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TEI Registers Its Support for H.R. 5044, Houghton Disclosure Bill

SEP. 7, 2000

TEI Registers Its Support for H.R. 5044, Houghton Disclosure Bill

DATED SEP. 7, 2000
DOCUMENT ATTRIBUTES
  • Authors
    Wilson, Betty M.
  • Institutional Authors
    Tax Executives Institute Inc.
  • Cross-Reference
    For text of H.R. 5044, see Doc 2000-21272 (3 original pages) or 2000

    TNT 157-37 Database 'Tax Notes Today 2000', View '(Number'.

    For prior coverage, see Doc 2000-21278 (3 original pages), 2000 TNT

    157-3 Database 'Tax Notes Today 2000', View '(Number', or H&D, Aug. 14, 2000, p. 1632; Doc 2000-21802 (5 original

    pages), 2000 TNT 162-1 Database 'Tax Notes Today 2000', View '(Number', H&D, Aug. 21, 2000, p. 1915, or Tax Notes,

    Aug. 21, 2000, p. 980; and Doc 2000-23096 (4 original pages), 2000

    TNT 172-4 Database 'Tax Notes Today 2000', View '(Number', H&D, Sept. 5, 2000, p. 2318, or Tax Notes, Sept. 4, 2000,

    p. 1192.
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    legislation, tax
    returns, disclosure
    determinations, public inspection
    closing agreements
    tax treaties, competent authority
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2000-23419 (6 original pages)
  • Tax Analysts Electronic Citation
    2000 TNT 175-19

 

=============== SUMMARY ===============

 

The Tax Executives Institute strongly supports H.R. 5044, "which would preserve the confidentiality of closing and competent authority agreements and thereby protect taxpayer privacy," according to a letter from TEI to Senate Finance Committee leaders.

The legislation, introduced by House Ways and Means Oversight Subcommittee Chair Amo Houghton, R-N.Y., and Rep. Sam Johnson, R- Texas, would make prefiling agreements and competent authority agreements, among other agreements, confidential tax return information under section 6103(b). (For text of H.R. 5044, see Doc 2000-21272 (3 original pages) or 2000 TNT 157-37 Database 'Tax Notes Today 2000', View '(Number'.)

The bill would expand what is considered to be a confidential closing agreement by amending section 7121(a) to state that any agreement the IRS enters into with a taxpayer at any time is a closing agreement. "In general, closing agreements are not subject to the public disclosure requirements of the Code," TEI wrote Finance Committee Chair William V. Roth Jr., R-Del., and Finance ranking Democrat Daniel Patrick Moynihan of New York. "Such agreements are beyond the scope of section 6110 and the Freedom of Information Act (FOIA), 5 U.S.C. section 552, because, by their nature, they constitute confidential return information. The confidential nature of the agreements is not, however, specifically protected by statute or regulation and from time to time their non-disclosability has been challenged."

Tax Analysts -- which publishes Tax Notes, Tax Notes Today, and Highlights & Documents -- has asserted that various types of prefiling agreements being developed are merely akin to letter rulings, which under section 6110 are subject to disclosure after information that can identify the taxpayer is redacted. Under FOIA, Tax Analysts is also seeking disclosure of competent authority agreements and is involved in litigation to compel disclosure of closing agreements entered into with tax-exempt organizations. (For prior coverage, see Doc 2000-21802 (5 original pages), 2000 TNT 162- 1 Database 'Tax Notes Today 2000', View '(Number', H&D, Aug. 21, 2000, p. 1915, or Tax Notes, Aug. 21, 2000, p. 980; also see Doc 2000-23096 (4 original pages), 2000 TNT 172-4 Database 'Tax Notes Today 2000', View '(Number', H&D, Sept. 5, 2000, p. 2318, or Tax Notes, Sept. 4, 2000, p. 1192.)

 

=============== FULL TEXT ===============

 

September 6, 2000

 

 

The Honorable William V. Roth, Jr.

 

Chairman

 

Committee on Finance

 

United States Senate

 

219 Dirksen Senate Office Building

 

Washington, D.C. 20510

 

 

The Honorable Daniel Patrick Moynihan

 

Ranking Minority Member

 

Committee on Finance

 

United States Senate

 

203 Hart Senate Office Building

 

Washington, D.C. 20510

 

 

Re: H.R. 5044: Confidentiality Of Closing

 

and Competent Authority Agreements

 

 

Dear Chairman Roth and Senator Moynihan:

[1] On behalf of Tax Executives Institute, I am writing to express TEI's support for H.R. 5044, which would preserve the confidentiality of closing and competent authority agreements and thereby protect taxpayer privacy. The bill was recently introduced in the House by Congressmen Amo Houghton, Chairman of the Oversight Subcommittee of the House Ways and Means Committee, and Sam Johnson.

RECOMMENDATION

[2] H.R. 5044 should be enacted because it would affirm the confidentiality of closing agreements and clarify that pre-filing agreements will also be clearly accorded the privacy protections of section 6103 of the Internal Revenue Code. The legislation would also clarify that information exchanged between the United States and its treaty partners will remain confidential.

BACKGROUND

[3] Tax Executives Institute's 5,200 members are accountants, attorneys, and other business professionals who work for the largest 2,800 companies in the United States, Canada, and Europe; they are responsible for conducting the tax affairs of their companies and ensuring their compliance with the tax laws. TEI is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the, cost and burden of administration and compliance to the benefit of taxpayers and government alike. The Institute is committed to maintaining a system that works -- one that provides consistency, promotes voluntary compliance, can be effectively audited by the IRS, and is not unduly burdensome to taxpayers. As the preeminent association of business tax executives, TEI members know how critical it is to maintain taxpayer confidentiality and to comply with international agreements.

CLOSING AGREEMENTS

[4] Section 7121(a) of the Internal Revenue Code authorizes the Secretary of the Treasury to enter into closing agreements "with any person relating to the liability of such person . . . in respect of any internal revenue tax for any taxable period." Formal closing agreements are normally used in connection with the issuance of private rulings and in Appeals cases to establish an agreement on tax liability or on specific matters affecting tax liability. Except in cases of fraud or malfeasance, the agreements are "final and conclusive," Treas. Reg. section 301.7121-1(c), and binding upon both the taxpayer and the IRS.

[5] In general, closing agreements are not subject to the public disclosure requirements of the Code. S. Rep. No. 94-938, 94th Cong., 2d Sess. 307 (1976); H.R. Rep. No. 94-658, 94th Cong., 1st Sess. 316 (1975) (section 6110 does not "require public disclosure of a closing agreement entered into between the IRS and a taxpayer which finally determines the taxpayer's tax liability with respect to a taxable year."). Such agreements are beyond the scope of section 6110 and the Freedom of Information Act (FOIA), 5 U.S.C. section 552, because, by their nature, they constitute confidential return information. The confidential nature of the agreements is not, however, specifically protected by statute or regulation and from time to time their non-disclosability has been challenged. 1

[6] In a recent study on the confidentiality provisions of the Code, the staff of the Joint Committee on Taxation concluded that almost all closing agreements should remain confidential. 2 See Staff of the Joint Committee on Taxation, Study of Present-Law Taxpayer Confidentiality and Disclosure Provisions as Required by Section 3802 of the Internal Revenue Service Restructuring and Reform Act of 1998 (Volume II) at 85 n.186 (JCS-1-00). The Joint Committee staff concluded that closing agreements are not an effective means of providing guidance to taxpayers regarding the law, "Such agreements are negotiated, and may not represent the IRS view of the law. Furthermore, because such agreements may be fact specific, and may not contain all relevant information, they may be misleading if relied upon by others." Id. at 85,

[7] H.R. 5044 would remove any ambiguity concerning the disclosure of closing agreements and thus bring certainly to the area.

PRE-FILING AGREEMENTS

[8] By confirming that closing agreements are not subject to disclosure under section 6110, H.R. 5044 would also protect pre- filing agreements (PFAs), a pilot program recently announced by the IRS under which large business taxpayers may request an examination and resolution on specific issues relating to tax returns that they expect to file between September and December 2000. Notice 2000-12, 2000-12 I.R.B. 727 (February 14, 2000), sets forth a program to enable taxpayers and the IRS to resolve issues that otherwise are likely to be disputed in post-filing audits. 3 The IRS announced in section 9 of the Notice that PFAs qualify as closing agreements under section 7121 of the Code.

[9] The PFA program represents a good way for companies and the government to forestall disputes and thereby avoid costly and time-consuming audits and litigation. The release of PFAs would be ill-advised and unnecessary to advance any legitimate goal of tax policy or administration. First, public disclosure of PFAs would significantly decrease the desirability of entering into these agreements, thereby depriving both taxpayers and the government of this potentially valuable method of resolving issues. Second, publication of these agreements would significantly impair taxpayer privacy rights, while providing little useful guidance to the public.

[10] If the PFA program is to succeed, it is important for taxpayers to know that the sensitive information submitted to the IRS will remain confidential, just as it would were the information provided to the IRS in the course of an examination. The IRS has recognized this need by using closing agreements to conclude PFAs. 4

[11] Although TEI believes that the current Code protects PFAs and other closing agreements from disclosure, H.R. 5044 would effectively confirm that treatment. To avoid disputes concerning whether a PFA is a closing agreement, however, we suggest that the inclusion of PFAs within the scope of H.R. 5044 be explicitly addressed in the legislative history of the bill. 5

COMPETENT AUTHORITY AGREEMENTS

[12] In general, tax treaties and tax information exchange agreements contain a confidentiality clause, which generally requires the country requesting information under the treaty to treat any information received as confidential in the same manner as information obtained under its domestic laws. Such a clause usually provides that disclosure is not permitted other than to persons or authorities involved in the administration, assessment, collection, or enforcement of taxes to which the treaty applies. It is under these treaties and agreements that information is exchanged between the United States and a foreign government ("Competent Authorities") in their deliberations to resolve double taxation issues of specific taxpayers.

[13] TEI is aware that a FOIA request has recently been filed for competent authority agreements. In its request, Tax Analysts seeks "interpretation and analysis of U.S. tax law, foreign country tax law, and tax treaties that may appear in taxpayer-specific competent authority agreements." 2000 WTD 76-48 (April 17, 2000). Although TEI strongly believes that the agreements constitute tax return information under the Code and are also protected by international agreements 6 the Institute supports H.R. 5044, which would explicitly confirm that the agreements are not subject to disclosure.

[14] Many taxpayers have operations both in the United States and overseas and most comply with the tax laws of several jurisdictions. Key to this compliance is the coordination and cooperation of the United States and foreign taxing authorities in resolving complex issues and balancing competing interests. If the confidentiality provisions included in these treaties and agreements were given short shrift, the negotiation of taxpayer-specific agreements would be disrupted and, equally important, the ongoing working relationship between the United States and its treaty partners would be impaired.

[15] When the government in good faith has made a commitment not to disclose information, it should honor that obligation. Thus, the confidentiality provisions of tax treaties and exchange agreements should be respected, and material deemed confidential by those provisions should be protected.

CONCLUSION

[16] TEI appreciates that a balance must be struck between society's interest in preserving taxpayer privacy and its interest in "government in the sunshine." We recognize, moreover, that the public has a right to know whether the laws are being administered in an evenhanded manner. We submit, however, that the answer is not to belittle taxpayer privacy whenever there is a cry of "secret law."

[17] Moreover, the public has a right to demand that the IRS administer the law in an efficient manner, and that it explore creative alternatives to traditional dispute resolution techniques. These alternatives include pre-filing agreements, and, in TEI's view, the success of the PFA program depends on resisting the creation of unreasonable barriers to taxpayer participation. In addition, the Institute believes that there is a significant need to protect the government's working relationship with other countries.

[18] For these reasons, TEI fully supports the enactment of H.R. 5044.

[19] If you have any questions, please do not hesitate to contact me, at (702) 891-3409, or Mary L. Fahey of the Institute's professional staff, at (202) 638-5601.

Respectfully submitted,

 

 

Betty M. Wilson

 

International President

 

TAX EXECUTIVES INSTITUTE, INC.

 

Washington, D.C.

 

FOOTNOTES

 

 

1 For example, Tax Analysts has filed FOIA requests for the disclosure of closing agreements relating to the Christian Broadcasting Network and Church of Scientology. See Tax Analysts v. IRS, 85 A.F.T.R.2d 2000-2025 (D.C. Cir. 2000) (FOIA claim for disclosure of closing agreement and related documents covering religious broadcaster's continued exemption was improperly dismissed); Tax Analysts v. IRS, 83 A.F.T.R.2d 99-1278 (D.D.C. 1999) (closing agreements of tax-exempt organizations are not subject to disclosure).

2 The Joint Committee staff recommended that closing agreements of tax-exempt organizations be disclosed to facilitate public oversight. Joint Committee Study at 84-85.

3 If successful, the program will be expanded to include more issues and all business taxpayers.

4 "[I]t is the position of the IRS that both PFAs and the information generated or received by the IRS during the PFA constitute confidential return information as defined by [Code) section 6103(b)(2)(A) that PFAs are not written determinations under [Code] section 6110, and, accordingly, are exempt from disclosure to the public under the Freedom of Information Act (FOIA)." 2000-9 I.R.B. at 731.

5 Tax Analysts has argued that PFAs are not closing agreements. In a March 16,2000, letter to IRS Commissioner Rossotti, the tax publisher stated. "PFAs are not, in substance or in form, in any way akin to non-disclosable section 7121 closing agreements. They are, rather, in both substance and in form as described in the Notice [2000-12], written determinations (letter rulings) that must be disclosed under I.R.C. section 6110." Tax Analysts Urges IRS to Delete Secrecy Provisions of PFA Program, 2000 TNT 72-45 Database 'Tax Notes Today 2000', View '(Number' (April 13, 2000). The publisher has filed a FOIA request for the PFA notice's background file. Dobrovir Letter Requesting IRS Documents on Prefiling Agreements, 2000 TNT 90-16 Database 'Tax Notes Today 2000', View '(Number' (May 9, 2000).

6 A suit is also pending in the U.S. district court for the release of 29 field service advice (FSA) memoranda containing information from treaty partners. Tax Analysis v. IRS, No. 94-cv-923 (GK) (D.D.C.) The IRS has argued (correctly we believe) that tax treaties and agreements are the equivalent of statutes for purposes of the FOIA exemption and thus the exchanged information is protected from disclosure. See U.S. Const. Art. VI, cl. 2 (U.S. treaties are the "supreme law of the land"); Banquero v. United States, 72 A.F.T.R.2d 93-5172 (S.D. Tex. 1993), aff'd, 18 F.3d 1311 (5th Cir. 1994) (the Mexico tax information exchange agreement is "the law of the land and constitutional"). The courts have previously held that FSAs are generally subject to release, but no decision has been made on the release of FSAs containing tax treaty material.

 

END OF FOOTNOTES
DOCUMENT ATTRIBUTES
  • Authors
    Wilson, Betty M.
  • Institutional Authors
    Tax Executives Institute Inc.
  • Cross-Reference
    For text of H.R. 5044, see Doc 2000-21272 (3 original pages) or 2000

    TNT 157-37 Database 'Tax Notes Today 2000', View '(Number'.

    For prior coverage, see Doc 2000-21278 (3 original pages), 2000 TNT

    157-3 Database 'Tax Notes Today 2000', View '(Number', or H&D, Aug. 14, 2000, p. 1632; Doc 2000-21802 (5 original

    pages), 2000 TNT 162-1 Database 'Tax Notes Today 2000', View '(Number', H&D, Aug. 21, 2000, p. 1915, or Tax Notes,

    Aug. 21, 2000, p. 980; and Doc 2000-23096 (4 original pages), 2000

    TNT 172-4 Database 'Tax Notes Today 2000', View '(Number', H&D, Sept. 5, 2000, p. 2318, or Tax Notes, Sept. 4, 2000,

    p. 1192.
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    legislation, tax
    returns, disclosure
    determinations, public inspection
    closing agreements
    tax treaties, competent authority
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2000-23419 (6 original pages)
  • Tax Analysts Electronic Citation
    2000 TNT 175-19
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