Press Releases

U.S. Assistant Treasury Secretary for Tax Policy Pam Olson

(Archived Content)
Good afternoon.  I would like to thank the New York Chapter of TEI for this opportunity to discuss several tax policy issues to which we at Treasury have been devoting considerable time – complex issues that truly demand our attention today.

My remarks this afternoon are going to touch on a wide range of tax issues, from our international tax rules, to inversions, tax shelters, simplification, regulations on R&E credits and capitalization, the voluntary disclosure initiative unveiled last week, and the ongoing public dialogue we seek with all of you. That’s a lot of ground to cover in one lunch, but I promise not to dwell on any of the topics for an extended time.

I. International Tax Rules

I’ll begin with the topic of our international tax rules, a relatively small part of the code that has caused a lot of headache, and created a competitive disadvantage for many U.S. companies doing business abroad.  The U.S. international tax rules first developed in the early 1960s, when the U.S. economy was by far the dominant economy in the world, and U.S. companies accounted for over half of all multinational investments worldwide.   Needless to say, the world has changed in the past 40 years.  When the rules were first developed, they affected relatively few taxpayers and relatively few transactions.  Today, there are very few U.S.-based companies that are not faced with applying some aspect of the U.S. international tax rules to their businesses.

To understand the significance of getting the tax rules right, it may be helpful to consider for a moment the importance of international trade to the US economy relative to what it was in the past.  In 1960, trade in goods to and from the U.S. represented just over six percent of GDP. 
Today, trade in goods to and from the U.S. represents over 20 percent of GDP, more than three times larger than in 1960, while trade in goods and services represents more than 25 percent of GDP today.

Cross border investment, both inflows and outflows, also has grown dramatically in the last 40 years.  In 1960, cross border investment represented 1.1% of GDP.  In 2000, it was 15.9% of GDP, or annual cross-border flows of more than $1.5 trillion.  The aggregate cross border ownership of capital is valued at $15 trillion.  Consider the role of U.S. multinational corporations in the economy.  They are now responsible for more than one-quarter of U.S. output and about 15% of U.S. employment.

At the same time companies are competing for sales, they are also competing for capital: US-managed firms may have foreign investors, and foreign-managed firms may have U.S. investors.  Portfolio investment accounts for approximately 2/3 of US investment abroad and a similar fraction of foreign investment in the U.S.

Viewed from the vantage point of an increasingly global marketplace, our tax rules appear outmoded, at best, and punitive of U.S. economic interests, at worst.  Most other developed countries of the world are concerned with setting a competitiveness policy that permits their workers to benefit from globalization.  As Deputy Secretary Dam observed recently, however, our international tax policy seems to have been based on the principle that if we have a competitive advantage, we should tax it!

Let’s start with the basics.  Our income tax system as a whole dates back to shortly after the turn of the last century, a time when cars were called horseless carriages and buggy whip makers had just gone out of business.  A bit has happened since then.  Of course, significant changes have been made to the tax code as well.  In the international area, we added the subpart F rules back in 1962.  I would say that they haven’t aged as well as a lot of the 40 somethings in this room.  We also made fairly significant changes to the international tax rules in 1986.  That would make those rules teenagers now, and they have the characteristics of the average teenager.  They’re hard to understand, messy, inconsistent, and display little regard for the real world.

The global economy looked very different when the subpart F rules were put in place than it does today.  The same is true of the U.S. role in the global economy.  Forty years ago the U.S. was dominant, accounting for over half of all multinational investment in the world.   We could make decisions about our tax system essentially on the basis of a closed economy, and we could generally count on our trade partners to follow our lead in tax policy.  But the world has changed in the last 40 years, and the globalization of the U.S. economy puts ever more pressure on our international tax rules.


What does globalization mean? This audience needs no explanation, but it is useful to think about it for a minute.  It means the growing interdependence of countries resulting from increasing integration of trade, finance, investment, people and ideas in one global marketplace.  Globalization results in increased cross-border trade, and the establishment of production facilities and distribution networks around the globe.   Technology is a key driving force behind globalization. Advances in communications, information technology, and transport have slashed the cost and time taken to move goods, capital, people, and information.  Firms in this global marketplace differentiate themselves by being smarter: applying more cost efficient technologies or innovating faster than their competitors.  The returns to being smarter are much higher than they once were as the benefits can be marketed worldwide.

The significance of globalization to the U.S. economy since the enactment of subpart F is apparent from the statistics on international trade and investment I mentioned earlier. It is worth noting that numerous studies confirm a strong link between trade and economic growth.  Trade appears to raise income by spurring the accumulation of physical and human capital and by increasing output for given levels of capital.

The U.S. tax rules have important effects on international competitiveness both because of the integration of domestic activities of U.S. multinational companies with their foreign activities and because repatriated foreign earnings of foreign investments are subject to U.S. domestic tax.  Increasingly, the flow of goods and services is not through purchases between exporters and importers, but through transfers between affiliates of multinational corporations. The rules governing transfer pricing, interest allocation, withholding rates, foreign tax credits, and the taxation of actual or deemed dividends impacts these flows. 

 
The U.S. tax system should not distort trade or investment relative to what would occur in a world without taxes.  The difficulty is that every country makes sovereign decisions about its own tax system, so it is impossible for the U.S. to level all playing fields simultaneously for each of the different forms competition might take in every country. 

The question we must answer is what should we do to increase the competitiveness of U.S. businesses and workers.  Professor Michael Graetz observed in his book, The Decline (and Fall?) of the Income Tax: 

The internationalization of the world economy has made it far more difficult for the United States, or any other country for that matter, to enact a tax system radically different from those in place elsewhere in the world.  In today’s worldwide economy, we can no longer look solely to our own navels to answer questions of tax policy.

To date, our attempts to address one of the perceived competitive disadvantages created by our laws have been repeatedly ruled inconsistent with the World Trade Organization’s rules.  Earlier this year, a WTO appellate panel held that the extraterritorial income exclusion regime of our tax law constituted a prohibited export subsidy under the WTO rules. 


Just two years before, a WTO appellate panel held that the foreign sales corporation provisions constituted a similar, prohibited subsidy.  President Bush has made clear that the U.S. must comply with the WTO rulings.  That result should be obvious because - let’s face it - no one has a greater stake in the WTO and in free trade than the U.S.  Despite the WTO decisions against our foreign sales corporation and extraterritorial income regimes, the WTO rules serve the economic interests of American businesses and workers by opening markets and ensuring fair play.

In addition to making clear that the U.S. must comply, the President made two further decisions.  He said that any response to the ruling must increase the competitiveness of U.S. businesses.  He also pledged to work with the Congress to create the solution.  Treasury is working closely with the tax-writing committees of Congress to develop legislation that makes meaningful changes to our tax law to satisfy the twin goals of honoring our WTO obligations and preserving the competitiveness of U.S. businesses operating in the global marketplace.

We must consider the ways in which our tax system differs from that of our major trading partners to identify aspects that may hinder the competitiveness of U.S. companies and workers.  About half of the OECD countries employ a worldwide tax system as does the U.S.  However, even limiting comparison of competition among multinational companies established in countries using a worldwide tax system, U.S. multinationals can be disadvantaged when competing abroad.  This is because the United States employs a worldwide tax system that, unlike other worldwide systems, may tax active forms of business income earned abroad before it has been repatriated and may more strictly limit the use of the foreign tax credits that prevent double taxation of income earned abroad.

The Accelerator—Subpart F.  The focus of the subpart F rules is on passive, investment-type income that is earned abroad through a foreign subsidiary.  However, the reach of the subpart F rules extends well beyond passive income to encompass some forms of income from active foreign business operations.  No other country has rules for the immediate taxation of foreign-source income that are comparable to the U.S. rules in terms of breadth and complexity.
 

For example, under subpart F, a U.S. company that uses a centralized foreign distribution company to handle sales of its products in foreign markets is subject to current U.S. tax on the income earned abroad by that foreign distribution subsidiary.  In contrast, a local competitor making sales in that market is subject only to the tax imposed by that country.  Similarly, a foreign competitor that uses a centralized distribution company to make sales into the same markets generally will be subject only to the tax imposed by the local country.  U.S. companies that centralize their foreign distribution facilities therefore face a tax penalty not imposed on their foreign competitors.

The subpart F rules also impose current U.S. taxation on income from certain services transactions, shipping activities and oil related activities performed abroad.  In contrast, a foreign competitor engaged in the same activities generally will not be subject to current home-country tax on its income from these activities.
While the purpose of these rules is to differentiate passive or mobile income from active business income, they operate to currently tax some classes of income arising from active business operations structured and located in a particular country for business reasons wholly unrelated to tax considerations.

 Another significant problem with our international tax law is the rules regarding Limitations on Foreign Tax Credits.  The rules for determining and applying the foreign tax credit are detailed and complex and can have the effect of subjecting U.S.-based companies to double taxation on their income earned abroad.  For example, the foreign tax credit may be used only to offset U.S. tax on net foreign-source income and not to offset U.S. tax on U.S.-source income.  Net foreign-source income is determined by reducing foreign-source income by U.S. expenses allocated to that income.  Under the current rules, the interest expense of a U.S. affiliated group is allocated between U.S. and foreign-source income based on the group’s total U.S. and foreign assets.  These rules treat the interest expense of a U.S. parent as relating to its foreign subsidiaries even where those subsidiaries are equally or more leveraged than the U.S. parent.  This over-allocation of interest expense to foreign income inappropriately reduces the foreign tax credit limitation because it understates foreign income.  The effect can be to subject U.S. companies to double taxation.  Other countries do not have expense allocation rules that are nearly as extensive as ours.

The U.S. foreign tax credit rules are further complicated by separate foreign tax credit basket limitations and overall foreign loss limitations, both of which give rise to the potential for double taxation.

A third problem with our international tax rules is the Double Tax on Equity-Financed Investments.   The U.S. is one of the few OECD countries that does not provide for some form of integration between taxes paid at the corporate level and taxes paid by individuals on distributions from corporations.

The present U.S. system, by taxing income at the corporate level and dividends at the individual level, increases the hurdle rate of return (i.e., the minimum rate of return required on a prospective investment) undertaken by corporations.  Whether competing at home against foreign imports or competing abroad through exports from the U.S. or through foreign production, the double tax makes it less likely that the U.S. company can compete successfully against a foreign competitor.  Most OECD countries alleviate this problem by reducing personal income tax payments on corporate distributions.

We have a tax code that has not kept pace with the globalization that has transpired over the last 40 years.  It is time for us to reconsider the rules based on today’s realities and the future unfolding before us. 

We must design rules that equip us to compete in the global economy – not fearfully, but hopefully.  The fact of the matter is that we – all of us - benefit significantly from vigorous participation in the global economy. 
Over the past 20 years, U.S. companies that invest abroad exported more (exporting between one-half and three-quarters of all U.S. exports), paid their workers more, and spent more on R&D and physical capital than companies not engaged globally.

While 80 percent of U.S. investment abroad is located in high-income countries, it is useful to say a word about the investment that goes into developing countries.  These countries recognize U.S. investment as important to achieving sustainable poverty-reducing growth and development.  I’m asking you to look at this altruistically, but if you can’t, then look at it selfishly.  Poker games are revenue neutral, but international trade and investment are not poker games.  Healthy foreign economies mean more markets for our products.  They mean more opportunities for us to profitably invest.  But to return to the altruistic point – foreign investment means sharing our ideas, our knowledge, our values, and our capital.  That is not a zero sum game.

II. Inversions

Now I would like to discuss a problem that is a corollary to our international tax rules: the problem of “inversions.”  None of us want to see a company effectively renounce its citizenship for tax purposes, which is what an inversion is, though the departure is only on paper.  The fact that inversions have been considered, planned, and executed highlights two serious problems with U.S. tax laws:  the opportunities for reducing U.S. income tax on U.S.-based operations and the extent to which our tax laws are out of step with the global economy and the laws of our major trading partners.

 
The rapid response to inversion transactions by Treasury and both tax-writing committees appears to have halted the transactions.  Although Treasury and the Hill have taken different approaches to the issue, we have been united in our determination to address them.  This united front makes it highly unlikely the transactions will return before Congress has the opportunity to act. 

The delay in enacting legislation has had an ancillary benefit.  It has provided us with more time to consider and craft an appropriate response.  A too rapid response quite likely would have taken the form of an attempt to ban the transactions – much like treating the symptoms without curing the underlying disease.  In this case, the treatment would have masked the symptoms quite effectively.  But, the disease would live on and manifest itself in alternatives that achieved the same result with equally – or more – unfortunate consequences for the economy. 

As a policy matter, there is no reason for us to enact laws that encourage companies to form offshore, or that favor foreign acquisitions relative to domestic acquisitions.   Yet that is the current slope of the playing field, and it is that slope we must correct. Doing so involves reconsidering many of our international tax rules and removing opportunities to inappropriately reduce U.S.-based income, something that must be done without discouraging or harming foreign investment.  Striking a satisfactory balance between protecting the U.S. tax base and not harming foreign investment is a difficult task.  The many helpful comments we have received will, I am confident, result in the crafting of appropriate rules.

III. Tax Shelters

My next subject is tax shelters.  For the last few years, it seems like we’ve been tuned to radio station NOTAX, broadcasting all shelters, all the time!  With all the attention focused on the topic, with legislative changes, regulatory changes, and a torrent of anti-shelter words, how is it that the perception is the problem has grown worse?

In part, it is because the torrent of words was not connected to a torrent of actions.  While the risk to the system was identified, the compliance resource allocation remained largely unchanged.   For example, shelter registrations filed between 1997 and 2000 included a number of listed transactions.  However, until the Office of Tax Shelter Analysis was formed and a strong Treasury commitment to pursuing the transactions was made clear, those registrations gathered dust. 

 
What happens when promoters register transactions and get no response?  Same thing that happens when children act up and no one tells them to quit it.  They do it again.  So promoters told their customers the IRS is “OK” with the transactions.  The IRS knows about the transactions and has done nothing to shut them down so obviously things are copasetic, right?  Wrong.  Companies under continuous audit – like those for whom you in this room work – know better than to believe that.  You know the difference between approval and neglect.    But, many did not understand that – or they chose to believe otherwise – and so tax practice deteriorated without adult supervision. 

Well, folks, the parents have arrived at the party.  Unfortunately, we have a lot of cleaning up to do, but the effort is underway.  By moving resources from accounting method nits to transactions promising large permanent tax losses, by supporting taxpayer disclosure, and by acting promptly to resolve issues, we firmly believe we can put this problem behind us and begin to restore a measure of confidence in our tax system.  With B. John Williams on board as Chief Counsel and the Justice Department aiding the effort, I believe the efforts of the IRS operating divisions are beginning to get traction.

As we work to put this problem behind us, many of you in this room – including some who have never entered into an abusive tax avoidance device – will have to live through the clean up efforts and our efforts to get our arms around the problem.  I apologize for that.  We recognize that the new disclosure and list keeping regulations will impose an additional burden on you.  We are considering ways to minimize that burden while preserving our goals of increased transparency and certainty.  As I see this, taxpayers, practitioners, and the government share a mutual goal here – reducing the burden of complying with and administering the law while ensuring that the IRS’s resources are devoted to productive endeavors.  You have my commitment that we will work with you to produce the least burdensome rules we possibly can.  We hope that you will continue to give us suggestions on how to improve the new disclosure and list keeping rules.

Shelter legislation the Treasury Department helped to craft was introduced in both Houses of Congress this year, but was not enacted.  We believe some of the legislative changes at are important to further deterring tax shelter activity.  Some of it, we fear, would make tax administration more difficult, thus potentially worsening rather than improving tax compliance.  The piece of legislation I would most like to see passed is the change to the registration rules under section 6111.  That change would allow us to conform the definition of a potentially abusive tax shelter across the board – for return disclosure, registration, and list maintenance purposes.

One thing I have become convinced of since joining Treasury is the importance of acting even without a legislative mandate.  We don’t always need laws to tell us the difference between right and wrong or to tell us what we ought to do.  Consequently, we are exploring what the IRS and Treasury can do to implement registration on a voluntary basis.  Why, you may ask, would anyone voluntarily register anything?  Because doing so illustrates best practices, and it is time for us as good citizens to adopt best practices without an act of Congress compelling us to do so.  We’ll be considering what action we can take to support the voluntary adoption of best practices. The IRS offering such support is not unheard of.  Similar support was provided for a best practice – disclosure – in the disclosure initiative and settlement guidelines released a year ago.  We welcome your thoughts.

IV. Simplification

 
Now onto one of our most deadly dull, but important issues, tax simplification.  The problems with the U.S. tax system go beyond outdated international tax rules, corporate inversions, and abusive tax shelters.  We have complicated compliance by legislating detailed rules on the calculation of taxable income that differ from the rules used to calculate book income, creating inevitable disparities that undermine confidence in our tax and financial accounting systems.  We have created a labyrinth of rules so complicated we cannot satisfactorily predict results, then iced the cake with an alternative minimum tax calculation pro-cyclical in effect and loaded with other unintended consequences. We have written rules that have less to do with measuring income than with penalizing certain behaviors or certain classes of taxpayers.  We have created a system so complicated that it has eroded the public’s confidence.

This is surely not a tax system anyone would set out to create, but it is the system that has evolved over time.  Let’s face it.  We have reached the point where our tax system is held together by chewing gum and chicken wire.  Moreover, a lot of the chewing gum and chicken wire was applied in haste, not strategically.  It is time for us to clean house.

Last year, the Joint Committee published a 3-volume list of simplification without touching the complexities that reflect congressional policy choices.  That is illustrative of how much must be done.


Let me give you an example.  The Code contains five different definitions of child.  While there are reasons for the differences, they don’t outweigh the complexity they create or the frequent mistakes that result.  Last spring, the Treasury Department proposed a uniform definition of child that would apply for all five of the child benefit provisions of the code.  That would be significant simplification.  It would shorten instructions, make record-keeping simpler, and reduce errors.  Of course, there would still be five different provisions in the code covering child benefits.  The next step is to find a way to combine some or all of those benefits – perhaps yielding a look-up table of some sort – that would make filing much simpler and give taxpayers a clear picture of what their tax liabilities are likely to be.

The system needs an overhaul because it has become too complex and a barrier to – rather than a facilitator of – economic growth.  While we proclaim our desire for a tax system that does not deter individuals from saving and investing, we offer a system that taxes those who save more heavily than those who consume.  While we proclaim our desire for a tax system that encourages businesses to invest and grow, we offer a tax system so complex and disadvantageous that we face the specter of companies moving their operations overseas because doing so allows them to lower their taxes.  While we proclaim our desire for a system inexpensive to comply with, we offer instead a system that requires burdensome record-keeping, changes year after year, and compels even average Americans to pay someone to prepare their returns to avoid mistakes and find the benefits that would otherwise elude them.

The Treasury Department is developing recommendations for a thorough overhaul of our tax system.  The task will be neither easy nor quick.  Our economy has grown up around our current system.  The result is entanglements that can only be unwound with care.  There are no easy or obvious paths to take; each involves trade-offs that must be carefully weighed.  But we believe the potential benefits make this a task worth undertaking.

 
The following are the goals we will strive to achieve:

1. A system that is simple and easy to understand, with reasonable filing and record-keeping requirements, and non-intrusive tax administration.
2. A system that is efficient and minimizes interference in economic decisions.
3. A system that supports the international competitiveness of U.S. businesses and workers.
4. A system that is fiscally sound, raising the revenues necessary for government operations.
5. A system that is stable enough to avoid the constant tinkering of years past.
6. A system that is understood to be fair, treating similarly situated taxpayers alike and equitably distributing tax burdens.

Our citizens deserve a tax system that is transparent, fair, and that assists rather than impedes economic growth.  Our current system meets none of those objectives.  We must step back and design a system that will drive our economic engine through the 21st Century and beyond.

V. R&E and Capitalization

Legislative simplification is not, of course, the only way to simplify compliance and administration.  We are also trying to create simpler and more administrable rules under the current system.  I would like to take a moment now to briefly discuss two of the more significant projects that we have been working on: the R&E credit and capitalization.  These projects reflect Treasury’s view – a view shared by the IRS – that taxpayers should be provided clear rules in advance of undertaking expenses, gathering information, and filing returns, and that issues should be resolved through the rule-making process (either administrative or legislative) and not through litigation.  Resolution of issues through litigation is expensive, time-consuming, and risky to tax administration and the development of sound tax policy.  With a properly functioning published guidance process, litigation should be unnecessary except to enforce the laws.

R&E

We have two projects in the research credit area.  The first addresses the allocation of the credit among members of a controlled group.  The second addresses the qualification of expenses for the credit.  Both projects are priorities.

As many of you know, the proposed regulations last December made a number of important changes to the earlier final regulations issued in January of 2001.  In particular, the proposed regulations addressed the general standard for qualifying expenses as well as the definition and qualification of internal use software.  The proposed regulations also eliminated the credit-specific record-keeping requirements.

Most of the comments we have received support the changes we made in the proposed regulations.  However, a number of taxpayers, including many financial institutions have expressed considerable concern about the definition of internal use software.
 This definition generally requires that the software be sold for separately stated consideration in order to not be considered internal use software.  Other concerns have been expressed about the additional three-part test that applies to this type of software.

As I mentioned earlier, one of our priorities is guidance that resolves controversies between taxpayers and the IRS.  By that, we do not mean guidance that simply moves the line of controversy in one direction or another.  The definition of internal use software contained in the proposed regulations is intended to provide a clear rule based on a factor that distinguishes internal use software from commercial software.  As with any bright-line rule, there are many cases that will be near that line, on both sides.

We recognize the concerns expressed by many taxpayers, in a number of different industries, that the proposed definition of internal use software is too broad—that it sweeps in software that is outside Congress’ original contemplation of what should qualify for the credit.  We recognize the concern that the proposed definition may disadvantage taxpayers who undertake software development in house rather than purchasing software from a vendor and taxpayers providing services other than computer services relative to taxpayers in the computer service business.

We are considering all of these comments with an eye towards issuing final guidance as soon as possible.  As many of you know, the research credit has been one of the most contentious issues between large taxpayers and the IRS, and our goal for this guidance is the resolution of those controversies.

Capitalization

This morning, Treasury and the IRS issued proposed regulations addressing when costs to acquire, create or enhance intangible assets must be capitalized under section 263(a).  The objectives of the proposed regulations are to reduce controversy, provide certainty regarding the expenses that must be capitalized, facilitate record keeping for those expenses, reduce examination resources currently devoted to capitalization issues, and balance administrative and record keeping costs with clear reflection of income principles.

The proposed regulations follow the structure of the advance notice of proposed rulemaking issued in January.  Similar to the advanced notice, the proposed regulations describe specific categories of expenditures that taxpayers will be required to capitalize under section 263(a).  These categories include costs certain to result in future benefits of a substantial nature that historically have been understood to be capital expenditures.  Other expenditures for intangible assets would not be subject to capitalization under section 263(a).  The standard we have used to guide our formulation of the rules is the significant future benefit test articulated by the Supreme Court, flavored by practicality and common sense.  It is important to note that “significant future benefit” is not, standing alone, a rule.  That is because it would not provide useful guidance to taxpayers or IRS agents.  It is, rather, the measuring rod we have used to determine the correctness of the rules we have proposed.
 By creating an exclusive list of capitalized costs, the proposed regulation seeks to provide clear and administrable rules that will reduce controversy between taxpayers and the IRS.

To reduce administrative and record keeping costs, the proposed regulations also propose safe harbors and simplifying assumptions—that practically and common sense that I mentioned.  For example, they include a “12 month rule” that permits deduction of the costs of certain intangible assets whose lives are of a relatively short duration, de minimis rules that permit deduction of certain costs that do not exceed $5,000, and a rule that permits deduction of employee compensation (including bonuses and commissions) and overhead costs.  The proposed regulations also contain a 15 year safe harbor amortization period for costs to create certain intangible assets that do not have a readily ascertainable useful life.

We believe these proposed regulations, when finalized, will significantly reduce the amount of controversy that we’ve seen in the capitalization area in recent years.

VI. Voluntary Disclosure Initiative

Before I conclude, I would like to briefly mention the IRS announcement last week that it has revised and updated a key practice that assists agency investigators in determining whether a case is recommended for criminal prosecution.  A taxpayer’s timely, voluntary disclosure of a substantial unreported tax liability has long been an important factor in deciding whether the taxpayer’s case should ultimately be referred for criminal prosecution.  The IRS has modernized this practice to allow more taxpayers to voluntarily comply with their obligations and to reduce the uncertainty over what constitutes a “timely” disclosure.  This is an important step in helping taxpayers and their advisers understand the steps they can take and the circumstances in which they can get back into compliance with the tax laws without fear of prosecution. With these practices in place, we hope that more taxpayers will do the right thing and voluntarily disclose their outstanding tax liabilities.

VII. Public dialogue

Let me close by noting that we are committed to a better and more open dialogue with the public. One illustration of that is our quarterly updates of the business plan, which reflect our continued conversation with you about the issues we need to address. Another illustration of that is the issuance in proposed form of section 302/318, consolidated return, and tax shelter regulations. A notice of proposed rulemaking is the opening in a dialogue with the public about what the rules should be. We will work diligently to propose sound rules and to do so rapidly enough to meet your needs.

Unfortunately, no immortals have yet gone to work at IRS or Treasury. We’re all human. We will make mistakes. We will also have differences of opinion from time to time. But have no doubt about it. We appreciate it when you praise us, but we especially value your criticism. It helps us stay on track.