Proposed Adequate Disclosure Regs Fail to Provide Closure, Writer Says

[1] Thank you very much for coming to the ABA Tax Section Estate and Gift Tax Committee meeting last Friday, and for listening to the comments of Committee members.

[2] I want to follow up my comment from the floor with this written note. Faced with the actual problem of adequately disclosing some 1998 gifts, I am concerned that any closure will be impossible no matter how extensive the disclosures, and regardless of whether an audit does or does not result before the three-year (or under certain circumstances the six-year) statute of limitation runs.

[3] The reason is that in the Proposed Regulations there are no defining boundaries as to the scope of the disclosures required. Therefore, even if upon initial examination (whether or not resulting in an audit) the disclosures are found to be sufficient, nothing in the Proposed Regulations prevents a second examination many years later or at death. At ANY future time a new examiner can decide that in his/her opinion the disclosures should have been supplemented with some additional item, and hence that the statute of limitations never really ran. Thus, under the Proposed Regulations there is no possibility whatever of obtaining closure. This totally defeats the purpose of the recent legislation that was designed to give taxpayers a closure mechanism.

[4] While I suggested from the floor the possibility of the Service's issuing a closing letter or no-change letter, upon reflection that would be insufficient since it would only be available if there had been an initial audit. Because something broader than that is needed, it seems to me that the Treasury and the Service must in good conscience provide definitive parameters which will conclusively be the limits of necessary adequate disclosure. Then if taxpayers meet those limits they should be able to prevent any future examiner from claiming that some additional item should have been added to the presently-proposed indefinite and undefined limits. To not do this is in my opinion to subvert the Congressional intent and the legislation itself.

[5] If limits are not definitely set in the Final Regulations, there will be a war in which Congress will be alerted to the manifest unfairness of those Regulations. Congress may well then overreact by limiting the Treasury to disclosure limits that will be more narrow than it would desire.

[6] The basic equities in this situation are so strong, and the Congressional intent so clear, that failure to set definite disclosure limits will become a matter of Congressional concern, and of publicity that will further harm the public image of the Service.

[7] Coming down off my soapbox, I am, with kindest regards to each of you,

Sincerely,