule in treaties, with particular reference to the letter that the Institute of International Bankers sent to Eric Solomon on Monday and with an example of a tax treaty that, in two separate technical explanations, advocates both the expanded version of the consistency rule (in the initial enactment TE) and the limited version (in a protocol TE fifteen years later). The newsletter also provides links and abstracts for two interesting papers: "Which Countries Become Tax Havens?" and "A New Development in the 'Subsequent Exchange' Approach Under the Sec. 367(b) Regulations."
  • Sept. 27, 2007: Today's issue of my e-newsletter analyzes the new "services" permanent establishment provision introduced into the U.S.-Canada tax treaty by the protocol signed last Friday, documents two problems with the provision, and contains a brief note regarding one of the participants at yesterday's Senate Finance Committee hearing on offshore tax issues.
  • Sept. 18, 2007: Today's issue of my e-newsletter, U.S. International Tax Outlook, teases out the few international tax issues that U.S.  Senator and presidential candidate Barack Obama, D-Ill., included in the tax policy speech he gave this afternoon in Washington, D.C.
  • Sept. 10, 2007: Today's issue of my e-newsletter addresses the Summer 2007 Statistics of Income Bulletin, international guidance in progress, the IRS coordinated issue paper on cross-border loans, legislation banning tax planning patents, Sandy Levin's UBIT bill, and my audio file of the Sept. 6 W&M hearing.
  • Sept. 5, 2007: The second issue of my e-newsletter gives background on five of the twenty witnesses scheduled to testify at tomorrow's W&M "Hearing on Fair and Equitable Tax Policy for America’s Working Families." The five are Len Burman, Douglas Holtz-Eakin, Gene Steuerle, Steve Shay, and Vic Fleischer. To receive a copy of this and future issues, send your contact information, including email address, to
  • Sept. 4, 2007: The inaugural issue of my e-newsletter, U.S. International Tax Outlook, addresses the following four topics:
    1) the international issues in the Priority Guidance Plan for 2007-2008 promulgated by the IRS and the Treasury Office of Tax Policy;
    2) Rev. Proc. 2007-58;
    3) the corporate tax benefits questionnaire of Sen. Carl Levin, D-Mich., and
    4) Republican presidential candidate Mike Huckabee's comment to George Stephanopoulos regarding the U.S. tax code.
    To receive a copy of this and future issues, send your contact information, including email address, to
  • Aug. 30, 2007: A week from today, on Sept. 6, the Ways and Means (W&M) Committee of the U.S. House of Representatives will hold a hearing on fairness and equity in the U.S. tax code. According to Chairman Rangel's announcement, "The hearing will focus on a number of tax fairness issues, including the tax treatment of investment fund managers and the impact of the alternative minimum tax on working families. It will also examine the reasons why investment funds are being organized offshore." The names of the witnesses who will testify at the hearing have yet to be announced. It should be possible to view the hearing live over the Internet via the link on the W&M home page.
  • Aug. 23, 2007: UK tax maven Richard Murphy was the guest last night on BBC Radio 4's Hecklers program, arguing that the UK should scrap the domicile rule that allows some residents with social and family ties to other countries to avoid UK tax on their non-UK income. His rationale was that revocation of this tax break would bolster the trustworthiness and fairness of the UK tax system. The program is available on request on the Internet either through Radio 4's "Listen Again" page or via a special link. If you would like a copy of my notes from the broadcast, email me. Aug. 27: Richard's rationale for eliminating the domicile rule could also be applied to support enactment in the U.S. of the proposed changes in the taxation of carried interest. See my comment on the TaxProf Blog.
  • Aug. 10, 2007: Yesterday, President Bush told reporters that the July 26 Treasury Conference on Business Taxation and Global Competitiveness (see July 24 commentary, infra) had piqued his interest in cutting the U.S. corporate tax rate. The question that raises in my mind is whether the President is trying to co-opt, and allocate to corporate tax reform, some of the offsets that Chairman Rangel might otherwise have at his disposal when the W&M Committee considers AMT reform and "tax simplification" after Labor Day.
    Take Subpart F deferral, for instance. The Treasury Conference Paper identified Subpart F deferral as an "unwarranted tax subsid[y]" and said that if it and similar subsidies were repealed, it would be possible to lower the overall corporate tax rate from 35 percent to 27 percent without diminishing corporate tax receipts. Sub F deferral is also one of the provisions identified last February as a likely AMT offset by 61 percent of the Fortune 100 tax and finance executives surveyed. See Aug. 8 commentary, infra. The same overlap between AMT reform targets and corporate tax offsets exists with respect to the Sec. 199 domestic production activities deduction.
    If the President is trying to steal Rangel's thunder by limiting his options in September, it's a shrewd legacy move. Although the Chairman's staff responded by reiterating his goal of restoring fairness in the tax code, they need to retake the offensive if they want to have maximum flexibility this fall. Aug. 17: Yesterday, Deputy Assistant Secretary for Tax Policy Karen Sowell said that Treasury is not actively considering a proposal to lower the corporate tax rate. In Sowell's words, "it's part of the intellectual discussion, but it's not something that's being proposed at this time."
  • Aug. 8, 2007: W&M Chairman Rangel's recent promise of a full-bore policy approach to AMT reform after Labor Day reminded me to look again at the Miller and Chevalier's Feb. 2007 survey of revenue raisers that business leaders expect to be tapped to pay for AMT relief. Click here to see the two-page article on the MilChev survey that is available on the CCH web site.
  • Aug. 7, 2007: S.1, the Honest Leadership and Open Government Act of 2007, has finally been passed by both the House and the Senate. Subtitle B of Title V, which amends the Standing Rules of the Senate to require disclosure of spending and tax earmarks, contains the Durbin definition of "limited tax benefit" that I discussed in my Jan. 14 commentary, infra. Under this definition, it should be easy to craft legislation that provides a limited tax benefit but lies outside the "limited tax benefit" definition, and therefore is not subject to disclosure. Aug. 10: CQ reported today that S.1 has not been sent to the President for signature because Press Secretary Tony Snow has criticized the earmark provisions as "considerably weakened" from earlier versions of the bill. Congressional leaders are concerned that, if S.1 were subjected to an Article I, Section 7 pocket veto, Congress would have no opportunity to override the veto when it reconvened in September. One solution is simply to delay submission until the summer recess ends.
  • Aug. 5, 2007: CRS has released a new report by Jane Gravelle and David Brumbaugh titled "Reform of U.S. International Taxation: Alternatives." I have edited my copy of this report to increase its utility. Blue text in the footnotes indicates hyperlinks that provide instant access to the cited sources. In one footnote, I added a link to Senate Finance Committee testimony by James Hines that was similar to the thrust of his cited article. Addendum: On or about July 27, 2009, my edited version of Jane and David's report appeared as a downloadable document on the Policy Archive website ( I do not know who uploaded it.
  • Aug. 3, 2007: The IRS has released revised versions of the partnership and corporate income tax forms. Click here to jump to the IRS summary of the changes and links to the revised forms. Also released today are T.D. 9350, 9351, and 9352, addressing reportable transactions. Aug. 20: According to remarks made today by Anita Soucy, an attorney-adviser in the Treasury Office of Tax Policy, participation in a transaction addressed by T.D. 9350, 9351, and/or 9352 must be disclosed by the taxpayer to the I.R.S. within 90 days of the inception of participation or classification of the transaction as one addressed by one or more the the three Treasury Decisions.
    [Aug. 3 commentary cont'd.] On the legislative front, parallel "patriot" bills were introduced in the House and Senate (H.R.3319 and S.1945) to grant tax breaks to businesses that employ workers and spend research dollars in the U.S. These benefits would be financed in part by amending IRC Sec. 7701(a)(4) so that foreign corporations are subjected to U.S. income tax if they are "created or organized as [] foreign corporation[s] (instead of as []domestic corporation[s]) principally for the purpose of avoiding being treated as []domestic corporation[s]."
  • July 29, 2007: When Reuven Avi-Yonah and Kimberly Clausing unveiled their formulary apportionment corporate tax proposal at the Hamilton Project meeting in June, I thought their goal of removing the incentive to shift income to low-tax countries was laudable but unlikely to ever see legislative daylight. The passage of the amended Farm Bill this week by the House changed all that.
    Of course, the Farm Bill (H.R. 2419) does not embrace formulary apportionment. It does, however, include a revenue raiser (originally submitted as a separate bill, H.R. 3160, by Rep. Lloyd Doggett, D-Tex.) that undermines the international income shifting of non-U.S. parent companies in a fairly aggressive way. If the U.S. subsidiary of a foreign company makes payments to a foreign subsidiary of the foreign company, and if those payments are subject to IRC Chapter 3 withholding, then the withholding rate will be either the rate in effect for payments to the country of the subsidiary or the home country of the parent, whichever is higher. This amounts to a kind of mandatory "check the box" provision, in which the separate corporate existence of the foreign subsidiary disappears for withholding tax purposes whenever the rate of withholding for the parent's home country would yield higher withholding tax revenue.
    The day after the Doggett amendment was announced, the administration (through the OMB) came out against it, saying 1) that it would "discourage foreign investment in the United States, override tax treaties the U.S. has with many nations, and raise questions under other international agreements" and 2) that if it (and other objectionable provisions) were included in the final legislation, "the President's senior advisors would recommend that he veto the bill." Business spokespeople also chimed in, noting that the amendment would be particularly hard on parent companies in countries like Brazil and the Republic of China/Taiwan that have no tax treaty with the U.S.
    I agree that the amendment is overbroad and, if enacted, will probably penalize business arrangements that are not abusive. The better approach to this kind of "tax cheating" (if in fact it is cheating) would be to revise the limitation on benefits (LOB) articles in the relevant tax treaties. Of course, that would take much longer than enactment of the amendment, and Congress would not get to use the funds generated by treaty revisions as a revenue raiser.
    The Senate is scheduled to begin deliberations on the Farm Bill after Labor Day. Addenda: Aug. 1: Chuck Grassley, R-Iowa and ranking member of the Senate Finance Committee (SFC), came out against the Doggett amendment today in an interview with BNA. Aug. 2: Yesterday, SFC Chair Max Baucus, D-Mont., confirmed that the Doggett amendment will not be in the Senate version of the Farm Bill. Whether House members will be able to slip some version of it back in during conference negotiations remains to be seen. Aug. 7 and 15: Sen. Grassley reiterated his opposition to the Doggett amendment on these two days in telephone press conferences. Oct. 2: Click here to access a more treaty-focused version of Reuven and Kimberly's formulary apportionment proposal.
  • July 24, 2007: The ramp-up for Thursday's Treasury Conference on Business Taxation and Global Competitiveness (click here to view the agenda and list of speakers) began today with the release of a background paper by Robert Carroll, Deputy Assistant Treasury Secretary for Tax Analysis. According to the accompanying press release, "the paper details:
    1) the extent to which special provisions narrow the business tax base;
    2) the importance of the non-corporate sector generally subject to the individual tax rather than the corporate tax;
    3) the various ways the tax system distorts economic decisions; and
    4) how the level of U.S. tax compares with our major trading partners (G7, OECD, and emerging market countries)."
    Bottom line: the businesses that cannot lower their U.S. taxes via Sec. 199 or other specialized tax breaks have gotten Treasury's attention. July 26: To view webcasts of the conference, click here.
  • July 15, 2007: In connection with a hearing scheduled by the Senate Committee on Foreign Relations for July 17, the Joint Committee on Taxation has issued an Explanation of the Proposed Income Tax Treaty Between The United States and Belgium (JCX-45-07), an Explanation of the Proposed Protocol to the Income Tax Treaty Between The United States and Denmark (JCX-46-07), an Explanation of the Proposed Protocol to the Income Tax Treaty Between The United States and Germany (JCX-47-07), and an Explanation of the Proposed Protocol to the Income Tax Treaty Between The United States and Finland (JCX-48-07).
  • July 5, 2007: The new D.C. Circuit decision in Murphy v. IRS is out, and Chief Judge Ginsburg's message to Marrita Murphy is "oops." Click here to jump to the D.C. Circuit's July 3 opinion. For links and history regarding this interesting case, see my commentaries for Aug. 22 and Dec. 22, infra.
  • June 28, 2007: A new draft version of Form 1118 is finally out. Comments are due by Sept. 10.
  • June 7, 2007: The days of the "public" Killer B reorganizations (see March 9 commentary, infra) are numbered. See Notice 2007-48, I.R.B. 2007-25 (May 31, 2007).
  • May 24, 2007: According to an OECD news release, the UK today became the 15th country to sign the joint OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters. Prior signatories include Azerbaijan, Belgium, Denmark, Finland, France, Iceland, Italy, the Netherlands, Norway, Poland, Sweden and the United States. According to the release, Canada and Ukraine have signed the Convention but are still in the process of ratification.
  • May 23, 2007: This fall, the Joint International Tax Shelter Information Centre (JITSIC) will open a new office in London and expand its membership to include Japan's National Tax Agency.
  • May 19, 2007: CRS Specialist in Public Finance David Brumbaugh has updated his report "Firms That Incorporate Abroad for Tax Purposes, 2007: Corporate 'Inversions' and 'Expatriation'" (CRS Order Code RL31444). Click here to view an Acrobat file that compares the current verison (dated April 25, 2007) with the prior version (dated Dec. 28, 2006).
  • May 9, 2007: Ho Chih-Chin, former IRS economist and now Finance Minister of Taiwan, has announced plans to switch from Taiwan's current territorial system of taxation to a worldwide system. The change, which Ho expects to take two years, would allow for a decrease in Taiwan's top marginal rates. Taiwan has included offshore income in the base for its alternative minimum tax since January 2006.
  • May 8, 2007: The JCT has released its comparison of the 2006 and 1996 U.S. model tax treaties.
  • May 7, 2007: The OECD has released a public discussion draft titled "Application and Interpretation of Article 24 (Non-Discrimination)." Comments are due July 31.
  • May 4, 2007: REG-123365-03, the proposed regs on the active trade or business requirement of Sec. 355(b), will be published in the Federal Register on May 8. Comments are due by Aug. 6. May 12: Stephen Fattman, IRS special counsel to the associate chief counsel (corporate), stated at the ABA Tax Section meeting in Washington that the IRS takes a qualitative, rather than a quantitative approach in applying the Sec. 355(b) active trade or business requirement.
  • Apr. 13, 2007: The NYSBA's "Report on the Model Income Tax Convention Released by the [U.S.] Treasury on November 15, 2006" is out, and in general, it's interesting and asks good questions. The main oversights are in Articles 17, 18, and 22 and are too detailed to present here.
  • Apr. 12, 2007: IRS, "Revisions to Regulations Relating to Repeal of Tax on Interest of Nonresident Alien Individuals and Foreign Corporations Received from Certain Portfolio Debt Investments," TD 9323, 72 Fed. Reg. 18386 (Apr. 12, 2007).
  • Apr. 11, 2007: The OECD has released a discussion draft on a revised Commentary regarding Art. 7, the business profits provision in its 2005 model tax treaty. If you are already familiar with the Art. 7 commentary and just want to review the changes, the discussion draft's annex contains an integrated, redline version of the discussion draft and the current commentary. Comments on the discussion draft should be sent to Jeffrey Owens, ideally before June 15, 2007.
  • Apr. 6, 2007: The "principles vs. rules" debate about which I wrote in TNI last May is continuing. The Institute of Chartered Accountants of Scotland (ICAS), which held a "Too Late for Principles?" conference last October, hosted another meeting in New York on Wednesday.
    One of the questions discussed (again) was how to implement and enforce principles-based standards. Something I listened for in vain was a recognition that any principles- or standards-based system absolutely requires a set of meta-standards that govern the acceptable and unacceptable interpretations of the principles or standards. For maximum, immediate clarity and utility, these meta-standards need to be accompanied by a body of decisions that demonstrate their application. The only interpretive meta-standards I know that meet these requirements are found in Article 31(1) of the Vienna Convention on the Law of Treaties.
    Article 31(1) says "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." The four standards set forth in this sentence -- plain meaning, with recourse to context and/or object and purpose if necessary, all under the umbrella of good faith -- could give structure to the interpretation of principles-based standards, and they would also make it very difficult for anyone to defeat or argue around those standards. Although Article 31 is itself stated in general principles, its meaning has been interpreted and applied over the past twenty-seven years by international judicial authorities, including (since 1995) the panels and Appellate Body of the World Trade Organization. Those interpretations and decisions could be applied by analogy to use of the Article 31 standards outside a treaty context.
  • Mar. 31, 2007: Yesterday, the U.S. Treasury announced the signing of a Tax Information Exchange Agreement (TIEA) with Brazil on March 20. Whether this will finally lead to a treaty is arguable, given the U.S. insistence on a parallel agreement allowing resolution of disputes regarding U.S. investments in Brazil by international courts of arbitration.
  • Mar. 30, 2007: REG-156779-06, targeting what the IRS has determined are abusive foreign tax credit transactions, will appear in today's Federal Register. Copies of it are available in today's BNA Daily Tax Report and Tax Analysts' Worldwide Tax Daily. According to IRS news release no. IR-2007-73, the Joint International Tax Shelter Information Centre (JITSIC) was responsible for alerting the IRS to the impact of these transactions on the U.S. fisc.
  • Mar. 22, 2007: U.S. budget writers are reportedly cozying up to S.396, the Dorgan-Levin-Feingold bill that would treat CFCs in 40 or so "tax haven" countries as domestic corporations, and therefore end the active-income deferral those CFCs currently enjoy. (See Jan. 26 commentary, infra.) Unfortunately, any measure like S.396 will just make the U.S. parents of the affected CFCs "kick the can" down the street and move their subs to a new jurisdiction that's not on the blacklist. Bottom line: no new revenue.
  • Mar. 21, 2007: Yesterday, SFC Chairman Max Baucus, D-Mont. and SFC member Orrin Hatch, R-Utah, introduced S.940, a bill identical to H.R.1509. Both bills would make the Subpart F exception for active financing income permanent. 1509 was introduced a week ago by W&M member Richard E. Neal, D-Mass.
  • Mar. 20, 2007: Earlier today, W&M Chairman Charlie Rangel told reporters covering the Tax Executives Institute conference that the tax code "shouldn't have an advantage for investing overseas and a disadvantage for investing [in the U.S.] -- that's wrong -- and we shouldn't have the tax code so that it gives corporations the ability to pick low-tax countries." That makes it sound like the Chairman would favor ending deferral.
    On the treaty front, Canadian Minister of Finance Jim Flaherty released the 2007 federal budget yesterday. Included are the following changes in the US-Canada tax treaty:
    • elimination of withholding tax on interest paid on both arm's length and non-arm's length debt;
    • extension of treaty benefits to limited liability companies;
    • further harmonization of the tax treatment of pension contributions in the two countries; and
    • new rules to clarify the treatment of stock options.
  • Mar. 19, 2007: The U.S. Treasury has issued final and temporary regulations (T.D. 9316) and proposed rules (REG-146247-06) regarding satisfaction of the continuity of interest requirement for corporate reorganizations. They will be effective tomorrow, March 20, the same day they are scheduled to appear in the Federal Register. Copies are available now via the Daily Tax RealTime™ Update link at the top of BNA Daily Tax Report's home page.
  • Mar. 17, 2007: The OECD's Trade Union Advisory Committee (TUAC) has issued a call for G8 leaders to work on new transparency and tax rules for private equity firms. According to Kristian Weise, a policy researcher with the International Confederation of Free Trade Unions (ICFTU) who spoke at TUAC's March 16 meeting in Paris, Denmark began taking action earlier this year to curb the negative tax effects of private equity fund activities after finance ministry data showed that those activities were costing the government up to 4 percent of corporate tax revenues. For more, see the March 19 issue of BNA's Daily Tax Report.
  • Mar. 14, 2007: The IRS has inaugurated a new international tax page on its web site: Tax Law Changes Relating to Foreign Issues. Thus far, it seems oriented mainly toward international tax issues that affect individuals.
  • Mar. 12, 2007: At the midyear ABA tax section meeting in January, I discussed the possibility of offering foreign tax credit for value-added taxes within the context of the current U.S. worldwide system, and I included a projection of the maximum cost of such a credit in terms of lost revenue. I have modified that projection in light of the discussion that followed my presentation, and the new projection appears in today's issue of Tax Notes International. If you are not a subscriber, click here to view an offprint of the article.
  • Mar. 9, 2007: IRS Deputy Associate Chief Counsel (International) Mike DiFronzo told the Federal Bar Association's tax conference today that the public version of the "Killer B" transaction is undergoing close scrutiny.
    I briefly mentioned the Killer B reorgs last September when the IRS issued Notice 2006-85. At that time, a Killer B consisted of a triangular B reorg in which foreign subsidiary F1 of domestic parent P exchanged cash for P voting stock and then transferred that stock to S1, P's domestic subsidiary, in exchange for all the stock of F2, a foreign, wholly-owned subsidiary of S1. This had the effect of repatriating funds from F1 to P tax-free, and the Notice provided for the promulgation of regulations that would prospectively require P to effectively treat F1's funds as a dividend.
    That restriction, however, left the door open for future Killer B reorgs as long as F1 acquired its P stock, not directly from P, but from the public at large, or some other non-P source. It is this "public" variant of the Killer B reorg that Mike was discussing at today's conference because the effect is the same as if P bought back its own stock from the public and then engaged in the original Killer B transaction. Mar. 17: Chuck Gnaedinger has a good write-up of the colloquy between Mike and Baker & McKenzie's Peter Daub on page 1087 of the March 19 Tax Notes.
  • Mar. 7, 2007: The Senate Finance Committee will hold a hearing on the administration's 2007 trade agenda tomorrow morning at 10 AM. Interested observers will remember that when Ways and Means held its trade and globalization hearing on Jan. 30, Chairman Rangel showed particular interest in whether a renewal of the president's Trade Promotion Authority could be limited to the Doha Development Agenda negotiations. They will also remember that former Under Secretary of Commerce for International Trade Grant Aldonas was emphatic in saying that the U.S. should "declare Doha dead" unless there was "substantial progress" by end-February. That deadline has come and gone, and there has been no official news since Director-General Lamy's Feb. 7 statement to the WTO General Council.
  • Mar. 4, 2007: It was "What did he just say?" day on This Week with George Stephanopoulos this morning. First, Trent Lott, senator from Mississippi and member of the Senate Finance Committee, said this about the AMT: "We've done it ["fix" AMT] by these one-year patches, and that's probably what we're going to have to do this time, a one-year fix of the problem. If you go beyond that, you're talking about $90 billion dollars that have to be found, which means you've got to have tax increases." The one-year patch would probably cost about $40 billion, so when the Senator said going "beyond that" would cost $90 billion, was he referring to a two-year patch, or was he misspeaking regarding the cost of permanently repealing the AMT? The latter has been predicted by Alan D. Viard of the American Enterprise Institute to have a price tag of about $900 billion over 10 years if the 2001 tax cuts are made permanent. Other ten-year estimates include $668.1 billion in the CBO's latest Budget Options report and $872.3 billion in the JCT's March 5 report. The W&M Subcommittee on Select Revenue Measures will hold a hearing on the AMT next Wednesday, March 7.
    Next, Secretary of the Treasury Henry Paulson, in talking about the strength of the economy and the likelihood of a recession later this year, said, "Exports have been greater than imports for four quarters running, and they're adding to our growth." Really? So the U.S. hasn't had a trade deficit for the last year? Well, of course we have: the BEA's December 2006 goods and services report shows that our trade deficit for 2006 was $763.6 billion, seasonally adjusted. However, the growth in exports has exceeded the growth in imports for the last four quarters (exports up 12.75 percent, seasonally adjusted; imports up 10.51 percent), and I think that's what the Secretary meant to say.
  • Mar. 2, 2007: "Danger, Will Robinson, Inc., danger!" Building on Dave Hartnett's Feb. 1 remarks to the D.C. Bar, a new Ernst & Young report confirms that expanded cross-border cooperation between tax authorities is "not a passing trend." What differentiates current activities from past efforts, according to the report, is "the coordinated multilateral approach by the IRS and its counterparts in other countries." This, in turn, is leading to "more and more business transactions being scrutinized and flagged for audit." The entire report is available in BNA's Tax Core and the Feb. 26 edition of Tax Notes.
  • Feb. 28, 2007: Although Eric Solomon has recently expressed no preference in the Circular 230, rules vs. standards debate, he reminded attendees at the annual IFA conference today that he has a decidedly pro-standards stance with respect to the economic substance doctrine. As in his NYSBA speech in January, Solomon said that "[i]f Congress does codify economic substance, I hope they will do so with clarity and, at the same time, leave as much discretion to the courts as possible."
  • Feb. 27, 2007: According to David Brumbaugh's recently released CRS report "Business Tax Issues in 2007" (CRS Order Code RL33890), the 110th Congress may move to restrict deferral of offshore active income by expanding the range of income subject to Subpart F. As a counterpoint, Brumbaugh notes that "several analysts have recently argued that attempts to tax overseas operations are either counterproductive or outmoded in the modern integrated world economy. See Mihir A. Desai and James R. Hines, Jr., "Old Rules and New Realities: Corporate Tax Policy in a Global Setting," National Tax Journal, vol. 57, Dec. 2004, pp. 937-960."
  • Feb. 20, 2007: The D.C. rumor mill notwithstanding, the Supreme Court today denied certiorari in Coltec Industries, Inc. v. United States. To jump to the July 2006 decision of the Federal Circuit, click here.
  • Feb. 18, 2007: Yesterday, Senators Carl Levin, Barack Obama, and Norman Coleman introduced S.681, "A bill to restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes." Sec. 303 of the bill would insert in 35 U.S.C. 102, "Conditions for patentability," a unique subject matter prohibition on inventions "designed to minimize, avoid, defer, or otherwise affect the liability for Federal, State, local, or foreign tax."
    Since the Federal Circuit's 1998 decision in State Street Bank and Trust (149 F.3d 1368), "business methods," of which tax strategies are a subgroup, have been patentable. As of the July 13, 2006 Select Revenue Measures Subcommittee hearing on "Issues Relating to the Patenting of Tax Advice," the United States Patent and Trademark Office (USPTO) had issued 41 patents in subclass 36T of Class 705, which is reserved for tax strategy patents, and it had identified another 61 published applications that were related to tax strategies.
    Although reservations about tax strategy patents have been expressed by both government officials and professional groups like the NYSBA, the AICPA, and the ABA, little attention has been paid to the benefits that tax strategy patents might offer. For instance, if statements in patent applications were viewed as party admissions, as it seems they should be, then it would be unlikely that questionable or clearly improper schemes would be patented. If that were the case, then concerns that patents would be misused to suggest official, government endorsement of the underlying tax strategies could be misplaced.
  • Feb. 16, 2007: H.R.976, the "Small Business Tax Relief Act of 2007," as amended, easily passed the House today 360-45 with 28 not voting and was sent to the Senate. The next step, if the pattern of the 109th Congress holds, will be "pre-conference" consultations to resolve major differences.
  • Feb. 15, 2007: Today, Senator Chuck Schumer, D-N.Y. and five newly-elected Democratic Senators introduced S.614, a bill containing an AMT patch and several middle class tax benefits.
  • Feb. 12, 2007: Chairman Rangel introduced "An Amendment in the Nature of a Substitute to H.R.976" today. It was accompanied by a brief JCT description of the changes.
    On the executive front, the Economic Report of the President to Congress was released today, along with the Annual Report of the Council of Economic Advisers. The President's Report notes, on p. 76, that "Many economists agree that adopting a broad-based consumption tax would benefit the economy. . . .
    "In the absence of such broad reform and the transition to a consumption tax base, there are two primary alternatives for adopting a more pro-growth tax system. One is to allow investors to completely deduct (fully expense) or substantially deduct (partially expense) the cost of their investments in the year in which the investments are made. The other alternative is to lower the statutory tax rate on investment income by reducing or eliminating the tax rate on corporate income, capital gains and dividends, or a mixture of both. . . .
    "There are a number of reform options that contain elements of these approaches. One option is a value-added tax (VAT) that replaces all or part of the corporate income tax; another, the Growth and Income Tax (GIT), proposed by the President’s Tax Reform Panel, would lower effective marginal tax rates on new investment. Other options focus on household saving as a means to remove investment distortions. However, compared to a VAT or the GIT, these options would provide relatively less stimulus for domestic growth within a rapidly expanding global market."
    As Jane Gravelle, Charlie McLure, and I have noted in the past, the economic burden of any new VAT or consumption tax would fall disproportionately on the elderly.
  • Feb. 9, 2007: Today, Ways and Means released the Chairman's mark of H.R.976, the "Small Business Tax Relief Act of 2007." The two revenue offsets in it are denial of the lower capital gains and dividend rate for dependents under the age of 24 who do not provide more than half of their own support with earned income and modification of the interest suspension under IRC Sec. 6404(g) from 18 to 22 months. Further information is available in the JCT's description of H.R.976 and its calculation of the revenue offsets.
    On the Senate side, ten Republican Senators, including Elizabeth Dole, Richard Shelby, Jim DeMint, Saxby Chambliss, and John Sununu, have written the Chair and Ranking Member of the Senate Finance Committee inveighing against the retroactivity of Sec. 221 of the Feb. 1, Senate version of H.R.2. Sec. 221 is identical to Sec. 201 of S.349, the "anti-SILO" revenue raiser in the Senate's small business bill. Links to the Senate Report on S.349 and the JCT revenue analysis are in my Jan. 24 commentary, infra.
  • Feb. 8, 2007: Ways and Means is expected to mark up a fully-offset $1 billion in small business tax breaks on Monday, and it will be interesting to see which revenue raisers are included. In the past, Chairman Rangel has expressed opposition to the kind of retroactive measures regarding tax shelters that the Senate Finance Committee included in its $8 billion small business package (see, e.g., Jan. 24 commentary, infra).
  • Feb. 7, 2007: Businesses surveyed by Miller and Chevalier said they were not concerned about large-scale tax reform in the near future but were "keeping a close eye on a number of individual policy decisions that have potential for impact on their industries. While they accept the fact that revenue offsets will be required in a PAYGO environment, they have not yet determined which revenue raisers are likely to affect their organizations in particular and, thus, are not very far along in deciding what their response will be to the process."
    In my recent experience, some businesses have very specific ideas regarding the revenue raisers that might hurt them and are taking steps to learn the early warning signals and stay ahead of the curve.
    For the complete survey results, see Tax Policy Forecast Survey February 2007.
  • Feb. 5, 2007: Last month, in testimony before the House Budget Committee, Comptroller General David M. Walker suggested a consumption tax as a possible but troublesome offset for spiraling health care and Social Security costs. Now, the Brookings Institution has released "Taming the Deficit," which proposes (on pp. 11-12) a form of universal health care and ties the public cost of this expansion to the revenue from a new, earmarked value-added tax. The short-run portion of that cost, according to a 2005 Center for American Progress (CAP) study, "would be in the neighborhood of $100 billion to $160 billion per year and [could] be funded by a dedicated VAT of 3 to 4 percent."
    The CAP's source for that correlation between revenue and VAT rate is a 2004 projection by Henry Aaron, Bill Gale, and Peter Orszag which said that "[a] broad-based VAT (one that excludes only small businesses, education, religion, and health care) would generate [gross] revenue of about 0.4 percent of gross domestic product for each 1 percentage point of tax." See Jeanne J. Lambrew et al., "Change in Challenging Times: A Plan for Extending and Improving Health Coverage," Health Affairs (Mar. 23, 2005) n.33, citing Henry Aaron et al., "Meeting the Revenue Challenge," in Restoring Fiscal Sanity: How to Balance the Budget, eds. A.M. Rivlin and I. Sawhill (Washington: Brookings Institution Press, 2004), 91-92. The "0.4" figure appears to be an error because, while the authors note that a VAT would increase the cost of government purchases, they cite the same "0.4" figure for the net increase in government revenue.
    A similar volume published by Brookings in 2005 resolves this apparent contradiction by projecting gross revenue of 0.6 percent of GDP for each 1 percentage point of VAT, and then noting that the increased cost of government expenditures, along with a reduction in the income tax base, reduces that gross to a net revenue benefit of about 0.4 percent of GDP. See Bill Gale and Gene Steuerle, "Tax Policy Solutions," in Restoring Fiscal Sanity 2005: Meeting the Long-Run Challenge, eds. A.M. Rivlin and I. Sawhill (Washington: Brookings Institution Press, 2005), 113.
    If the Brookings's 0.6 percent/0.4 percent projections were applied to the $13.254 trillion 2006, current-dollar GDP reported a few days ago by the U.S. Bureau of Economic Analysis (BEA), then each 1 percent of VAT would yield net revenue of just over $53 billion.
    As Jane Gravelle, Charlie McLure, and I have noted in the past, the economic burden of any new VAT or consumption tax would fall disproportionately on the elderly.
  • Feb. 2, 2007: Today, USTR Susan C. Schwab filed a request for consultations with China regarding its allegedly non-WTO-compliant use of tax laws to subsidize exports and the use of domestic over imported content. If the U.S. and China do not reach an agreement on resolution of these issues within 60 days, the U.S. can ask the WTO to establish a panel to adjudicate its complaint.
  • Feb. 1, 2007: Dave Hartnett, Director General, Policy and Technical, UK Revenue, will speak at a DC Bar luncheon in Washington today. Harnett is well known for being outspoken regarding the undesirability of tax avoidance and his determination to make the pursuit of it counterproductive. For instance, his statement that "[t]ax avoidance is not at the center of a productive economy" was featured by Tax Notes last September as a Quote of the Week.
    As I noted in my TNI, "Principles vs. Rules" article last May, one way to combat undesirable tax avoidance would be to change from a rules-based system to one based on principles. The "guidebook" for the interpretation of those principles could be the four standards set forth in Art. 31(1) of the Vienna Convention on the Law of Treaties. Those standards are plain meaning, with recourse to context and/or object and purpose if necessary, all under the umbrella of good faith. Although Article 31 is itself stated in general principles, its meaning has been interpreted and applied over the past 26 years by international judicial authorities, including (since 1995) the panels and Appellate Body of the World Trade Organization.
  • Jan. 30, 2007: Nuggets from today's almost-four-hour trade and globalization hearing before the full Ways & Means Committee:
    "Is more trade better, regardless of its content? I would say the answer is unequivocally yes."
    "Is more trade better, regardless of its terms? Not for all Americans, and often not even for most."
    "We need to complete the Doha Development Agenda negotiations."
    "Unless we see substantial progress in the next month, we ought to declare Doha dead."
    "Can we have a TPA [Trade Promotion Authority] with conditions?"
    "The critical question that the country wants to know about trade and globalization is, is it strengthening or hollowing out the middle class?"
    "I like being chairman."
    Witnesses were Dr. Daniel Tarullo from Georgetown, former Under Secretary of Commerce for International Trade Grant Aldonas, Gene B. Sperling, Libby Glass CEO John Meier, McGraw-Hill Chairman Harold McGraw III, and Dr. Lawrence Mishel, President of the Economic Policy Institute.
  • Jan. 26, 2007: Yesterday, Sens. Byron Dorgan, D-N.D., Carl Levin, D-Mich., and Russ Feingold, D-Wisc. introduced S.396, "a bill to amend the Internal Revenue Code of 1986 to treat controlled foreign corporations established in tax havens as domestic corporations." Of the 41 "tax-haven countries" listed in the bill, two of the more important are Bermuda and the Netherlands. The bill provides an exception for a "foreign corporation for any taxable year if substantially all of its income for the taxable year is derived from the active conduct of trades or businesses within the country under the laws of which the corporation was created or organized." The bill is similar to S.779, which Dorgan and Levin introduced in April 2005.
  • Jan. 24, 2007: Sec. 202 of S.349, the Small Business and Work Opportunity Act of 2007, would "generally extend[] the 80-percent inversion regime of [IRC] section 7874 to 80-percent inversions completed after March 20, 2002 but on or before March 4, 2003, with certain modifications" that are described on p. 39 of the Senate report on the bill. According to the JCT revenue analysis, sec. 202 is estimated to bring in US$449 million in the period 2007-2011 and US$1.153 billion in the period 2007-2016.
  • Jan. 22, 2007: On Jan. 16, Sen. George V. Voinovich, R-Ohio, and Rep. Frank R. Wolf, R-Va., introduced companion bills (S.304 and H.R.473) "[t]o establish a commission to develop legislation designed to reform tax policy and entitlement benefit programs and ensure a sound fiscal future for the United States, and for other purposes."
  • Jan. 19, 2007: The "U.S. Foreign Tax Credit for VAT" PowerPoint slides that will accompany my presentation to the ABA VAT Committee tomorrow morning are slightly different from the printout of the slides that is on the CD-ROM for the midyear Tax Section meeting. For a copy of the current slides, click here.
  • Jan. 18, 2007: The Senate Budget Committee will hold a hearing "to examine the growing tax gap and strategies for reducing it" on Jan. 23 at 10 AM.
  • Jan. 17, 2007: The DeMint and Durbin amendments to S.1 were both passed yesterday. See Jan. 12 and Jan. 14 commentary, infra, for discussion of the amendments.
  • Jan. 16, 2007: On Dec. 28, 2006, CRS released an updated version of its report "Firms That Incorporate Abroad for Tax Purposes: Corporate 'Inversions' and 'Expatriation,'" Order Code RL31444. A copy is available in today's Worldwide Tax Daily (2007 WTD 10-17).
  • Jan. 15, 2007: Last Friday, Rep. Charles Rangel, D-N.Y. and chair of the Ways and Means Committee, introduced H.R. 459, a bill to "deny the foreign tax credit and the benefits of deferral to companies doing business directly or through subsidiaries in Sudan until the Government of Sudan takes demonstrable steps to end genocide in Sudan" by adding a new subparagraph (C) to IRC Sec. 901(j)(2). The last time Sec. 901(j)(2) had a subparagraph (C) was 1987-1993, when "dishonorable mention" was imposed on South Africa. See Revenue Act of 1987, P.L. 100-203, sec. 10231(a), repealed by South African Democratic Transition Support Act of 1993, P.L. 103-149, sec. 4(b)(8)(A). Application of Sec. 901(j), which denies foreign tax credit for income taxes paid or accrued to certain foreign countries, also implicates Sec. 952(a)(5), which can simultaneously deny deferral to the income underlying those taxes by defining it as Subpart F income. It is not clear what real world change would occur if H.R.459 were enacted because Sudan has been included as a country to which Sec. 901(j) applies since Feb. 12, 1994. See Rev. Rul. 2005-3, 2005-1 C.B. 334.
  • Jan. 14, 2007: The Senate earmark debate continues. On Jan. 12, Senate Democratic Whip Richard Durbin, D-Ill., offered an amendment to the DeMint amendment that eliminated the weak, "revenue-losing" and "10 or fewer beneficiaries" language but retained the "eligibility criteria" loophole that will probably allow many if not most tax earmarks to avoid mandatory disclosure.
    For review, here's the relevant part of DeMint amendment (S.Amdt.11):

    "(b) the term 'limited tax benefit' means--
    "(1) any revenue-losing provision that--
    "(A) provides a Federal tax deduction, credit, exclusion, or preference to 10 or fewer beneficiaries under the Internal Revenue Code of 1986; and
    "(B) contains eligibility criteria that are not uniform in application with respect to potential beneficiaries of such provision;"

    Now, here's the parallel part of Durbin's amendment (S.Amdt.44):

    "(b) the term 'limited tax benefit' means--
    "(1) any revenue provision that--
    "(A) provides a Federal tax deduction, credit, exclusion, or preference to a particular beneficiary or limited group of beneficiaries under the Internal Revenue Code of 1986; and
    "(B) contains eligibility criteria that are not uniform in application with respect to potential beneficiaries of such provision;"

    For comparison, here's the Reid language from S.Amdt.3:

    "(3) the term 'targeted tax benefit' means--
    "(A) any revenue provision that has the practical effect of providing more favorable tax treatment to a particular taxpayer or limited group of taxpayers when compared with other similarly situated taxpayers;"

    The Reid language would require disclosure of any provision that gives a limited group a tax benefit that is greater than the benefit that other, similarly situated taxpayers would receive. The Durbin language, however, mirrors the DeMint amendment by allowing nondisclosure of limited tax benefits as long as the eligibility requirements for the limited group of taxpayers that will receive the benefit are uniform. The eligibility requirements for the intended beneficiaries of a limited tax benefit will almost always be uniform. Therefore, if the Durbin amendment passes, most limited tax benefits will not need to be disclosed at all.

    Deletion of paragraph (b)(1)(B) from Durbin's amendment would eliminate the problem, and adding Reid's phrase "when compared with other similarly situated taxpayers" immediately after "Internal Revenue Code of 1986" in paragraph (b)(1)(A) would restore the full strength and clarity of the original Reid amendment.

    Senator Reid apparently anticipates possible changes in Senator Durbin's amendment. On Friday, he requested "unanimous consent that on Tuesday, January 16, at 5:30 p.m., the Senate proceed to a vote on or in relation to the Durbin amendment No. 44, to be followed by a vote on or in relation to the DeMint amendment No. 11, as amended, if amended, and then without further intervening action or debate, the Senate proceed to a vote on the motion to invoke cloture on amendment No. 14; that if the Durbin amendment is not modified to Senator DeMint's satisfaction, then the agreement with respect to a vote with respect to the two amendments be vitiated." (Emphasis added.) 153 Cong. Rec. S502 (Jan. 12, 2007).
  • Jan. 12, 2007: The loser in the current earmark debate in Congress may be the Internal Revenue Code. The House definition of spending earmarks is broader than the Senate version, but the Senate's definition of tax earmarks (called "targeted tax benefits" in the Reid amendment) is more inclusive than the House version (they're called "limited tax benefits" there). If the DeMint amendment (replacing the Senate tax earmark definition with the House language) succeeds, there will be an incentive to create new tax earmarks and transmute spending earmarks into tax preferences.
    The House/DeMint-amendment language requires disclosure of limited tax benefits only if they 1) are a "revenue-losing provision," 2) provide "a Federal tax deduction, credit, exclusion, or preference to 10 or fewer beneficiaries," and 3) contain "eligibility criteria that are not uniform in application with respect to potential beneficiaries." How hard will it be to avoid disclosure by making a benefit apply to 11 beneficiaries, blending it into a revenue-enhancing measure, or making the eligibility requirements for potential beneficiaries uniform? Answer: not very. Further, how hard will it be to flip a spending earmark that would have to be disclosed into a tax earmark that does not? Answer: harder than finding an 11th beneficiary, but still worth considering.
    Reid's "targeted tax benefits" definition -- "any revenue provision that has the practical effect of providing more favorable tax treatment to a particular taxpayer or limited group of taxpayers when compared with other similarly situated taxpayers" -- would be better, but it looks like it will be cast aside in the name of bipartisanship.
  • Jan. 11, 2007: On Jan. 4, Sen. John Kerry, D-Mass., introduced the "Export Products Not Jobs Act" (S.96), a bill that is almost identical to the "Export Products Not Jobs Act of 2006" that he introduced last August (see S.3777 and my Aug. 2 commentary below). The one substantive addition is a transition provision for corporations organized in treaty countries that appears in the "Effective Dates" paragraph at the end of Section 102, "Treatment of Foreign Corporations Managed and Controlled in the United States as Domestic Corporations." The addition reads as follows:

    "(2) Transition Rule for Corporations Organized in Treaty Countries


    (A) a corporation is in existence on the date of the enactment of this Act, and

    (B) the corporation was created or organized under the laws of a foreign country with which the United States has, on such date, a comprehensive income tax treaty which the Secretary of the Treasury determines is satisfactory for purposes of this paragraph and which includes an exchange of information program,

    section 7701(a)(4)(B) of the Internal Revenue Code of 1986 (as added by the amendments made by this section) shall not apply to the corporation with respect to taxable years ending in any continuous period beginning on such date during which the corporation is eligible for the benefits of such treaty (or any successor treaty with such foreign country meeting the requirements of this paragraph)."

  • Jan. 5, 2007: IRS Deputy Commissioner International Frank Ng and Associate Chief Counsel International Steve Musher have announced the launch of a new, "coordinated strategy to combat international tax abuses that is focused on specific areas of risk in 2007." For more, see Alison Bennett's article in the Jan. 4 BNA Daily Tax Report.
  • Jan. 4, 2007: Today, I was once again asked to explain the difference between capital export neutrality and capital import neutrality. As the following example illustrates, capital export neutrality (CEN) addresses investments, and capital import neutrality (CIN) addresses investors.

    If a U.S. business in Detroit decides to relocate its operations and the list of new sites is narrowed to Cleveland and Copenhagen, CEN would require that any difference in the tax burden associated with the two, new locations be negated. That would allow the choice between them to be based solely on the economic merits of the business opportunities in the two cities. The U.S. implements CEN imperfectly by (in the case of this example) allowing a limited credit against U.S. income tax for any Danish income tax the business would be required to pay.

    If the business rejects Cleveland and decides to relocate to Copenhagen, CIN would require that it be allowed to compete against other, local market participants without being subject to a higher, overall tax burden than they are. Because Danish competitors might be subject only to Danish tax, CIN could be implemented in the U.S. by the same kind of foreign tax credit used to implement CEN, but only if the credit completely erases any U.S. tax on the Danish income. The U.S. could also implement CIN by simply exempting the Danish income from U.S. tax.
  • Jan. 3, 2007: NYSBA, "Report on Differences in Tax Treatment of Domestic and Foreign Partnerships"
  • Jan. 2, 2007: Today's Internal Revenue Bulletin contains, inter alia, Rev. Proc. 2007-7, which lists some of the international tax subject areas in which the IRS will not issue rulings or determination letters.
  • Dec. 29, 2006: There is an error in today's BNA Daily Tax Report article on the ABA Tax Section's Task Force Report on International Tax Reform. The BNA article quotes the Task Force Report as saying "[i]f fundamental reform proposals are made that increase taxation of foreign income, it will be important to assure U.S. taxpayers that foreign business income is not inappropriately advantaged." The text on p. 658 of the Report says "[i]f fundamental reform proposals are made that increase taxation of U.S. income, it will be important to assure U.S. taxpayers that foreign business income is not inappropriately advantaged." Parenthetically, the Task Force Report also notes in footnote 17 that "[t]he [JCT] proposal for a dividend exemption [i.e., territorial] system would increase revenues, when measured against a base line of current law, by $54.8 billion over the 10-year fiscal 2005-2014 period (and $25.8 billion for the 5-year period 2006-2010)."
  • Dec. 22, 2006: The DC Circuit's Aug. 22 opinion in Murphy v. IRS (see Aug. 22 comment, infra) was vacated today by the court sua sponte. Click here to jump to a copy of the order, which includes a new briefing schedule.
  • Dec. 19, 2006: Canada Revenue has released the Draft Revised GST/HST Policy Statement P-125R Input Tax Credit Entitlement for Tax on Imported Goods. Comments should be submitted on or before March 31, 2007. The best CRA link for general GST/HST information is
  • Dec. 15, 2006: The U.S. and Belgium concluded a new tax treaty on Nov. 27. Both the treaty text and the accompanying protocol are available as links on the U.S. Treasury Department press release. Where the current treaty allows fiscally transparent entities to claim treaty benefits directly under some circumstances, the new treaty extends benefits to the underlying partners or members of such entities.
  • Dec. 3, 2006: On Wednesday, Dec. 6, the American Tax Policy Institute will be hosting a conference in Washington on the interaction between the financial reporting standards for U.S. corporations and tax accounting rules. Two particularly interesting questions that will be explored are:
    Do corporate tax incentives sometimes bring about changes in accounting practices instead of the intended behavior? and
    Why might some corporations oppose tax policies intended to be favorable to business?
  • Nov. 27, 2006: I have been invited to speak on U.S. foreign tax credit for value-added taxes at the January 2007 ABA Section of Taxation meeting in Hollywood, Florida. If there are particular aspects of this subject that you would like to see emphasized or examined in detail, please let me know within the next two weeks. I have written about a capped FTC for VATs twice: first, in 2003, as a potential offset for the soon-to-be-repealed benefits of ETI, and again, in 2006, as a way for the U.S. to achieve some of benefits of territorialism without switching to a territorial system. The latter article prompted a colloquy with Leif Muten of the Stockholm School of Economics regarding what Leif saw as several shortcomings of VAT credit.
  • Nov. 15, 2006: The U.S. Treasury released the new 2006 model treaty and technical explanation today. There are three changes in the Permanent Establishment article. First, the term "activity" in subparagraph 3 has been changed to "exploration activity." Second, subparagraph 4(f) now matches the parallel provision in the OECD model, explicitly requiring that combinations of exempted activities be preparatory or auxiliary. The former U.S. position, according to the Technical Explanation of the 1996 model, was that "a combination of activities that are each preparatory or auxiliary always will result in an overall activity that is also preparatory or auxiliary." Finally, there is a clarification in the wording of paragraph 8, the "stand-alone" provision. The 1996 model says that control relationships between companies "shall not constitute either company a permanent establishment of the other." The 2006 model says "The fact that a company that is a resident of a Contracting State controls or is controlled by a company that is a resident of the other Contracting State, or that carries on business in that other State (whether through a permanent establishment or otherwise), shall not be taken into account in determining whether either company has a permanent establishment in that other State."
  • Oct. 28, 2006: Outgoing Ways & Means Chairman Bill Thomas recently gave a speech on the tax legislative process. Tax Analysts President Chris Bergin has made a 200 MB Windows Media video file of the speech available at no charge on the Tax Analysts web site. If just the audio of Thomas's remarks would be enough for you, click here to open/download a 12 MB .mp3 file.
  • Oct. 17, 2006: Quote from yesterday's tax policy roundtable at the National Press Club (see Oct. 10, infra):
    ". . . old people who get socked by the VAT [value-added tax] deserve it."
    Context for the quote:
    Luncheon speaker Jeff Birnbaum of the Washington Post noted that, while proponents of VATs were "the enemy" to those who prevailed when the Tax Reform Act of 1986 was enacted, "the lines have softened over VATs in the last 20 years." Jeff quoted Bill Gale of Brooking as saying, "There's no reason a VAT can't be part of a progressive system. The revenue has to come from somewhere, and there aren't that many options."
    Jeff continued, "Other natural nemeses of tax reform might also welcome a VAT. Corporations, other than retailers (of course), might want a VAT as a way to keep their tax burden low while also smoothing international commerce. European countries already have VATs, and if the U.S. had one, trade would flow even more seamlessly than it does now. . . . Len Burman of the Urban Institute had [sic] told me that a VAT is in our future, and who is to disagree?"
    During the Q&A, I asked the following question: "Prof. McLure [of the Hoover Institution at Stanford University] reminded us this morning that VATs impose large windfall losses on the elderly, people who are not - who have no more income coming in but who are spending the savings that they thought were after-tax when they put them away. I don't - I haven't talked to anyone who could see a way to solve that problem with a transition in the absence of a budget surplus to finance that transition. Do you have any thoughts on that?"
    Jeff responded, "I don't want to be put in the position of advocating a VAT here because I'm not in the position of being an advocate, so you know. But it is remarkable to me how many people of both political parties who have not been interested even in discussing a VAT seriously now spend a lot of time doing so. I think your question is an indication of that, and as a reporter, watching the scene, that's a notable change in twenty years."
    Len Burman immediately rose to make the following comment: "I'd just like to comment in response to that last question. I - I - I think that's one of the most attractive features of a VAT. If, 10 years now, we haven't done anything about the entitlement problem, budget deficits are still increasing, the old people who get socked by the VAT deserve it."
    General laughter from the audience ensued, and while Len later admitted that he was being glib, he did not change his position that VAT transition relief for the elderly would be inappropriate.
    Click here to jump to a complete transcript of the roundtable, minus the luncheon address and subsequent questions and comments.
  • Oct. 13, 2006: Recently released: David L. Brumbaugh, "A History of the Extraterritorial Income (ETI) and Foreign Sales Corporation (FSC) Export Tax-Benefit Controversy," CRS Order Code RL31660 (updated Sept. 22, 2006). When a free, public link is available for RL31660, it will be posted here.
  • Oct. 10, 2006: Next Monday, Oct. 16, Urban-Brookings Tax Policy Center, Tax Analysts, and American Tax Policy Institute are sponsoring an all-day tax roundtable at the National Press Club titled "Twenty Years After Tax Reform: Time for Another Round?" The first panel, called "Setting the Stage," will include Joe Thorndike, Charles McLure, and Chris Howard and will be moderated by Chris Bergin. "Action-Forcing Events," the second panel, will feature Joe Minarik, Bill Gale, Lindy Paull, and Larry Gibbs, moderated by Eric Toder. The last panel, "Moving Forward," includes Gene Steuerle, Doug Holz-Eakin, and Rudy Penner, and will be moderated by Pam Olson. Lunch speaker will be Jeff Birnbaum. For more information, call Larry Haas at 202-257-9592.
  • Sept. 25, 2006: The IRS's "Attach on the Killer Bs" has begun. See Notice 2006-85, and the write-ups in the Sept. 22 issue of Tax Analysts' Tax Notes Today and today's BNA Daily Tax Report.
  • Sept. 18, 2006: The Senate Finance Committee has a hearing scheduled for Wed., Sept. 20, titled "Our Business Tax System: Objectives, Deficiencies, and Options for Reform." No witness list yet. Also, the W&M Subcommittee on Select Revenue Measures has a hearing scheduled for Sept. 26 on "Member Proposals on Tax Issues Introduced in the 109th Congress." Oral testimony will be from twenty-one members of the House of Representatives.
  • Sept. 15, 2006: The Congressional Research Service has released "Tax Expenditures: Trends and Critiques" by Thomas L. Hungerford. The CRS Order Code is RL33641. Tax Analysts' subscribers can find the report in today's Tax Notes Today, and BNA readers will find a link to it in today's Daily Tax Report. When a free, public link is available, it will be posted here. Oct. 13: Click here to open a free, public version of this report.
  • Sept. 5, 2006: Recently released: Lily L. Batchelder, Fred T. Goldberg, Jr., and Peter R. Orszag, "Reforming Tax Incentives into Uniform Refundable Tax Credits," Brookings Institution, August 2006.
  • Aug. 24, 2006: Two new publications have appeared in the last few days. First, Congressional Research Service issued a new VAT report on Tuesday titled "Value-Added Tax: A New U.S. Revenue Source?" The CRS Order Code is RL33619. Tax Analysts' subscribers can find the report in today's Tax Notes Today, and BNA readers will find a link for it in today's Daily Tax Report. The DTR blurb makes it sound like the report favors a US VAT, but it's pretty even-handed and also includes most of the drawbacks of a federal VAT. There's only one glaring mistake in the report, and it doesn't have anything to do with VAT.
    The second new report is a working paper from the Congressional Budget Office titled "International Burdens of the Corporate Income Tax." Clicking on its title will take you to the .pdf copy on the CBO web site.
  • Aug. 22, 2006: In Murphy v. IRS, released today, Chief Judge Ginsburg of the DC Circuit Court of Appeals says that "[IRC sec.] 104(a)(2) is unconstitutional as applied to [Ms. Murphy's] award because compensation for a non-physical personal injury is not income under the Sixteenth Amendment if, as here, it is unrelated to lost wages or earnings." Click here to jump to the decision, which was, on Dec. 22, vacated.
  • Aug. 17, 2006: The New York State Bar Association has sent a letter to key congressional leaders opposing the patenting of tax advice. The Ways & Means Subcommittee on Select Revenue Measures held a hearing on this subject on July 13. Click here to jump to the web page that has the prepared materials associated with the hearing.
  • Aug. 3, 2006: The Senate Finance Committee held a hearing today titled "Kick-off for Tax Reform: Tackling the Tax Code." The virtues and shortcomings of a consumption, or value added tax, were discussed by several witnesses, including Elizabeth Garrett, James Poterba, Comptroller General David Walker, and Jane Gravelle. I filed a written statement for inclusion in the record of the hearing regarding the negative impact that a federal VAT could have on U.S. senior citizens and retirees.
  • Aug. 2, 2006: Today, Sen. John Kerry, D-Mass., introduced the Export Products Not Jobs Act of 2006. The Act would, inter alia, redefine Subpart F income to include all income of a CFC except for active home country income and US-source ECI that is "exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States." This is similar to the suggestion made by Steve Shay, former International Tax Counsel at Treasury, regarding current taxation of foreign-source income. For the text of Steve's June 22, 2006 testimony before the House Subcommittee on Select Revenue Measures, click here.
  • July 25, 2006: On Tuesday, Aug. 1, at 9 AM, the Permanent Subcommittee on Investigations of the U.S. Senate Committee on Homeland Security and Governmental Affairs will hold a hearing in Dirksen Rm. 106 on "Offshore Abuses: The Enablers, The Tools & Offshore Secrecy." The witness list is scheduled to be available Friday afternoon, July 28.
    Also in today's news, WTO Director-General Pascal Lamy announced yesterday that the Doha Development Agenda trade negotiations have been suspended "because gaps between key players remain too wide."
  • July 18, 2006: On July 13 -- the same day Senate Finance Committee Chairman Grassley pressed the Bush administration for tax reform options during Eric Solomon's confirmation hearing -- Congressional Research Service (CRS) released a report on the tax reform proposals made last November by the President's Advisory Panel on Federal Tax Reform. Tax Analysts subscribers can find the new CRS report in today's issue of Tax Notes Today. Others will have to wait for it to be posted on one of the web sites that attempt to catalog CRS releases, like the United States Diplomatic Mission to Italy or the Center for Democracy & Technology's OpenCRS web page. Aug. 3: Click here for the CRS report.
  • July 13, 2006: The Coltec decision is finally out: Government, 1; Coltec, 0. Judge Dyk said, "We conclude that, although Coltec’s claimed capital loss fell within the literal terms of the statute, the transaction that created the high basis in the stock lacked economic substance and therefore must be disregarded for tax purposes. We vacate and remand for a recomputation of the allowable capital loss deduction." To jump to the decision, click here.
  • July 12, 2006: Comptroller General David M. Walker's witness statement in the record of the Senate Finance Committee hearing held on June 22 ("A Tune-Up On Corporate Tax Issues: What’s Going On Under The Hood?") has been amended by the GAO, but the amended version has yet to appear on the SFC web page devoted to the hearing. The amended statement is available at and contains on its title page a note about the changes it contains. Also on the title page, but not mentioned in the note, is a creative version of the word Comptroller with only one "l." Perhaps a future revision of the statement will correct this misspelling.
    Among other issues in the news, the witness list for tomorrow's W&M, Subcommittee on Select Revenue Measures hearing on "Issues Relating to the Patenting of Tax Advice" is (as of 4 PM) now available on the subcommittee web site, and Gretchen T. Sierra, attorney-adviser in the U.S. Treasury's Office of International Tax Counsel, said yesterday that a new U.S. model income tax treaty (to replace the current 1996 model treaty) should be out before the end of this year.
  • June 28, 2006: At yesterday's confirmation hearing, Henry M. Paulson, Jr., nominee for Secretary of the Treasury, "mainly toed the administration line, saying he supports Bush's tax cuts, hopes to encourage China to open its financial markets, and thinks the government needs to simplify the tax code for individuals and businesses." Congressional Quarterly Midday Update, June 28, 2006.
  • June 22, 2006: At today's "Hearing on the Impact of International Tax Reform on U.S. Competitiveness" held by the Ways and Means Subcommittee on Select Revenue Measures, there was the expected emphasis on the benefits and drawbacks of a switch to territorial taxation, and an unexpected and extended discussion of the potential benefits of a value-added tax. Click here to jump to the web page that has the prepared materials associated with the hearing. Unfortunately, there is no video of the hearing, as there was for the SFC hearing last week.
  • June 13, 2006: The Senate Finance Committee hearing on corporate tax issues ran slightly long this morning, so my report was not completed until around 3:30 PM EDT. Click here to jump to the page on the SFC web site that has the prepared materials associated with the hearing. (July 12 note: The written statement of Comptroller General Walker is now out of date. See July 12 comment, supra, for the new, "improved" version.) I will also be attending the June 22 Ways and Means Committee Hearing on the Impact of International Tax Reform on U.S. Competitiveness.
  • June 6, 2006: Yesterday at the OECD conference here in Washington, both Sen. Orrin Hatch (R-Utah) and Jeffrey Owens, director of the OECD Centre for Tax Policy and Administration, said that reform of U.S. international tax rules is still a priority, albeit one that may not see much progress over the next few years.
    Hatch echoed former Assistant Treasury Secretary Pamela F. Olson's 2003 testimony to the Senate Finance Committee (SFC) when he said "a territorial tax system may be a good issue to explore." As I explained in my 2003 written statement to the SFC, it may be possible to achieve a territorial result -- little or no taxation of offshore business income -- without the upheaval of switching to a territorial system if we offer businesses a capped foreign tax credit for value added taxes (VATs). This change would also present a direct challenge to the now-artificial distinction between direct and indirect taxes in international trade law, and could help the U.S. dismantle that distinction in future trade talks.
    Owens noted the difficulty in balancing fairness and simplicity in taxation and said, "There is a real question whether you can have a simpler system in a complex tax environment." My Viewpoint article in last week's Tax Notes International suggested one way to achieve simplicity, namely by framing tax laws as general principles, rather than elaborative rules, and then enforcing those general principles using the four factors set forth in Article 31(1) of the Vienna Convention on the Law of Treaties. Those factors are plain meaning, with recourse to context and/or object and purpose if necessary, all under the umbrella of good faith. This approach has worked enormously well for the WTO, as shown by the panel and appellate decisions in the FSC-ETI litigation, and I think it may hold promise outside the treaty context as well.
  • June 1, 2006: Tax Analysts reports that Joe Calianno raised two interesting points at the May 31 DC Bar Tax Section meeting regarding TIPRA's new CFC-to-CFC look-through rule. First, the rule is non-electively retroactive to Jan. 1, so any dividends, royalties, rents, or interest paid since that date (and any foreign tax credits associated with them) will not be recognized as subpart F income to the extent they are attributable to non-sub-F income of the payor. Second, if the Jan. 1, 2009 sunset provision attached to the new rule is not altered between now and then, corporate tax managers will have to think ahead regarding the tax years of CFCs that begin after that date and the the tax years of their U.S. shareholders that end within those CFC tax years.
    Still unresolved at the meeting's end was whether the phrase "received or accrued" in the new rule ("dividends, interest, rents, and royalties received or accrued from a [CFC] which is a related person shall not be treated as foreign personal holding company income . . ." (emphasis added)) brings Sec. 964(e) deemed dividends within the ambit of the new rule.
  • May 26, 2006: Back in fall 2003, when the Thomas and Grassley-Baucus ETI repeal bills were competing head to head, Coalition of Service Industries' spokesperson Katherine Schultz argued hard that "permanent transition" relief in the form of an extension of FSC-ETI benefits for binding contracts was essential for U.S. lessors. Without it, she said, companies that had to book or report the entire FSC-ETI benefit of a contract at its inception would have to restate their earnings, with the attendant risk of a decline in the price of their stocks.
    Now that binding contract relief has been repealed in Sec. 513 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), the Coalition is making the same argument on behalf of companies like Bank of America, State Street, New York Life, and Verizon for its limited reinstatement. According to Christopher Swannin Washington of the Financial Times, the EU let it be known (via a letter to the chairmen of the House Ways and Means Committee and the Senate Finance Committee) that it would not oppose continued extension of FSC-ETI benefits to companies like these that financed long-term leases, but the U.S. Congress nevertheless repealed binding contract relief in toto. A summary of the entire TIPRA bill is available on the SFC web site.
  • May 17, 2006: The repeal of the binding contracts FSC-ETI extension has led the European Commission to withdraw the renewed sanctions that were to have begun yesterday. Congress enacted the repeal last week as part of the Reconciliation Act (H.R. 4297), and President Bush signed the bill today.
    W&M Chairman Bill Thomas attended the signing and afterward, issued this statement:
    "I applaud the President in signing this important tax bill. Since the tax rates on capital gains and dividends were reduced in 2003, we have seen strong steady economic growth, resulting in higher employment. It's critical that we continue this relief to sustain that environment.
    "The largest piece of this bill is the extension of relief from the alternative minimum tax. This relief is essential -- particularly for the 15 million taxpayers we are protecting from the AMT in this bill -- but in the long-term, Congress needs to look at the bigger picture and our need to fundamentally reform the tax code. The cost of a mere one-year extension of this AMT relief should wake us all up to the fact that we need permanent fundamental tax reform."
  • May 9, 2006: Even though Pascal Lamy is no longer EU Trade Commissioner, the following should go in the "win" column on his resume. It's also one more example of Chairman Bill's power.

    The Senate Finance Committee's "Summary of the Tax Increase Prevention and Reconciliation Act of 2005" contains the following revenue offset provision:

"11. Repeal of FSC/ETI Binding Contract Relief (Grandfathered Contracts) [Conference Provision] The conference agreement repeals both the FSC binding contract relief and the ETI binding contract relief. The general transition rule remains in effect. The provision is effective for taxable years beginning after date of enactment. The provision is intended to comply with the recent WTO Appellate Body ruling that the binding contract relief provision is a prohibited export subsidy. The proposal is expected to raise $467 million over 5 years and $502 million over 10 years."

The text of the bill is equally succinct:


(a) FSC PROVISIONS.--Paragraph (1) of section 5(c) of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 is amended by striking "which occurs--" and all that follows and inserting "which occurs before January 1, 2002".

(b) ETI PROVISIONS.--Section 101 of the American Jobs Creation Act of 2004 is amended by striking sub-section (f).

(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after the date of enactment of this Act."

  • May 8, 2006: Tax Analysts reports today that Michael Fleming, President of the Equipment Leasing Association of America, has written to W&M Chair Bill Thomas noting that a proposal to repeal the FSC-ETI transition relief "is being considered in the context of the current FY 2006 budget tax reconciliation measure" and expressing the association's strong opposition to any modification or repeal that would apply to multi-year leases of U.S.-manufactured goods. Chairman Thomas told reporters last Friday that the bill should be wrapped up this week.
  • Feb. 22, 2006: According to Tax Analysts, Council of Economic Advisers member Katherine Baicker reminded the National Economists Club last Friday that the President’s Advisory Panel on Federal Tax Reform has recommended moving away from our current tax system, which relies heavily on personal income taxes, to a system that is more rooted in consumption taxes.
    As I have noted in other contexts, the problem with such a change is that it has the potential to double-tax the current after-tax savings of all Americans. Those savings have been fully taxed under the current system, and yet if a federal consumption tax were adopted, they would be taxed a second time at the federal level when they were spent. Former Federal Reserve Board member H. Robert Heller discussed this problem in connection with the proposed FairTax in his March 16, 2005 letter to the Wall Street Journal.
    Avoiding double-taxation would require some kind of transition regime -- for instance, a system of capital reporting that establishes the level of pre-consumption-tax capital for each taxpayer and then allows refunds for consumption taxes that are properly allocated to pre-enactment capital.
    Implementing any transition system would necessarily make the tax system more complex, at least for a time. However, without some form of transition relief, adoption of a federal consumption or value-added tax would unfairly penalize all Americans who have after-tax savings, and that is simply too high a price to pay for any advantages that it would offer.-




Congressional Statements and Minor Commentary

Media Quotes






  • Taxes in the 110th Congress
    • H.R. 2365, "A bill to amend title 35, United States Code, to limit damages and other remedies with respect to patents for tax planning methods." Introduced May 17 by Rep. Frederick Boucher, D-Va.
    • H.R.2345, "A bill to amend the Internal Revenue Code of 1986 to curb tax abuses by disallowing tax benefits claimed to arise from transactions without substantial economic substance, and for other purposes." Introduced May 16 by Rep. Lloyd Doggett, D-Tex.
    • H.R.2136, " A bill to restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes." Introduced May 3 by Lloyd Doggett, D-Tex. and 40 co-sponsors.
    • S.1284, "A bill to amend the Internal Revenue Code of 1986 to provide for the taxation of income of controlled foreign corporations attributable to imported property." Reintroduced May 3 by Byron Dorgan, D-N.D., this time with Debbie Stabenow, D-Mich., and 11 other co-sponsors.
    • S.761, "An Act to invest in innovation and education to improve the competitiveness of the United States in the global economy." Passed by the Senate April 25 with the DeMint amendment (Sec. 1102), which requires a study "to identify, and to review methods to mitigate, new forms of risk for businesses beyond conventional operational and financial risk that affect the ability to innovate, including studying and reviewing-- . . . (11) all provisions of the Internal Revenue Code of 1986, including tax provisions, compliance costs, and reporting requirements, that discourage innovation."
    • S.1111, "A bill to make the Federal individual income tax system simpler, fairer, and more transparent." Reintroduced April 16, 2007 by Sen. Ron Wyden, D-Ore.
    • S.1081, "A bill to amend the Internal Revenue Code of 1986 to impose a flat tax only on individual taxable earned income and business taxable income, and for other purposes." Introduced April 10, 2007 by Sen. Arlen Specter, R-Pa.
    • S.1040, "A bill to repeal the current Internal Revenue Code and replace it with a flat tax, thereby guaranteeing economic growth and greater fairness for all Americans." Reintroduced March 29, 2007 by Sen. Richard Shelby, R-Ala.
    • S.1025, "A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States." Introduced March 29, 2007 by Senator Saxby Chambliss, R-Ga.
    • James M. Bickley, "Flat Tax Proposals and Fundamental Tax Reform: An Overview," Congressional Research Service Order Code RL33443 (updated Mar. 16, 2007)
    • H.R.1509, "A bill to amend the Internal Revenue Code of 1986 to permanently extend the subpart F exemption for active financing income." Introduced March 14, 2007 by Ways and Means member Richard E. Neal, D-Mass.
    • S.785, "A bill to amend title 4 of the United States Code to limit the extent to which States may tax the compensation earned by nonresident telecommuters." Introduced March 6, 2007 by Senator Christopher J. Dodd, D-Conn.
    • H.R.1341, "A bill to require corporate income reported to the Internal Revenue Service to be included in annual reports to the Securities and Exchange Commission." Introduced March 6, 2007 by Congressman Paul Gillmor, R-Ohio.
    • S.681, "A bill to restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes." Introduced Feb. 17, 2007 by Sens. Carl Levin, Barack Obama, and Norman Coleman. See Feb. 18 commentary, supra.
    • S.614, "A bill to amend the Internal Revenue Code to double the child tax credit for the first year, to expand the credit dependent care services, to provide relief from the alternative minimum tax, and for other purposes." Introduced Feb. 15, 2007 by Senator Chuck Schumer, D-N.Y.
    • H.J.Res.34, "Proposing an amendment to the Constitution of the United States relative to taxing the people of the United States progressively." Introduced Feb. 13, 2007, by Congressman Jesse Jackson, D-Ill.
    • H.R.976, the "Small Business Tax Relief Act of 2007"
    • H. J. Res. 23, "Proposing an amendment [to] the Constitution of the United States relative to abolishing personal income, estate, and gift taxes and prohibiting the United States Government from engaging in business in competition with its citizens." Introduced Feb. 7, 2007, by Congressman Ronald Paul, R-Tex.
    • H.R.878, "A bill to amend the Internal Revenue Code of 1986 to require broker reporting of customer's basis in securities transactions, and for other purposes." Short title: the "Simplification Through Additional Reporting Tax Act of 2007." Reintroduced Feb. 7, 2007, by Congressman Rahm Emanuel, D-Ill. Sens. Evan Bayh, D-Ind. and Tom Coburn, R-Okla., reintroduced a companion bill in the Senate on Feb. 14.
    • H.R.2, the "Fair Minimum Wage Act of 2007," as passed by the Senate on Feb. 1, 2007. The provisions from the Senate's small business tax relief bill, S.349, are folded in as Subtitles A and B of Title II in the amended H.R.2. For the Senate report on S.349 and the JCT revenue analysis, see the links in my Jan. 24 commentary, supra.
    • David L. Brumbaugh, "Major Tax Issues in the 110th Congress," Congressional Research Service Order Code RL33768 (Jan. 10, 2007)
    • S.396, "a bill to amend the Internal Revenue Code of 1986 to treat controlled foreign corporations established in tax havens as domestic corporations." See Jan. 26 commentary, supra.
    • S.349,"to amend the Internal Revenue Code of 1986 to provide additional tax incentives to employers and employees of small businesses, and for other purposes." Sec. 202 is titled "Application of rules treating inverted corporations as domestic corporations to certain transactions occurring after March 22, 2002." For further information on sec. 202, see the Jan. 22, 2007 SFC report on the bill (noting that the section "generally extends the 80-percent inversion regime of [IRC] section 7874 to 80-percent inversions completed after March 20, 2002 but on or before March 4, 2003, with certain modifications" that are described on p. 39 of the report). According to the JCT revenue analysis, sec. 202 is estimated to bring in US$449 million in the period 2007-2011 and US$1.153 billion in the period 2007-2016.
    • H.R.473: "To establish a commission to develop legislation designed to reform tax policy and entitlement benefit programs and ensure a sound fiscal future for the United States, and for other purposes." Introduced by Rep. Frank R. Wolf, R-Va. on Jan. 16. A companion bill, S.304, was introduced by Sen. George V. Voinovich, R-Ohio.
    • H.R.459,"To amend the Internal Revenue Code of 1986 to deny the foreign tax credit and the benefits of deferral to companies doing business directly or through subsidiaries in Sudan until the Government of Sudan takes demonstrable steps to end genocide in Sudan." Introduced on Jan. 12, 2007 by Rep. Charles Rangel, D-N.Y. and chair of the Ways and Means Committee. For a mini-analysis, see Jan. 15 commentary, supra.
    • H.R.471, introduced Jan. 12, 2007 by Congressman Joe Wilson, R-S.C., would make permanent the expansion of the adoption tax credit and the adoption assistance programs.
    • H.R.411, introduced Jan. 11, 2007 by Congressman Mario Diaz-Balart, R-Fla., would make permanent the state sales tax deduction, the increase in the child tax credit, the repeal of the estate tax, and the change in the deduction for higher education expenses.
    • JCT, List of Expiring Federal Tax Provisions 2006-2020 (JCX-1-07R), Jan. 11, 2007, rev. Feb. 13, 2007
    • H.R.273, introduced Jan. 5, 2007 by Congressman Dave Camp, R-Mich., would make the expansion of the adoption tax credit and adoption assistance programs permanent.
    • H.R.15, "A bill to provide a program of national health insurance, and for other pruposes." Introduced Jan. 4, 2007 by Congressman John D. Dingell, D-Mich., the bill would create a dedicated 5 percent, credit-invoice VAT to fund a new National Health Care Trust Fund. The Fund would, in turn, use the VAT receipts "to carry out the program of health benefits" provided by the bill.
    • S.96, introduced Jan. 4 by Sen. John Kerry, D-Mass. See Jan. 11 commentary, supra.
    • Edmund L. Andrews, "The Democrats' Cautious Tiptoe Around the President's Tax Cuts," NYT, Jan. 4, 2007
    • S.180 and S.181, introduced Jan. 4, 2007 by Sen. Kay Bailey Hutchison, R-Tex., would make the deduction for state and local sales taxes and the marriage tax penalty relief provisions permanent. Sen. Maria Cantwell, D-Wash., also introduced a sales and local sales tax bill, S.143. House bills introduced on Jan. 4 that address these issues were H.R.60, introduced by Congressman Brian Baird, D-Wash. (state and local taxes) and H.R.163, introduced by Congressman Bobby Jindal, R-La. (marriage penalty relief).
    • GAO, "Suggested Areas for Oversight for the 110th Congress," GAO-07-235R, Nov. 16, 2006 (providing suggestions and resources regarding the tax gap (p. 7) and reforming the tax code (p. 24))
    • The Usual Suspects (from the 109th Congress)

  • Tax Reform in the 109th Congress
    • Committee on Ways and Means, "Report on the Legislative and Oversight Activities of the Committee on Ways and Means During the 109th Congress," Dec. 22, 2006
    • JCT, "General Explanation of Tax Legislation Enacted in the 109th Congress" (JCS-1-07).
    • S.3777 - The Export Products Not Jobs Act of 2006, introduced by Sen. John Kerry, D-Mass., on Aug. 2, 2006. The Act would, inter alia, redefine Subpart F income to include all income of a CFC except for active home country income and US-source ECI that is "exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States." This is similar to the suggestion made by Steve Shay, former International Tax Counsel at Treasury, regarding current taxation of foreign-source income. For the text of Steve's June 22, 2006 testimony before the House Subcommittee on Select Revenue Measures, click here.
    • Jane G. Gravelle, "The Advisory Panel's Tax Reform Proposals," Congressional Research Service Order Code RL33545 (July 13, 2006) ("Consumption taxes, such as the GIT [the Growth and Investment Tax Plan proposed by the Advisory Panel], inevitably shift the burden of the tax towards the current older generation and away from young and future generations. Essentially, those with assets who expect to consume out of these assets are subject to a substantially higher tax. This shifting across the generations is relieved to some extent by the transition rules that allow some recovery of depreciation, but this offset is quite limited. That shift means that older people pay a higher lifetime tax than younger or unborn generations.")
    • Harry Grubert and Roseanne Altshuler, "Corporate Taxes in the World Economy: Reforming the Taxation of Cross-Border Income," presented at the James A. Baker III Institute for Public Policy Conference, "Is It Time for Fundamental Tax Reform? The Known, The Unknown, and The Unknowable," Houston, Texas, April 27-28, 2006
    • President's Advisory Panel on Federal Tax Reform, "Simple, Fair, and Pro-Growth: Proposals to Fix America’s Tax System, Report of the President's Advisory Panel on Federal Tax Reform" (November 2005) (7.9 MB file; for chapter-by-chapter files, click here)
    • United States Government Accountability Office (GAO), "Understanding the Tax Reform Debate: Background, Criteria, & Questions," September 2005
    • Joseph J. Schatz, "Senators [Grassley and Baucus] Introduce AMT Repeal, but Less Ambitious Approach More Likely," CQToday, May 24, 2005 (noting, in addition, that Senator "Jon Kyl, R-Ariz., chairman of the Taxation and IRS Oversight Subcommittee, held a hearing Monday on the effects that the AMT is having on middle-income taxpayers")
    • Rob Wells, "Ex-Bush Aide Hubbard Touts Major Business Tax Reforms," Dow Jones Newswires, May 12, 2005
    • Rob Wells, "Bush's Tax Reform Panel Skeptical of 'FairTax' Plan," Dow Jones Newswires, May 11, 2005
    • Jeff Bliss, "Thomas Adds Retirement Age, Taxes to Social Security Debate,", May 6, 2005 ("[Thomas] talked of combining tax overhaul with the broader retirement legislation and, acknowledging a need for new revenues in such a deal, indicated interest in some form of consumption tax. He left open whether that might be a replacement for the corporate tax or for part of the payroll tax and whether it would be combined in one package or considered separately.")
    • John Harwood, "Tax Panel Explores Bold Options," WSJ, May 6, 2005 ("Few expect Bush and Congress to scrap the income-tax code, but business braces for possibility that new corporate levies could offset reductions for individuals, as in Reagan-era legislation. One option within Bush advisory group: A European-style 'value-added tax' that could help finance new investment accounts as part of Social Security fix. Another would finance relief from 'alternative minimum tax' by eliminating deductions for state and local levies. That would hit residents of Democratic-leaning coastal states such as New York and California. The administration opposes linking Social Security and tax overhaul, but seeks any source of momentum.")
    • Jonathan Weisman and Jeffrey H. Birnbaum, "Bush Ally in House Alters Social Security Debate Strategy," WP, May 5, 2005 ("[R]etailers are busy making sure that a sales or value-added tax is not part of the section in Thomas's legislation that pays for the Social Security and savings incentive sections.")
    • "Who Pays What," WSJ (Review & Outlook), Apr. 26, 2005 (noting a new study that states that between 1979 and 1999, "the richest 0.1% of all taxpayers saw their overall tax share double -- to 11.05%, from 5.06%. The top 20% of all earners also saw their tax share increase sharply to more than two-thirds of all taxes paid. Meanwhile, the bottom 20% of earners paid only a tiny share in 1979 but saw even that share cut in half 20 years later -- including payroll taxes.")
    • Rob Wells, "Tax Panel Eyes Corporate Research Credit For Changes," Dow Jones Newswires, Apr. 18, 2005
    • John Harwood, "White House to Follow Debate on Social Security with Tax Talk," WSJ, Apr. 15, 2005 ("Economic adviser Allan Hubbard expects tax-overhaul panel to present some 'incredibly radical' solutions.")
    • Rob Wells, "US Tax Panel Summarizes Findings, Previews Themes," Dow Jones Newswires, Apr. 14, 2005
    • Rob Wells, "Tax 'Blend' Plan Draws Critics," WSJ, Mar. 24, 2005 (noting the testimony of Robert Greenstein, executive director of the Center on Budget and Policy Priorities; William Beach, director of the Center for Data Analysis at Heritage Foundation; and Louisiana State Treasurer John Kennedy to the Advisory Panel on Federal Tax Reform's hearing on individual tax matters and tax fairness)
    • "FairTax Is a Stealthy Double Hit on Boomers," WSJ (Letters), Mar. 16, 2005
    • David Rogers, "Medicaid, Tax Targets Spark Debates," WSJ, Mar. 8, 2005
    • Laurence J. Kotlikoff, "The Case for the 'FairTax'," WSJ (Commentary), Mar. 7, 2005 (click here for the 108th Congress's version of the FairTax)
    • Edmund L. Andrews, "Fed's Chief Gives Consumption Tax Cautious Backing," NYT, Mar. 4, 2005 (noting that an expansion of tax-free savings accounts would effectively convert the current income tax system into a consumption tax)
    • "The Tax That France Built," WSJ (Review & Outlook), Mar. 4, 2005 (regarding VAT)
    • AP, "Greenspan Says Consumption Tax Could Spur Growth," NYT, Mar. 3, 2005
    • "The tax system," Testimony of Chairman Alan Greenspan Before the President's Advisory Panel on Federal Tax Reform, Washington, D.C., March 3, 2005
    • Daniel Shaviro, "David Bradford," WSJ, Mar. 1, 2005 ("The world lost a great economist last week, when David F. Bradford succumbed to injuries suffered in a fire. David was the father of modern consumption tax philosophy, and the most important contributor of the last few decades to serious thinking about fundamental tax reform.")
    • John Fund, "High Taxes Wither Away," OpinionJournal, Feb. 28, 2005 (regarding the flat taxes in eastern European countries)
    • "Flat-Tax Model [in Slovakia]," WSJ (Review & Outlook), Feb. 25, 2005
    • John D. McKinnon, "Some Republicans Debate Stance on Taxes," WSJ, Feb. 22, 2005
    • Edmund L. Andrews, "Tax Reform Looks for a Passing Lane," NYT, Feb. 17, 2005
    • Rob Wells, "Bush Tax Panel's Breaux Seeks Income-Consumption Hybrid," WSJ, Feb. 17, 2005
    • Jim McTague, "Trashing the Tax Code -- Part I; Trashing the Tax Code -- Part II," Barron's, Feb. 14, 2005 ("Harvard University economist Dale Jorgenson, a tax expert who has dreamed up his own tax reform plan -- one that taxes wages at 10% and most consumption at 30% -- suggests that the [Bush tax reform] panel's final report will resemble one prepared in November 2002 by former assistant Treasury Secretary Pamela Olson")
    • "Not So Permanent," WSJ (Review & Outlook), Feb. 11, 2005 ("Republican Senators have already abandoned any hope of getting the 60 votes necessary to make [the Bush tax cuts] permanent.")
    • Tom Herman, "Tax Report," WSJ, Feb. 10, 2005 (noting that President Bush's "advisory panel on federal tax reform" will hold its first public meeting on Feb. 16 at 10 AM in the Ronald Reagan Building & International Trade Center Amphitheater, 1300 Pennsylvania Ave. N.W., Washington, D.C.)
    • Martin Peers, "Bush Budget Plan Seeks to Curb Use of [the "Cash-Rich Split-off"] Corporate Tax Shelter," WSJ, Feb. 9, 2005
    • Colleen Debaise, "Bush Would Ease Donation Taxes on Seniors' IRAs," WSJ, Feb. 8, 2005 ("The so-called IRA-rollover provision in Mr. Bush's budget plan would allow people to transfer money from IRAs to charity without penalty. The provision applies to people over the age of 65.")
    • John D. McKinnon and Jackie Calmes, "A 'Lean Budget' from Bush Cuts Mainly at Home," WSJ, Feb. 8, 2005 ("Several million upper-middle-class taxpayers would lose protection from the Alternative Minimum Tax, which hits those who have accumulated tax breaks beyond a certain threshold. To save an estimated $25 billion, the budget omits the exemption Congress has passed in recent years for many of those affected, though administration officials say they'll address the issue in tax-reform deliberations.")
    • Theo Francis, "Tax May Thwart Investment Plans Enlisting Charities," WSJ, Feb. 8, 2005 ("President Bush's budget proposal for fiscal 2006 includes a provision apparently designed to end investment plans that enlist charities to turn life-insurance policies into vehicles for professional investors. . . . The budget proposal would levy a 25% excise tax on the proceeds from policies used in such transactions.")
    • Shailagh Murray, "Fiscal Restraint Shifts Spotlight to Deficit," WSJ, Feb. 8, 2005 ("[T]he budget proposes no money to resolve the alternative-minimum-tax problem. The tax, which was imposed years ago as a way of preventing wealthy people from taking too many deductions, isn't indexed for inflation, and increasingly is pushing up tax bills for the middle class.")
    • Jackie Calmes, "Bush Rallies Lawmakers on Social Security," WSJ, Jan. 31, 2005 (noting that Fair Tax author John Linder, R-Ga., Rep. Paul Ryan, R-Wisc., and "a few other Republicans agree with Ways and Means Chairman Thomas that Congress should overhaul Social Security and the income-tax code together, instead of waiting until 2006 to turn to taxes as Mr. Bush wants," and stating that former Sen. Connie Mack, Republican co-chair of the tax panel, "said that since any Social Security bill probably wouldn't take shape much before the fall, the bill could reflect his panel's tax recommendations to the Treasury Department, since those have to be in by August")
    • James R. Hagerty, "Housing Sector Seeks No Tax Remodeling," WSJ, Jan. 31, 2005 ("Nearly 80% of the benefits from the mortgage-interest and property-tax deductions go to the top 20% of taxpayers in terms of income . . . . Two former U.S. housing secretaries -- Jack F. Kemp, a Republican, and Henry G. Cisneros, a Democrat -- recently proposed an overhaul of housing policy that would include a tax credit to help low-income people buy homes.")
    • John Harwood, "Resistance Grows to Social Security Changes," WSJ (Washington Wire), Jan. 28, 2005 ("Republican Rep. [John] Linder [R-Ga.], asserting 'Social Security as a stand-alone reform is probably dead,' touts replacement of income taxes with a 23% consumption levy as a solution to Social Security solvency." Linder has previously advocated a 23% national sales tax in H.R. 25, the Fair Tax Act of 2003. Under the subhead "Minor Memos," Harwood notes that "conservative firebrand Norquist, dismissing proposals for a value-added tax to replace the income tax, calls VAT 'a French word that means "big government."'" For my take on the prospects of Social Security reform, see Jan. 28 Commentary above)
    • Glenn R. Simpson, "As Europe Cuts Corporate Tax, Pressure Rises on U.S. to Follow," WSJ, Jan. 28, 2005 ("[E]ven the effective U.S. corporate-tax [sic] rate -- what is paid after all the deductions -- is above Europe's average, by as much as 10 percentage points, according to one analyst.")
    • Stephen Moore, "How Much Tax Would You Like to Pay?" WSJ, Jan. 27, 2005 (proposing a flat 20% tax as a parallel, optional alternative with the current income tax system)
    • Jackie Calmes and John D. McKinnon, "White House Asks Ex-Officials at Treasury to Push Initiatives," WSJ, Jan. 25, 2005 ("Mark Weinberger, Treasury's top tax-policy official when Mr. Bush won passage of his signature income-tax cuts, may become deputy secretary charged with leading the lobbying for Social Security and tax overhaul . . . . Meanwhile, Mr. Bush named a Treasury Department official, Jeffrey Kupfer, to be executive director of his tax-reform panel.")
    • Michael J. Boskin, "The Economists' President," WSJ (Commentary), Jan. 24, 2005 ("Mr. Bush should make the lower marginal tax rates -- so important to strengthening incentives in the economy -- permanent. Tax reform should at the very least lower them further and broaden the tax base by eliminating or combining deductions, exemptions, credits and definitions.")
    • "Gaining Capital," WSJ (Review & Outlook), Jan. 24, 2005 ("The refusal to take control of Joint Tax has been a major failure of the GOP Congress, and should be a priority as it contemplates tax reform that President Bush has said must be "revenue neutral." Republicans will have a much better chance of passing a pro-growth tax reform with lower rates if they have a revenue-estimating bureaucracy that is pledged to accuracy instead of to its old habits.")
    • Edmund L. Andrews, "Lawmaker [Bill Thomas, Chariman of the House Ways & Means Committee,] Links Overhauls on Social Security and Taxes," NYT, Jan. 19, 2005 (see also the Washington Post account, which includes Thomas's characterization of President Bush's proposal "as it has been described" as a "dead horse")
    • Tom Herman and Rachel Emma Silverman, "Republicans Consider Keeping Estate Tax Alive for the Very Rich," WSJ, Jan. 19, 2005 ("Former IRS Commissioner Charles O. Rossotti, author of a book to be published soon called 'Many Unhappy Returns,' is among the members of President Bush's advisory panel on federal tax reform. ... [Ellipsis in original] Mr. Rossotti expressed deep concern about the tax system in his last report to the IRS Oversight Board, in 2002: 'Despite my inherently optimistic nature, I felt compelled to say without exaggeration that, when it comes to the tax system, America is winning the battle but losing the war.'")
    • David Cay Johnston, "Report [by Nina Olson, National Taxpayer Advocate at IRS] Calls for Simpler Taxes," NYT, Jan. 12, 2005
    • Alvin Rabushka, "Flat and Happy . . .," WSJ, Jan. 12, 2005 ("A new round of hearings is not needed. A better approach is for the [new Bush tax committee] members to visit the eight countries in Central and Eastern Europe that have adopted the flat tax in the last 10 years and study their experience." For more, see Jan. 12 commentary at the top of this page.)
    • "Tax Reform Team," WSJ (Review & Outlook), Jan. 10, 2005 ("The composition of Mr. Bush's panel suggests he doesn't want it to reinvent one of those wheels, or design the perfect tax system de novo. He wants a proposal that improves the current code but is also politically achievable. We'd like to see the entire tax code scrapped as much as anyone, but an incremental improvement that lowers tax rates in return for fewer special-interest loopholes would also be no mean feat.")
    • John D. McKinnon and Alex Keto, "Bush Appoints Panel to Study Tax-Code Change," WSJ, Jan. 10, 2005 ("[Treasury Secretary John Snow] said the tax panel is expected to report its recommendations by July 31 and the White House may be able to come up with new legislation as soon as the autumn. Still, it is widely expected that congressional debate will begin in earnest next year. Other panelists include . . . William Frenzel, a former congressman and guest scholar at the Brookings Institution; Elizabeth Garrett, a law professor at the University of Southern California and counsel to former Democratic Sen. David Boren of Oklahoma; Edward Lazear, a senior fellow at the Hoover Institution and a professor at Stanford University's graduate school of business; former Federal Trade Commission Chairman Timothy Muris, now a professor at the George Mason School of Law; James Poterba, associate economics department head at the Massachusetts Institute of Technology; former Internal Revenue Service Commissioner Charles O. Rossotti, a senior adviser to the Carlyle Group; and Liz Ann Sonders, chief investment strategist at Charles Schwab.")
    • Web site of the President's Advisory Panel on Federal Tax Reform
    • "Bush Set to Introduce Bipartisan Tax Panel," WSJ, Jan. 7, 2005 (panel chair will be former Sen. Connie Mack, R-Fla., with former Sen. John Breaux, D-La., as vice chair and a "mix of academics, Wall Street types, and former government officials including former Minnesota Rep. Bill Frenzel" on the panel)
    • Executive Order [creating the] President's Advisory Panel on Federal Tax Reform, Jan. 7, 2005
    • "Flat-Tax Club," WSJ (Review & Outlook), Jan. 6, 2005 (noting flat taxes in Estonia, Latvia, Serbia, Ukraine, Slovakia, Romania, Georgia, and Russia)
      • John Kozan, "Flat Tax Will Get Bumps," WSJ (Letters), Jan. 12, 2005 ("In 1913, the U.S. chose that [a flat-tax] system, and look where it is today. It will be interesting to see what the European tax codes will look like in 20 or 30 years, or even if they still have a tax on income.")
    • Jackie Calmes, "Republicans to Discuss Plans for Overhaul of Social Security," WSJ, Jan. 5, 2005 ("Mr. Bush also is considering naming former Republican Sen. Connie Mack of Florida to head an advisory panel on tax-code overhaul, along with just-retired Democratic Sen. John Breaux of Louisiana, according to people familiar with the deliberations.")
    • Kate Kelly, "Investors Ponder Bold Agenda," WSJ, Jan. 3, 2004 (stating that President Bush wants to "cap[] the top-rate tax bracket for certain types of income at their current levels")
    • Steve Forbes, "A Letter to John Snow," WSJ, Dec. 20, 2004 (advocating a 17% flat tax "that has very generous -- and refundable -- credits for adults and children")
      • Herb Moran, Edward H. Crane, and Jim O'Brien, "No Income Tax! Flat, Round or Otherwise," WSJ (Letters), Dec. 31, 2004 (responding to Forbes; Moran advocates a consumption tax [see link to H.R. 25 infra], Crane and O'Brien, a flat tax [see link to H.R. 3060 infra])
    • Karen Damato, "All I Want for Christmas: A Change in Taxes," WSJ, Dec. 17, 2004 ("Two congressmen [Rep. Jim Saxton (R., N.J.) and Rep. Paul Ryan (R., Wis.)]say they will reintroduce early next year their proposals to allow fund investors who reinvest capital-gains distributions to defer tax on all or part of those payouts until the fund shares are sold.")
    • John Harwood, "Washington Wire," WSJ, Dec. 17, 2004 ("Don't forget us when you rewrite tax code, a coalition of growing midsize companies writes Bush. Though reformers in 1986 rewarded individual taxpayers at the expense of business, 'the corporate income tax is ... most in need of reform,' the American Business Conference says. In the poll [see Harwood & McKinnon Dec. 16 WSJ article infra on Bush 2d term agenda], 36% of those earning more than $75,000 a year back a national shift to consumption taxes, about double the support among those earning less.")
    • John Harwood and John D. McKinnon, "As Bush Sells 2nd-Term Agenda, New Poll Shows Public's Doubts," WSJ, Dec. 16, 2004 ("Mr. Bush retains considerable strength in public opinion in promoting tax reduction; by 48% to 41%, Americans say he has a mandate to make permanent the tax cuts Congress has already enacted. Yet the picture is more mixed on tax overhaul. A 39% plurality favors keeping the federal tax code 'pretty much as it is now.' That exceeds the 24% who support lowering rates by eliminating deductions like the one for state- and local-tax payments, and the 23% who back a shift from income tax to sales or consumption taxes." Complete Wall Street Journal/NBC News poll results.)
    • Marc Sumerlin, "The Blue-State Tax Burden," WSJ, Dec. 13, 2004 (arguing for a flatter federal tax structure)
    • Albert R. Hunt, "Red Flags for the GOP's Political Bull Market," WSJ, Dec. 9, 2004 ("The Bush administration's hope to tap a commission by now has failed; the White House reportedly hates the term commission and has yet to find credible Democrats or non-partisans who could provide necessary credibility.")
    • Gerald F. Seib, "Gamblin' Man: With Bush at Table, Count on Big Bets," WSJ, Dec. 8, 2004 ("[Bush] is a gambler and plays for high stakes. . . . a Bush-appointed group will devise plans to simplify the tax system. The proposals here won't be quite as dramatic [as introducing private accounts into Social Security], because it's hard to make big changes in the rate structure without putting back onto the tax rolls some of the millions of Americans who have been moved off in recent years. But tax reform will be attempted.")
    • John D. Mckinnon and Jackie Calmes, "Bush Sets Conference to Push His Social Security, Tax Agenda," WSJ, Dec. 3, 2004
    • Jonathan Weisman, "Theoretically, Tax Reform Should Fly," WP, Dec. 2, 2004 ("[T]he administration is eyeing two large funding sources [to pay for cuts in taxation of savings and investment income]: eliminating the tax deductibility of employer-provided health insurance and eliminating the deductibility of state and local taxes.")
    • Shailagh Murray and Jackie Calmes, "Lawmakers Await Details of Bush Agenda," WSJ, Dec. 2, 2004 ("Mr. Bush isn't expected to unveil his tax plan before next fall at the earliest. But Senate Finance Committee Chairman Charles Grassley of Iowa says he needs to do so no later than March 1, since he believes Congress must pass it next year if it is to happen at all.")
    • Rob Wells, "IRS to Begin Outsourcing Debt Collection [in 2005 as authorized by the AJC Act]," WSJ, Nov. 24, 2004 ("House Ways and Means Chairman Bill Thomas (R., Calif.), tells a Tax Foundation seminar there's a silver lining in the tax code's growing complexity: It could recruit more people to the tax-reform cause.")
    • Edmund L. Andrews and David D. Kirkpatrick, "G.O.P. Constituencies Split on Tax Change," NYT, Nov. 22, 2004
    • Jackie Calmes, "Washington Wire," WSJ (print edition only), Nov. 19, 2004 ("Social Security First: Tax reform will follow in 2006. Bush advisers say the timing reflects that the president has no tax plan yet; he is to name a bipartisan panel by year's end. "If the president doesn't know what he's going to do with tax reform after all this time, how's a commission going to help him?" asks Reagan economist Bruce Bartlett. [Comment: Perhaps by doing what commissions frequently are intended to do: provide a pseudo-objective face for a preconceived preference.] Allies doubt Bush can win both huge initiatives, and wonder if Treasury Secretary Snow is up to taking the lead. Congress' Republican leaders tell Bush he'll have to offer more details and take bigger role than he has in past. But advisers say Bush won't spell out how to cover transition costs for new private accounts.")
    • David Wessel, "Will Bush Look to 1992 for New Tax Code?" WSJ, Nov. 18, 2004
    • David Wessel, "Questions for the President on Tax Reform," WSJ, Nov. 11, 2004
    • Econoblog, "Are Tax Reforms Sensible, or Just a Cut for the Rich?" WSJ, Nov. 10, 2004
    • Richard W. Stevenson, "Big Tax Plans, Big Tax Risks," NYT, Nov. 8, 2004
    • Daniel Altman, "Taxes and Consequences: The Second Term Begins," NYT, Nov. 7, 2004
    • Greg Hitt, "Bush Sets Plans to Revamp Taxes, Social Security," WSJ, Nov. 5, 2004
    • Gregg A. Esenwein and Jane G. Gravelle, "The Flat Tax, Value-Added Tax, and National Retail Sales Tax: Overview of the Issues," Congressional Research Service Order Code RL32603 (Sept. 24, 2004) ("[U]nder a consumption tax the old (retirees who are dissavers because they are drawing down their accumulated capital to finance consumption) would pay higher taxes and the young would pay lower taxes. Because of their higher tax liabilities, retired workers would have to reduce their consumption (or return to the work force).")
    • James M. Bickley, "A Value-Added Tax Compared With a National Sales Tax," Congressional Research Service Order Code IB92069 (March 19, 2003)
    • The Usual Suspects (from the 108th Congress)

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