Daily Tax Update - April 05, 2005

Today, at the Tax Executives Institute 55th Midyear Conference, Senate Finance Committee Chairman Charles Grassley (R-IA) addressed his tax policy priorities. Grassley expressed his support for more tax relief for businesses. Grassley said, "On specific tax relief for businesses, a lot of that is unknown until we get tax numbers through the budget.  The Senate voted to increase its five-year tax cut target to $134 billion.  The House included room for $106 billion in tax cuts, with only $45 billion of them offered the procedural protection of reconciliation. The negotiations to get to a final number will be tough.  Depending on how much room there is, I’d like to see continued relief on capital gains and dividends. . . . The Senate number is also meant to give enough room for extensions of the college tuition deduction, small business expensing, and savers’ credit. I hope to enact these extensions this year and keep current levels of tax relief."

  • Grassley then turned to "what might seem like the bad news – what’s in store on enforcement." Grassley said, "But before I get into specifics, I hope you don’t see enforcement as bad news.  Those who cheat on their taxes make chumps out of everyone who pays. Better enforcement should lead to fairness for all."
  • Grassley discussed the issue of codifying the economic substance doctrine as another possible enforcement tool beyond the tax shelter and corporate reforms enacted in the JOBS Act. Grassley said, "From the very beginning, I’ve had concerns about certainty in applying this doctrine.  If taxpayers are going to be subjected to substantial penalties for violating it, they need to know with certainty when those penalties will apply. Nonetheless, recent cases have again caused us concern about the court’s willingness to apply this doctrine consistently.  One court even declined to apply the doctrine because Congress has not enacted codification. This ruling is troubling because we thought application of this doctrine was better left to the courts. This issue won’t go away anytime soon.  In fact, in its recent tax gap report, the Joint Committee on Taxation has, for the first time, taken a position advocating a limited codification of the economic substance doctrine.  I anticipate that any future legislation won’t be the same as what we’ve seen in the past because the prior proposals have been repeatedly rejected by the House in conference.  We’ve received numerous comments on this issue, most of them negative, but have also received several suggestions on alternative ways to approach this problem. Our work in this area continues."
  • Grassley also suggested that the Senate Finance Committee would be examining the tax gap for corporations and pass-through entities.

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