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Taxes and the Guidance Problem



ROUNDTABLE DISCUSSION ON TAXPAYER GUIDANCE:
HOW TO ADDRESS THE GROWING PROBLEM OF INADEQUATE GUIDANCE
FROM THE IRS ON COMPLYING WITH THE TAX CODE

Washington, D.C.

Friday, July 22, 2011


PARTICIPANTS:

Tax Analysts:


    CHRISTOPHER BERGIN

    JEREMIAH CODER

    MEREDITH FATH

    ROBERT GOULDER

    MARTIN LOBEL

    GEORGE WHITE
Other Participants:

    RONALD DABROWSKI
    Internal Revenue Service

    MIKE DESMOND
    Bringham McCutchen, LLP
    Former Treasury Tax Legislative Counsel

    ELI DICKER
    Tax Executives Institute

    ARMANDO GOMEZ
    Skadden, Arps, Slate, Meagher & Flom, LLP

    JAMES HALPERIN
    Judge, U.S. Tax Courts

    CHRISTINE HARRIS
    Tax.com

    MONTE JACKEL
    PricewaterhouseCoopers

    JAMES KEIGHTLEY
    Keightley & Ashner, LLP

    FRED MURRAY
    Grant Thornton, LLP

    PHILLIP PILLAR
    Greenberg Traurig, LLP

    CHRISTOPHER RIZEK
    Caplin & Drysdale

    LINDA STIFF
    PricewaterhouseCoopers

    MARTIN SULLIVAN
    Tax Notes
PROCEEDINGS

(9:07 a.m.)

MR. BERGIN: Good morning, everybody. Thank you for coming. I feel like I should start with an opening in thanks of air conditioning today.

Welcome to the latest in the Tax Analysts' series of discussions on key issues in tax policy and tax administration. Today's topic is taxpayer guidance, a subject of some mild controversy in tax circles and about which I look forward to a good discussion today. We have a magnificent panel.

I'm Chris Bergin, the President of Tax Analysts, the nonprofit publisher of "Tax Notes," "Tax Notes Today," State Tax Notes," "Tax Notes International" and many other print and online products on federal, state and international taxation. This is our ninth year of conducting discussions on tax policy. If you are new to our discussions, let me say it's great to have you here. Let me also just take a moment to explain our process today and get some housekeeping matters out of the way.

I will open things up with some brief remarks to introduce our topic. I will then introduce our distinguished panel of speakers. Each of them will address aspects of our topic. After that we will open up the discussion to all of you and we encourage all of you to participate. Whether you are seated at the table or are a bit away from it, just wave and I'll find you. We are steaming audio of this event on our website and that's important because wait until we get a microphone to you or else you won't be heard. And we will post the audio cast and a transcript of this conference on our website. Also for media purposes, we are on the record. So when I recognize you please tell us who you are-even if I know you from the transcript. Also speak into a microphone. For those away from the table, we have hand-held mics that we will quickly get to you.

Now on to our topic. As you know, the finds more ways to require more information from taxpayers, taxpayers and their advisors find it hard to find any reasonable comfort in many areas of tax planning and compliance. More and more the government and tax professionals distrust one another, which is not a good situation. The IRS worries that taxpayers are finding new ways to hide the ball and taxpayers worry that they'll get caught by an increasingly complicated and draconian penalty regime if they merely make a foot fault because the rules, both the legislative rules and the administrative rules, simply aren't clear.

Congress of course deserves much of the blame for not enacting clear and concise laws and for often punting on many of the technical issues. But today our focus is on the administrative side of things. Treasury and the IRS have a big challenge in trying to create compliance regimes that reflect congressional intent in a particular area, but most tax policy observers would agree that the fear by Treasury or the IRS of getting it wrong has crippled those agencies so much that now they issue rules on only the most urgent or noncontroversial projects. We need to find some way to get the key players off this treadmill and create some real two-way transparency.

In that spirit, we will not spend our time today pointing fingers. We will focus instead on how to revitalize the guidance process by looking at the impediments in the informal processes of Treasury and the IRS. Our distinguished panelists also will offer insights on how to deal with the burdens on taxpayers caused by the increasing use of informal guidance. We've put together as I said an excellent panel today. Let me introduce them in the order in which they will speak. Linda Stiff is Managing Director with PricewaterhouseCoopers and former Acting Commissioner at the IRS. Michael Desmond is a partner at Bringham McCutchen and former Treasury Tax Legislative Counsel. Phillip Pillar is a partner with Greenberg Traurig. Christopher Rizek is a partner with Caplin & Drysdale and former Treasury Associate Tax Legislative Counsel. Let's get started. Linda, would you start us off?

MS. STIFF: A couple comments I want to make to start with and the first is to tell you that my experience with the guidance process is probably a bit different than my fellow panelists. I did not work in chief counsel. I did not work in Treasury tax policy. And I'm not an attorney, for better or worse. So I just get all that out there as a disclaimer to start with. I did have 30 years with the IRS and I was fortunate enough to work in many operations and end up serving in a stint as Acting Commissioner and Deputy Commissioner for IRS, and in those roles I can tell you that time and time and time again I was confronted with situations where there was either an expectation that we deal with something or taxpayers were clamoring for certainty in areas where it just didn't seem to exist. A couple of observations -- and they're personal -- of mine, is that later on I think Mike's going to walk a little bit through the guidance process, and when you look at the process in a neutral environment, not as it applies to a specific issue, I personally believe that the process is neither fundamentally or inherently bad or failed or completely ineffective as I've heard some say. I don't believe that. I believe that it works where it works well. That doesn't mean I don't have thoughts about how to make that better. Secondly, I personally also believe that there are appropriate separate and distinct roles to be played by Treasury tax policy, IRS and IRS operations. I might, and I'm going to suggest that, I think there are times where maybe you don't need equal measure of all three on every issue, and I'm not sure that the system works to make those kinds of distinctions the way it should today. And Chris, I'm going to go back. You said something about it seems like the IRS is trying to hide the ball, uncertainty. And just to make this interesting, I'm going to take issue with that right off the bat because having been at the IRS and had a chance to work with my colleagues at Treasury Tax Policy and Chief Counsel, I can't think of a single time -- and I say this with all seriousness, it's going to sound cutesy but it's not -- I can't think of a single time where we got in a room and said, "what do we need to do? Let's hide the ball."

I clearly have experience after 18 months in the private sector of telling that I've seen when it sure looks like that's what was happening, so I don't quibble with the perception, but I just have to weigh in and say that I just don't recall that ever being the driving force. I do believe that the topic of guidance, while not a new one -- Chris, I applaud you for putting this together because this moment in time for guidance may be one of the most critical and it may be the moment to actually move to something that will make that process better. And I say that not even because of legal issues, because I've already said I'm not an attorney. I say that because the world has changed. I say that because the taxpayers, the businesses, the companies and others, but predominantly the business and large companies that most of us probably serve and work with, their work changed. Globalization, technology, competitiveness, their need to survive -- and if they can get past survival their need to prosper -- that has forced them to change their business models, in particular their decision-making mechanisms. There is simply no way to have a conversation about businesses in the year 2011 and not realize that they have no choice but to operate, make decisions and move in real time. And when I say real time, we all know what that means, but I honestly believe real time is actually an understatement. I think in some instances it's more like a blink of an eye. You don't, somebody else moves. And I think by definition -- and I'm not saying anything that everybody doesn't already know, but I think by definition bureaucracies weren't created, designed and certainly are not currently equipped with technology resources otherwise to move in real time in the manner in which businesses are now having to operate.

So just apart from the tax implications, I think that gap between the need of businesses to perform business and the ability of the tax authority in this country to respond in terms of certainty and guidance, I think perhaps that gap has never been bigger. I think we see the IRS taking steps to mitigate the gap with the CAP program, with the expansion of the Industry Issue Resolution Program, broader use of industry directives, but that gap has never been bigger. I think that that gap and the pressure on that gap is going to be intensely heightened as a result of the new disclosure regime for Schedule UTP. As that is implemented, those pressures are going to increase for companies and taxpayers. They're going to increase for tax professionals. And ultimately, and I think the IRS knows this, it's going to put a tremendous amount of pressure on the IRS guidance process. Because when you have taxpayers now producing and submitting a list of uncertain tax positions on an annual basis, let's hope that the IRS's commitment to create a screening process that will review those uncertain tax positions -- identify, cull out and put in a different bucket those positions that they can tell are there because of a lack of clarity and guidance in the existing information available -- if they literally identify those and cull them out and begin working on a different treatment stream as opposed to sending them out into the field auditing those issues year after year after year letting them go to appeals -- where 98 percent of the cases are resolved not because businesses think the IRS is right, not even because the IRS thinks the business is right, because at some point it becomes cost-effective to concede, pay a fee and move on because there is no right and you're not willing to bear the cost of litigation.

So let's hope that the Schedule UTP puts that pressure on the IRS and that the IRS does what they've indicated they will do, which is look for those issues. I personally advocate for -- I think there needs to be accountability to ensure it happens, and even if those issues aren't resolved in the way of guidance, I believe there ought to be a line of sight between us and the IRS on those issues so that you can begin to see what the movement is, where they are, and maybe that will create some sort of momentum around that itself. Chris, I lost track of time so you've got to help me here.

I am a realistic optimist and that means that I believe in change, I believe change is good, but I think -- and it applies generally. today we'll apply it specifically to guidance. I believe that when you talk about change that responsible leadership has to look at the environment and say is the change, that we want incremental or is the change that we want radical breakthrough change? I have no doubt that I know what the answer is to what we want. I think we have to bind because that's what -- leadership does what it wants against the realities and I think one reality that I'm not willing to bet on -- not one penny -- is that somehow Congress is going to solve this dilemma for us. So now you know one thing I feel passionately about.

The second thing I'm not willing to bet on one dollar and won't hold my breath even for a minute waiting for it to happen is that in today's world that Treasury tax policy or that IRS Chief Counsel is going to see any increase in resources. So I think when we talk about what we want from the improvements to the government process, it's productive to say what Congress can do because certainly we want to influence that, but to count on it we're going to sell ourselves short in terms of crafting the improvements that we could maybe achieve. If we're counting on resources in any great measure, it might make sense -- don't think it's going to happen and if it's going to build into this we're going to sell ourselves short of what really could be accomplished. So I think it's very important to bind it by reality. It begs questions. Do we want more guidance? The answer is probably self-evident. Do we want it faster? I don't even think I have to ask that question. Are we concerned with the quality of the guidance we're getting? I think that's a question. I don't know. Maybe the quality of what we get when we get it is okay. Maybe we're concerned with what we don't get, so the improvements from the processes we're asking for aren't quality related. Don't know. Are we concerned with the mix of guidance coming out? Do we think there are issues that would fall into a descriptor such as low hanging fruit -- easy? Do we think that there should be an attack on more of that and that that attack should look different than the way the rest of guidance is handled? I don't know. I think it's a question worth asking.

Do we think that there ought to be a bucketing of issues that are clearly controversial versus hard or easy? Because that's a different thought process about dealing with controversial. I also would suggest that there are hard issues. I have come to believe -- I hate to say this out loud, I actually believe there are some questions that nobody means to have answers for and those are the situations where we get into the challenges that we all face. Personally I'm a fan of rough justice. I believe the use of the revenue procedures could be significantly expanded. I think that if you get in a room and all of us argue and have a different position on an issue and we agree that everybody's position has value -- so we can't figure out what it needs to be because we're all coming at it from a different perspective, I believe there's an opportunity to use a revenue procedure to much greater extent than we currently do because what the Service can do through a revenue procedure is they can do what we used to define as -- define the Pearl Harbor, what we won't accept and then go into what the safe harbor is. And then you don't have quite the pressure of putting the right interpretative rule out. You've by definition acknowledged you're not going for perfect. You're going for a safe harbor. And I guess the question that I put before all of us is could we live with more of that and if so is the service and tax policy interested in more?

I don't object to informal guidance. I do think there are downsides. I think the ability -- and they're going to be discussed by my other panelists here and they'll go through the cons of it, but if the choice when I was at the Service and I had a business to run and I needed to know where to put my resources, if the choice was between nothing and something and something being informal, I didn't oppose it. My concern was if you were going to use informal guidance, could we craft some rules around it so that if the taxpayer relied on that informal guidance, at the point in time it's changed there was a warning? It wasn't changed retroactively or for returns already in place.

So I think there's lots of opportunities to talk about a streamlined process in some situations, expanded use of revenue procedures, of informal guidance and shaping what would make it more acceptable to us, and I probably think a whole lot of other things after 30 years at the IRS. But I will pause and get a chance to weigh in in a little bit. So, Chris, that's my kickoff here.

MR. BERGIN: Thank you.

MR. DESMOND: Thanks, Chris, and thanks again for organizing this. I think this is a great panel and hopefully we'll all learn a little bit here today about the process.

I was going to take a couple of minutes to set the stage for the guidance process -- and we can all come back and talk a little bit -- some of the impediments to getting guidance out and talk about the framework that we're working under to help set the stage for that.

From my perspective, I think like many in my generation I learned about the legislative process back in the early 1970s watching "Sesame Street" and the little jingle of "I'm Just a Bill Up on Capitol Hill." I've been trying to sell to PBS the idea of I'm just a reg sitting here in Branch Three of Deputy Chief Counsel for International, but that's not going too well. So on that front I thought I'd try to walk through that process. Many people in the room are already at 1111 or have been or are at Treasury Office of Tax Policy so this is not going to be new to you, but I think just for purposes of setting the stage, it's helping to walk through what the guidance process is and really what we mean by guidance at least in very general terms.

From my perspective coming out of Treasury, I focused when I was in government mostly on the published guidance process, and by that I mean regulations and anything published in the Internal Revenue Bulletin, which goes through various delegation orders and is reviewed by and has input by the Treasury Office of Tax Policy. So those are sort of the two general buckets that I used to work in, regulations and IRB guidance, revenue rulings, revenue procedures, notices, announcements and those kinds of things.

I think a lot of our discussion today is going to be focused on a third bucket, which I identify as everything else, and that ranges very widely from FAQs, which we've seen a lot of recently, to forms and publications coming out of the Forms and Pubs Division of the IRS, to letter rulings, technical advice memoranda, industry directives, all the way down to even such mundane things such as speeches and comments given by IRS officials and even letters that are sent in to the IRS where people try to identify a particular issue. All of those kinds of things are pointed to by taxpayers and their advisors as at least something in the area of guidance. But that everything else bucket that I talked about is one that I think is as I said increasingly being looked to by taxpayers and the IRS as the vehicle to get direction out to taxpayers and to advisers, and that's creating some problems and creating some tension. And it doesn't fit well with the historical paradigm of how guidance is reviewed as I said through these delegation orders up through the Treasury Office of Tax Policy with a kind of set framework in place for reviewing guidance and coordinating guidance not only internally within the government, the Treasury and IRS, but also on the Hill and externally by getting people to comment on guidance. So when you've got things coming out that aren't coming out of the IRS or out of the government under an established framework, you don't necessarily have the input that you would have certainly on something like a formal reg project. So again I think we're going to talk I think in some detail here later this morning about all of the challenges and perhaps the benefits that come out of this less formal guidance, but there are issues there and I think an increasing number of issues given that more guidance is coming out of that informal framework.

Just to take a step back then and walk through for a couple of minutes the process, I think it's probably easiest to start -- and again many of you are familiar with this -- but to start with how a regulation really becomes a final regulation and the internal process within the IRS which if you've been at the IRS or Treasury you're familiar with, but many taxpayers and advisers probably aren't that familiar with, but as you walk through the steps particularly for a formal regulation, you very quickly start to see some of the challenges that are presented and you start to understand why more regulations aren't put out because there is a very robust review process that has to be gone through to involve all sorts of constituents externally and internally in that process.

As I think all of you know, the way that process typically starts is the IRS solicits on an annual basis input from taxpayers on what they think should be added to the Priority Guidance Plan. Each year the IRS and Treasury publish a formal Priority Guidance Plan which tells the world what they're going to be working on. And that starts from lists of dozens or even hundreds of projects that come not only from outside advisers and taxpayers, but also internally. What does LB&I and to work on? What does SBSE want to work on? All of those things go into the mix and ultimately a list of priorities is put together through the annual Priorities Guidance Plan. Timing of that has fluctuated over the years, but there is a fairly regimented process by which guidance is identified and priorities are established within each subject matter jurisdiction.

Oftentimes that's influenced by new legislation. If there's a big new statute that's come out -- during my tenure it was Section 199 and that caused all sorts of work that had to be done -- to implement that new statute, it rearranges all of the Priority Guidance Plan or the priorities on the prior guidance plan, but also influenced by what's happening on the enforcement side, unanswered questions that may be coming independent of the tax area -- but changes to IFRS, for example, in the accounting area, will create needs for guidance and rearrange the Priority Guidance Plan.

But at the end of the day there is a formal Priority Guidance Plan that's put out by Treasury and the IRS, and with respect to each item identified on that plan, a team of people was put together involving Chief Counsel and the Office of Tax Policy. And on my staff at Treasury I had subject matter experts in all the various domestic areas who would work very closely with the Chief Counsel attorneys to start the drafting process and would work through, over the course of many weeks and sometimes many months and sometimes even many years, to put together a draft of the guidance that's been identified. That is then circulated in Reg form. If it's a proposed regulation you'll have what's called a Green Sheet Circulation of that proposed regulation. That is circulated within the IRS and within Treasury to a number of constituents outside the subject matter that it's been drafted in, so you can get input on a financial products area from the international people who obviously have an interest in many financial products issues. But the idea is that you get a broad buy-in and broad opportunity for a number of people with different interests to weigh in on a movement of a proposed regulation at that kind of drafting level, and input comes in, more people will be brought into the process, more drafting occurs, and ultimately a somewhat final version of a regulation is produced and there is rough agreement that that's the regulation that will be published, and taking it, at least in this point in the example, of a proposed regulation.

That will then move internally within the IRS in what's called a Pink Sheet format, and there's actually a pink sheet that has various initials and signatures on it. And technically it's supposed to move through a number of levels of clearance, through the IRS, through Chief Counsel -- the commissioner's side gets to weigh in on that as well -- and then it moves over to the Office of Tax Policy where there has been a staff person working on it, a staff attorney, who will also sign off on it, presumably knows very well what's in that regulation, and then move it up through a chain at Treasury to either the benefits tax counsel, the tax legislative counsel for most domestic issues or the international tax counsel, again, who hopefully has been briefed on any contentious issues, and it shouldn't be too problematic to get it through that level of review. And then it keeps moving, in the reg format anyway, through other layers of review within the Treasury Department.

So, regulations will then go, and the assistant secretary and perhaps deputy assistant secretary will be briefed to know that something's moving, but it then moves down the hall where the Treasury general counsel has an opportunity to weigh in on it and the executive secretary at the Treasury Department also weighs in and has to sign off on regulations moving through the Treasury Department.

There's also some input at that point by OMB that will look to things like the various non-tax requirements for Paperwork Reduction Act and other requirements, but there are other levels of review as it's moving through the Treasury Department.

If it comes back to the Office of Tax Policy, where there's confirmation that we've gotten all the approvals for this, and, ultimately it's signed off on by the assistant secretary for tax policy as a final regulation ready to be published in the Federal Register.

It then goes back to the IRS where it's dropped publicly and ultimately is published in the Federal Register.

Just from that brief description you can see the number of challenges that are presented with all of those people involved in the process. Many of those people, particularly Treasury, haven't really been briefed, certainly haven't been involved in the day-to-day drafting, although hopefully if there are contentious issues they have been vetted ahead of time, but there are a number of different impediments along that road to getting this regulation actually published. People will change their minds on things, people will have a new appreciation for issues that were previously thought to have been agreed upon, and there are a number of challenges that come up in that process. But you can see why this takes weeks, months, and perhaps even in some cases, years, particularly on regulations that do have impacts across a number of different subject matters, where you've got financial products and perhaps some accounting issues and perhaps some international issues, that aren't necessarily easily reconciled. The international folks may have their own interests and what's being done on the domestic side may conflict with those interests and you have to try to reconcile them. And some of that vetting doesn't come about until very late in the drafting process when someone for the first time has an opportunity to really sit down and read that regulation and figure out what the issues are and what can be done to address them.

And that's just to get to the form of a proposed regulation. You know, then you've got a series of public hearings, you get a number of comments coming in from the taxpayers and the advisors, and then you go through that whole process all over again in order to finalize that regulation.

So, you can see why this takes months and years to get guidance out in areas that where, as Linda was saying, there may not be answerable questions there to begin with and we all have the concept of rough justice and getting something out, meanwhile taxpayers are, you know, banging down the doors to get this guidance out and people are really struggling internally to try to get it out, but oftentimes you've got statutes and issues that just are very difficult and perhaps sometimes impossible to reconcile, it causes delays and causes impediments to getting guidance out.

So, that's the process, very thumbnail sketch of it, on the reg side. On revenue rulings, revenue procedures, notices, announcements, and things that are published in the Internal Revenue Bulletin, it's a slightly more streamlined process only because the higher levels of review at Treasury don't necessarily come into play. And I say "necessarily" because there are a lot of somewhat controversial issues that do come out in the form of revenue procedures and revenue rulings. And when I was at Treasury, the secretary's office actually wanted to be aware of certainly anything that was controversial -- anything they might get a letter from a congressman on, anything that the White House might hear about, they wanted to at least know what was going on. So we had a fairly robust process of briefing the secretary's office on a lot of what we were doing even if it wasn't really very controversial, because you never really know what's going to be controversial until it hits the street. So even IRB process -- or IRB guidance -- can have a somewhat detailed review process, although technically, at least when I was there, the delegation order went down to my level, to the Tax Legislative Counsel, to sign off finally on a revenue ruling or revenue procedure, but I wouldn't do much without at least informing Eric Solomon, and in most cases if it was something of any controversy at all or potential controversy, making sure others in the building were aware of what was going on so they didn't hear about it the first time when they read about it in Tax Notes the next morning.

So that process, even with revenue rulings and revenue procedures, can also be somewhat cumbersome and difficult to get guidance out.

So, having laid that framework for formal guidance, you now start to think about other types -- everything else, FAQs and all those kinds of things -- and, again, I never worked at 1111 directly so I was never in the line of actually reviewing those things. I know Chief Counsel is involved in many of those projects and does weigh in on those, but they are not subject to review at the Office of Tax Policy and for the most part they're not subject to any sort of external notice and comment or input process.

Oftentimes when I would find out about those kinds of other guidance or other everything else, it would be reading about it in Tax Notes. And there's a lot that comes out of the IRS in forms and publications and FAQs and everything else, so it's not something that, you know, I had the staff or the time or the resources to pay attention to. But there is a lot that comes out of the IRS that is really, if known by the Treasury Office of Tax Policy, not well known, but there is a whole different review process for that at the IRS that doesn't go anywhere near as far as the review process does for published guidance. And in that regard it can be issued a lot more expeditiously than published guidance can -- and there are, as we'll talk about later today, a lot of benefits to that. Certainly having a FAQ out there is better than having nothing, but there are some drawbacks as well, as I said, that we'll get into.

So, that's a bit of the framework. Just a couple of other things to mention, some by way of anecdotal stories. Outside kind of the substantive tax area, pressure points on getting guidance out, particularly on the Reg side, there are a number of requirements, and even on the other published guidance side, things like the Paperwork Reduction Act and things that I had never thought about before I went to Treasury, but when I was at Treasury those things seemed to create all sorts of incomprehensible barriers to getting guidance out.

One story I remember is after Hurricane Katrina we were working -- and Linda was very active in this at the time, trying to get guidance out to taxpayers who had been affected by one of the worst natural disasters in many years, if not longer. And one of the issues we were working on is we had a number of people come in saying, you know, we have hotels down in the affected area and we're trying to house Katrina victims here, but we're all set up as REITs and these are hotel REITs that have a transient housing requirement that you can't let people stay in a hotel REIT for more than, I think it was, 14 days, kind of the general understanding you could only be in the hotel REIT for 14 days. We had hurricane victims who were staying in hotels for much longer than 14 days, theoretically putting at risk the hotel's status as a REIT and the tax benefits they get from that. So, we said, well, that's a very understandable problem, why don't we work with you, we'll put out a notice that exercising our prosecutorial discretion, we, the government, are not going to throw the book at you because you housed hurricane victims. Very understandable guidance that we wanted to put out.

There was at least a two-week delay in getting it out because one of the things we wanted to do was to have a certification by the taxpayers as to how these people were going to be there, how long they'd been there, you know, sort of documentation so that there was some check on this. That documentation requirement had to comply with the Paperwork Reduction Act. So, we had a two-week delay in getting guidance out on this because we needed to comply with the Paperwork Reduction Act -- but those kinds of things raise all sorts of issues.

The Regulatory Flexibility Act is another favorite of mine, an issue that came up a number of times when I was at Treasury. It's not driven by tax necessarily, the Regulatory Flexibility Act applies to all government agencies, but we had a very interesting hearing at the Small Business Committee where Chairman Manzullo was not in agreement with our compliance with the Regulatory Flexibility Act for one particular set of regulations, and that got to be an issue as well. So, Reg Flex, Paperwork Reduction Act, those kinds of things that I had never focused on, posed some impediments to getting guidance out that you don't necessarily think of, unrelated to the substance of the guidance.

So, I know we're going to talk a little bit more this morning about other kinds of anecdotal stories that will help to illustrate the problems and the challenges of getting formal guidance out, but with that I think I'll turn it back to Chris and maybe hear from Phil and Chris.

MR. BERGIN: Thanks, Mike, excellent context. Phil.

MR. PILLAR: Thank you, Chris. Thank you all. My perspective is as a consumer of guidance and previously with the government as a defender of guidance in litigation.

At the risk of stating or restating the obvious, the challenges to the guidance process that I see are the complexity of the Internal Revenue Code, the number of law changes, particularly recently, the new responsibilities for the IRS and Treasury in financial markets and healthcare regulation -- as Linda alluded to, the effects of administering a globalized tax system, whether that is enforcement in tax evasion, such as the OVDI program, or the more mundane but perhaps even greater challenges posed by transfer pricing administration, the Treasury and IRS policies and processes and politics, frankly, some of which we've heard about already, avoiding the establishment of tax policy in litigation, something that I've seen in my career, and most recently the Chief Counsel's call for more pretty good guidance, which I think we can all agree with.

I would cite as a couple of recent success stories, anecdotally and briefly, for further discussion -- as a Schedule UTP, for example. Something that went from an announcement to a final form in world record speed and one whose evolution I think reflected responsiveness to comments and concerns expressed along the way, including a modification of the policy of restraint in requesting tax accrual work papers. I can only echo Linda's call for the execution of the promise from the very beginning from the Commissioner that this process be utilized to produce guidance for uncertainty and not merely as an enforcement tool.

A couple of other success stories I would cite, one ongoing as well, FATCA, this far reaching information reporting and withholding regime for U.S. person's foreign accounts. We've seen comprehensive guidance issued in the form of notices in the last several months, a draft form has been released and recently a phased implementation for foreign financial institutions was announced, I think those are all very positive.

Going back in time slightly, I think that the guidance process around the regulation of return preparers and return preparer penalties under section 6694 is commendable. What the service did in response to the rapid succession of law changes made it more administrable and easier for tax practitioners.

We might compare and contrast those with guidance in the aforementioned offshore voluntary disclosure initiative, and there's been a well-reported controversy about that that I think we'll have a chance to discuss in more detail. I would also offer the guidance issued in connection with the codified economic substance doctrine and most recently, of course, the LB&I field directive, which, simply stated, has its own inherent limitations, however valuable the content and the guidance may be.

One thing I'd like to raise, I don't think has been mentioned so far, is the potential wide ranging effects of the May Foundation case on the guidance process, not limited to final regulations, subject to notice and comment, but the other types of guidance that we're discussing this morning as well. And I think we can all agree that informal guidance, such as Frequently Asked Questions, are helpful -- but how reliable are they and what protections are offered taxpayers who attempt to abide by those rules, and what avenues remain for those who wish to challenge them? So, I think those are some of the issues that remain in front of us in solving the so-called guidance problem.

Thank you, Chris.

MR. BERGIN: Thanks, Phil. Mr. Rizek, you get cleanup.

MR. RIZEK: Okay, Chris asked me to bat cleanup here. And he asked me to be on a positive, constructive note, which is an unaccustomed role for me to -- so, I'm going to be Little Miss Sunshine here. I mentioned that to someone earlier this week and they asked me if I was going to do the Super Freak dance for my talent entry, but I assure you I am not going to do that, however amusing that might be. (Laughter)

I'm just going to talk about guidance, it's really boring. But first I also want to thank Chris and Tax Analysts for not just sponsoring this conference, and asking me to participate, but also for the really invaluable service they provide in this area, in this area of helping the IRS promulgate guidance. They have been instrumental in forcing more openness and transparency from the IRS. I was at Treasury in 1998 when the most recent revisions to 6110 were done and that was, you know, largely the work of Tom Field with Tax Analysts, and we all open them up and read them first thing every morning, and I think the IRS counts on that, and we all found out things just the past week in the informal guidance area by reading them in Tax Notes or Tax Notes Daily, and so I want to thank you for that, Chris, you've really performed a great service here.

I might summarize the guidance process in general and I want to, in my role as cleanup and reactor, comment on something that kind of is exemplified in the tension between what Mike and Linda said, which is, you know, there is a lot of process that goes with the guidance process that is inherently cumbersome, as Linda said. Bureaucracies always move slowly, process always slows things down. You know, in a way that's inevitable. It's a good thing -- the default in our system of government, whenever there is a controversy, is to add more process to it. That's what our -- we don't have a very efficient government because it's designed not to be. We don't have Mussolini making the trains run on time because we decided that's not a good thing. So, it's always going to be like that. There is nothing you can do to change that. The only question is how much, in what circumstances, how you work that process either to minimize it in certain circumstances or maximize it in other circumstances. And when you think about it in those terms, it's actually a miracle that as much guidance gets out as does. And you look at the annual business plan every year, there's some -- you know, they publish their success statistics at the end of each year too, and there's some very creative Soviet-style accounting sometimes there, but nonetheless, there's an awful lot of guidance that actually gets out. And the other remarkable thing about it is it does get multiple levels of review, it usually gets it pretty right, the amount of carping about it on the outside is, actually when you take all that into account, remarkably small. We all learn to live with the guidance that comes out. We may disagree with certain positions in there, but ultimately because all of that process has occurred, I think most people in our business feel, even if we disagree with particular guidance or particular policy choices that are made or reflected in that guidance, that we got a fair shake, that the community of people interested, the stakeholders in that, got heard and the result is there's remarkably few challenges to substantive guidance, even fewer of which are actually ultimately upheld.

So, in the light of that, I want to talk a little bit about the shift we've seen to more informal guidance -- and Mike talked about the third bucket of everything else. I want to back it up a little bit into the second bucket because one of the things the Mayo Foundation case has put a spotlight on is not just things like FAQs and guidance to field examiners, but notices and announcements, and even, perhaps, rev. rules and rev. procs, things that get a lot of process, but are not final regulations subject formally to notice and comment.

Just last week -- I'm sure you all watched the soccer game on Sunday, and I'm a soccer fan. So, somebody asked me about the game, and I said, well, it really reflected the strengths and weaknesses of the women's team. I mean, they had a lot of energy, bad finishing. Good goal-tending, bad defense.

And the things we saw last week in the informal guidance area are sort of similar. We saw the FAQs on UTP, including modification of a couple of substantive areas I think a lot of people found very useful. We saw field guidance or guidance to examiners on how to apply the economic substance doctrine, which economic substance codification rules, which I found very interesting because it's the first time that enumerated a number of factors that are going to be taken into account in connection with that.

We also saw the draft rev proc. Boy, there's an interesting concept, a draft revenue procedure on the ex parte rules, which for those of us who do a lot of appeals work, probably didn't break a lot of new ground because that's how Appeals has largely been applying it anyhow, but it's the first time I've seen it out there in writing on a lot of features of that. And all of those things reflect all of the strengths and weaknesses of the process that we were talking about.

On the positive side, as I said, they answer a lot of questions people had. They're pretty useful. They have a lot of content in there that people can use. And they'll provide real guidance, not just to taxpayers, but also to folks in the IRS, which we all hope we can agree on how it gets used.

The flip side of that though is also exemplified by the shift of informal guidance, which is we can rely on it. It says right in the draft rev proc on an ex parte, this does not create any substantive reliance for taxpayers, so no substantive rights. Well, what good is it then? Right? Unless you can say, ask that about the ex parte rules in the first place -- and maybe that's the problem. I'm always in favor, and I think we can also get a resolution here in addition to one that says we want more guidance that says we can blame Congress for all of these problems, which probably would be the unanimous consent resolution to pass this week. But anyhow.

It's also unclear how much this guidance is going to be used by agents and how they are going to apply it. The economic substance guidance, for example, every time it got to a hard question, said ask your group manager, which didn't really tell me an awful lot, and the list of factors didn't really tell me that much that you don't know by looking at the Treasury study from 1999 on tax shelters or the series of economic substance cases that have come out in the last 10 or 15 years. So, the things that I think we ought to be talking about here in the informal guidance area are what degree of process, review, and comment should attach to informal guidance, where that line should be? Informal guidance has not always been particularly successful. They had to backtrack on at least one of the FAQs in the OVDI. There's some indication they're going to have to backtrack on another one soon. There's these field exam guidance and directions in lieu of regs or revenue rulings or rev. procs leave a lot of questions open as to whether they have received enough review and whether they adequately and properly reflect the state of the law. And the IRS, as Phil noted, should be concerned about this, too. This is not just something that the private sector needs to be concerned about, because the Mayo Foundation case has put pressure on this, and I think Gil Rothenberg or someone in DOJ Tax announced a couple of weeks ago that they are not going to see to extend Mayo Foundation to rev procs and rev rules. I assume that means that this other kind of guidance is even further down the path of less deference.

But, on the other hand, I've seen in recent years the IRS citing, Justice Department citing notices and announcements and things that maybe aren't technically 6110(k)-type guidance, but that I would never have been allowed to cite when I was in the Justice Department 25 years ago; Steve Firth would have skinned me alive. So, there's a question of how much both taxpayers and the government can rely on this and what sort of deference goes along with those things.

I'm also concerned -- and I'll speak for the IRS here -- Linda said we're not going to see more resources. I have to say, and I say this at every forum that Tax Analysts sponsors, I think that's a real tragedy. The IRS has suffered a brain drain in recent years. All the senior people are retiring. Somebody told me the other day that 30 percent of the IRS is within 3 years of retirement or something like that. I mean, it's an enormous number. And I think a lot of those guys are retiring. I mean, nothing pleases me more than to deal with an experienced revenue agent or an experienced appeals officer, but, frequently, I don't have that luxury anymore, and it's a real problem. It's also a problem at the top, and I would urge everybody here when we're blaming Congress also to blame them for not providing the IRS with enough resources to really keep good, quality people there.

And that has a consequence that sometimes there is a lack, in the informal guidance area in particular, of real deep, critical thinking, and I'm sure I don't want to get negative about the informal guidance process, but I'm sure we can all think of examples where that has occurred.

And the last thing I want to throw out as a suggestion here is it's really time to let the tax shelter phenomenon go. When I teach at Georgetown, many of the procedural developments for the last 10 years have been substantially affected by the tax shelter phenomenon. And Pam Olson declared the war won five or six years ago in a speech I think in this room, if I remember correctly, and I think we should declare it over and move on because the tax shelter phenomenon, the suspicion that that has cast on taxpayers and the antagonism that has been created between taxpayers and tax practitioners has really inhibited the guidance process, among other things, in tax administration, and I really think it's time to let that one go and move on.

And with those sort of positive suggestions and issues I want to have further discussion on, I think maybe I'll just stop right now, Chris.

MR. BERGIN: All right. Thank you, Chris. I'm going to open it up for everybody. I've also encouraged this fantastic panel to engage each other. Remember to tell us your name, and if you're out here away from the table, let us get a handheld mic to you before you start. Let's start here.

MR. MURRAY: Thank you, Chris. I'd just like to raise --

MR. BERGIN: Name.

MR. MURRAY: Sorry. Fred Murray. Pardon me. I'd like to raise two areas that I think deserve some consideration in a discussion like this. The first one ties into Chris' last point, I think. We've seen a real change, a real trend in the law and also in the regulations issued under the law with respect to how certain transactions, activities of taxpayers are viewed or can be viewed. We've gone from what I would view to be a much more -- even though the Code is still enough that it takes two volumes in some services to publish -- from a much more specific kind of rules-based system to a system in which we include many more anti-abuse rules or sort of general rules of application, and some of these new rules are now coming with the penalties that apply to what we call strict liability in their application. And we've done a panel on some of that aspect of these regulations at the last ABA tax session meeting. And I'd like to compliment Jeremiah Coder over here again for his excellent article, where he sort of summarized some of the considerations that some of these new rules evoke. And I think where it takes me is this: That when you have rules of that type, when you have an annual rev. proc that describes the areas in which the IRS will not issue a revenue ruling, and that annual rev. proc is getting to be the size of a volume, where there are debates between individuals and the Service about whether or not guidance can be issued under the economic substance doctrine codification and other rules, when you've got a rule in Section 6662 that defines a tax shelter as basically any transaction for which there's a substantial purpose of tax avoidance, it leaves the taxpayer in a situation in sort of Chris' comment. In just an ordinary garden variety transaction, how do I know whether or not I've satisfied these requirements?

And I think institutionally, we're going to have to sort of rethink whether or not it's appropriate in all cases not to issue no-action letters or comfort rulings or whatever you want to call them and however they might be issued, but it does seem to me that it merits some rethinking. I understand, I worked at the Service myself. I spent a substantial amount of time in the 1990s, when the Republicans took over the House at that point in time, dealing with the House Committee on Government Oversight and Reform describing to various members up there, along with delegations that we took to the Hill, how the Administrative Procedure Act applies to tax regulations, worrying about application, and the Regulatory Flexibility Act and all the other provisions that Michael down here loves so much and commented on.

MR. DESMOND: I didn't even get into the APA, so don't get me started.

MR. MURRAY: Yes, and dealing with the Small Business Administration and all the other actors that are involved in this process. And one of the concerns also at the time in the formulation particularly of Taxpayer Bill of Rights I was the retroactivity of tax regulations and ultimately resulted in some of the amendments to section 7805 of the code.

And that brings me to my second point. When you look at some of the recent litigation, when you look at some of the recent regulations, when you look at Mayo, when you look at the discussion around the Chock Full O' Nuts case and some of the recent opinions in various circuits -- I mean, one of the things we were very concerned about in the mid-'90s was trying to get out of this argument, frankly, that the Service and the Treasury were having with the Hill over whether or not certain regulations were retroactive in their effect or how they affected taxpayers, whether or not there had been sufficient notice and comment and the burden of those regulations.

So, again, thinking ahead to forestall those kinds of discussions, again, I think it merits some consideration of whether or not we're still centered in the middle of the road.

MR. KEIGHTLEY: Thanks, Chris. My name is Keightley, and I was at the IRS for a very long time. I'll do one story on how far we've come. When I was the young attorney, I refused to sign off on an FOI request that turned down a phonebook after Congress had specifically criticized all agencies for refusing to turn over phonebooks. And Tom Field and Tax Notes have really brought us a long way and lots of good information is now available to the taxpayers.

MR. RIZEK: Well, if you have a current phonebook, can I get a copy, please? (Laughter)

MR. KEIGHTLEY: You'll have to make an FOI request.

A couple of comments. One -- and I think Chris' allusion to the tax shelter, my own perspective is the tax shelter sort of activity really questioned the honesty and integrity of much of the tax community in what they were doing. We all know the bad circumstances, and I know law firms, I think personally dodge being criminally prosecuted, and we all know the accounting firm problems. So, I think there's a need for the private practitioners because basically you outnumber the IRS, at least the people who are working on this kind of stuff, 10 to 1, 50 to 1 -- some effort, if you think there are issues that are extremely important to an industry, to bring those in.

I know it's tough to convince a client to pay for that, but you need to get people together and to say we really need to resolve this. Then somebody needs to draft regulations which take an approach which everybody can agree with in the industry. And I know there are divisions within industry -- one says this, the small companies, the big companies -- but some effort if you really want to, one, prioritize the issues that you think are dramatically important to an industry and bring those in and bring them to the IRS.

Two, you need to draft the regs or at least prepare something because one of the problems is that the people drafting these regs really don't understand the industry that effectively. And, I mean, it's a complex industry that these people I assume you're representing really know it very well, and they could actually draft something that made some sense. I understand there's some issues, like accounting issues, that cut so far broad, you can't bring an industry in on that issue. But I do think instead of sort of complaining the system is what the system is, I watched this for 30 years, and if they're doing the best they can and I think the IRS can be more tolerant of mistakes.

I can remember when I was managing the litigation, there was something I think in the Internal Revenue Bulletin, which was 100 percent wrong, and we litigated and told the court it was 100 percent wrong, and the IRS won the case. And we said okay, it was wrong. So, I don't think you get too nervous about that.

And, finally, I think the piece that I think the IRS can control is the penalty administration. We all know that Congress passes and enacts penalties and pretends like they're revenue. Well, they're really not revenue because you can't collect them unless you've got a lot of horsepower to do it, and the IRS doesn't begin to have the horsepower. And when you see the score they put on penalties, it's just amazing.

But, anyway, I do think the IRS can control that. They've got prosecutorial discretion, they've got lots of discretion to assert those penalties and exercise that more effectively. So, those are some of my comments.

MR. BERGIN: Absolutely.

MR. DESMOND: Can I pick up just briefly on your penalty point, because I think that's an important one we haven't talked about? When we talk about informal guidance, there is a definition of authority in a regulation under Section 6662, and one of the concerns that I think a lot of practitioners have is a lot of the new everything else out there like FAQs are not mentioned as authority under the regulations. So, there are some real questions out there.

I mean, as much comfort I take in an FAQ because it's helpful, it shows us where the IRS is going to move in terms of enforcement; as a matter of law, I can't walk in under that regulation and say even though I'm wrong, my taxpayer, my client isn't subject to penalties because it's not listed as authority under 6662-4. So, when we start talking about all these new kinds of guidance, again, as helpful as they are, there is a disconnect there. I mean, not only can you not rely on them substantively, arguably, you can't rely on them for penalty protection because they're not identified in the 6662-4 regulation.

MR. KEIGHTLEY: Well, I'm a little out of date, but I remember 6110 had specific language saying you can't rely upon this, and the Supreme Court cited some ruling.

MR. DESMOND: It does. Right.

MR. KEIGHTLEY: Courts will do with whatever is going on, and they will come to some rational judgment on what's going on.

MR. DESMOND: Right.

MR. KEIGHTLEY: I think that could be done at the IRS level. You may have to give the agents and the group managers more discretion on the issue, but I do think to minimize that exposure to huge penalties, which, as I say, Congress throws in there.

MR. DESMOND: Right.

MR. KEIGHTLEY: Pretending like they're revenue.

MR. DESMOND: Presumably, you're not going to get the IRS taking enforcement action against its own FAQ, but, as you indicated, there are situations where the IRS has litigated against its own published guidance, against its own regulations, and there's certainly nothing as a matter of law that says they can't litigate their own FAQ or their own press release. But there is, and that's that tension that we've alluded to a couple of times between the benefits of getting guidance out quickly, promptly, immediately on FAQ, the FAQ-type thing, and the potential drawbacks of taxpayers really not being able to take a whole lot of comfort in what's published in those formats.

MR. KEIGHTLEY: And as a manager, I kind of go :that's the price of producing a lot of these things that people want. You're going to have some errors, you're going to have some problems, you're going to have some litigations surrounding it.

MR. DESMOND: Right.

MS. STIFF: Another thing that we're seeing a shift in, I think in the last couple of years, is not only is Congress passing those penalties, but in the past where the IRS didn't act on them, Congress is now asking for reports regarding the assessment and the instances where those penalties were used, and I think we're seeing that fallout in the audit stream process in a way that we didn't see even four years ago.

MR. RIZEK: And there're strict liability penalties --

MS. STIFF: Right.

MR. RIZEK: -- for which it takes away the discretion whether to apply them or not once you've taken an underlying position.

One of things Linda mentioned earlier that I think contributes to the tension that Fred was talking about, and that's the desire to have consistency versus rough justice. I think the OVDI Program is a perfect example of where the urge for consistency has kind of run roughshod over rough justice or even just getting things right sometimes. I'll just give one war story. The closing agreement is written in stone. It is etched in stone, and I had a taxpayer who had already paid, had been assessed, and the closing agreement was written in the future tense, the IRS will assess and he will pay, and I'm like, no, we've already done that, we need to change that. It's written in stone, so I had to write a very elaborate cover letter sort of walking the closing agreement back a little bit.

The tension between wanting uniformity and consistency and being willing to apply rough justice and give agents discretion is reflected in the tension between hyperlexis regs on the one hand where they try and write an example to accommodate every situation they can think of and a principle basis. It's easy to have a principle based system. Circular 230 is another good example. Why do you need 1035 if you have a due diligence rule? Right? But the problem is in applying a due diligence rule, you have to give discretion to managers and agents and you have to accept a certain number of things are going to fall through the cracks as opposed to getting consistency across the board. That trend towards desire for consistency, desire to address every situation, the hyperlexis and cumbersome process that goes with that has actually slowed down and been counterproductive for the guidance process and for tax administration generally over the last couple of years, in my view.

MR. MURRAY: Okay, I'd just like to capture one thought before we move on, and that is the discussion going on between Michael and Jim on the point of whether or not FAQs are authority for purposes of penalty protection. That only requires an amendment to the Section 6662 regs to add one more item of guidance to the bottom of that list, and I don't think that's -- I don't think that's a major -- or if someone does think that's a major problem, then I think that's probably worthy of discussion in and of itself, but --

MR. DESMOND: I had the question in my office the other day. We were debating whether -- because IRS press releases -- information releases -- are authority. So, what happens if IRS attaches or announces FAQs through an information release? (Laughter) Does that make them authority?

MR. MURRAY: Oh, and also it -- so much of this is now coming out, too, on a website page --

MR. DESMOND: Right.

MR. MURRAY: -- which is not even a PDF, and so you have to save the website page in order to, you know, attach it somehow to a file to be able to point to it --

MR. DESMOND: Tax Notes does that for us.

MR. MURRAY: Yeah, at some point, and some of that has introduced some interesting evidentiary questions as well.

MS. STIFF: I also think just it's the elite, the offshore initiative kind of highlights several things that you all have spoken to, but I think it also highlights something else that -- the combination the Treasury and IRS struggle with around guidance is a tendency to be so risk averse and the ability to be willing to tolerate some mistakes, and even our ability and the press's ability to not cut them off at the knees when a mistake is made, because one can easily see how in a situation with OVCI you were looking for consistency because you thought you were dealing with tax cheats, okay? And then as you see the population that it encompasses, it's not all that characterization and an ability to make an adjustment and deal with what you've already done in a way where the agency -- treasury -- can retain credibility there.

MR. MURRAY: That's an excellent point. And it also is -- you know, there -- a lot of us, particularly those of us who have worked in the Treasury and at IRS and the Chief Counsel, understand the problem that, you know, you worry about the fact that, you know, there's been tension with each new assistant secretary for tax policy, with each new commissioner, and so on. Things change from a rough justice approach to a more detailed approach and whatnot, but one concern that's always there is if we write a really specific rule, then some really creative tax accountant or taxpayer out there is going to find a way around that rule. On the other hand, we've now gone so far to the end of the spectrum with these broad-based anti-avoidance rules and strict liability penalties behind them that, you know, the pendulum's come so far out to the other side that it does, I think, beg the question that you raised, Linda, and that is, you know, understanding that we're risk averse, that we don't want to allow the taxpayer a cheap victory somewhere in an inappropriate case. There are lots of other people, though, that probably do deserve some avenue, some way to get some sort of certainty around their affairs, particularly when there is so much money involved.

MS. STIFF: Well, I see some of my former colleagues from IRS in the room here today, and they would vouch for the fact that my risk appetite was greater. I wasn't afraid of the one case we might lose some day. I wanted to get it more right and be willing to live with some mistake, because a fear to make a mistake generally results in nothing.

MR. KEIGHTLEY: While more expensive.

MS. STIFF: Mm-hmm.

MR. DESMOND: One thing we haven't really talked about, but another driver -- and I don't know if it affects tax policy any more than IRS, probably not -- but the IRS is subject to fairly robust congressional oversight, annual -- if not more often -- hearings, and that's not always a very rational process.

(Laughter)

MR. BERGIN: Very diplomatic.

MR. DESMOND: Poignant memories of my time at Treasury was sitting in my office with Eric Solomon after we put out some guidance on the ability of tax return preparers to use information disclosed to them. There are prohibitions on what return preparers can do with information. I remember sitting there watching and the TV was on in the background. We were talking about something. No volume, but I remember out of the corner of my eye seeing the evening news on CBS having this retraction from a revenue procedure splashed all over the evening news on CBS about how the IRS and Treasury were allowing return preparers to sort of willy-nilly use return information for all of their own economic benefits and goods, which was a complete opposite and incorrect interpretation of what we were doing. But, you know, that level of politics and certainly all of us, you know, everyone in this room has stories of Congress getting it wrong on how -- what we're trying to do at the government -- what we were trying to do has been completely misconstrued and taken out of context. When you have things like offshore voluntary disclosure, very high-profile issues that the government officials have to keep inn mind the political pressure that may come in and the broader general public's views of what they're doing, even though many thousands of people who are in the voluntary disclosure program are not crooks. You know, they might be perceived as that by certain members of Congress and the general public who don't have a million dollars sitting in a Swiss bank account.

MR. BERGIN: Yeah.

MR. GOMEZ: My name is Armando Gomez. A couple of thoughts on the guidance process and things that maybe could be done to help improve it. Number one, while I agree -- and Mike's very depressing recitation of what it takes to get a reg through -- having started my career as a docket attorney and chief counsel and living that process, it's much uglier than what he described. (Laughter) But one of the things that helped move regs through the system when I was there was the presence of a very active and strong leader in the form of an assistant secretary and folks in the Office of Tax Policy who really tried to push things through. And, you know, maybe Congress will never fix the budget situation or the staffing situation, but one can hope that they will fix the confirmation system such that we can have assistant secretaries in place regularly to help drive things through the system, because I do think that that has been a problem. You know, no matter how dedicated, hardworking the folks are who are there, there is a difference in the system if you're the confirmed person as opposed to an active person. And so that is certainly one place where things can be improved.

I think a second place, again, and everyone will agree that if you let the perfect be the enemy of the good, nothing gets done. One of the problems with the informal non-guidance guidance that we get in the form of directives and FAQs is the lack of opportunity for public comment and sunshine on them. You know, it's great to get the stuff out there, and certainly in some cases when it comes out like the directive that came out last week on economic substance, there's been tons of comment on the topic already, so obviously the service was able to take that into account in drafting what they did. But when you -- you know, in the absence of regulations that go through notice and comment or in some cases a notice first and then a proposed reg so that there's plenty of opportunities for comment, in the absence of that, the government doesn't get the benefit of all of your readers and all the folks in this room and around the country who can provide input.

And, frankly, I'm sure a lot of folks who've been in the government have seen it. Not everyone on the outside is out to screw the government. Guidance comes out in the form of proposed rules, and smart people around the country oftentimes will pick up the phone or shoot an e-mail and say, hey, were you really meaning to do this, because this is what can happen as a result, and things can get fixed. But when it's all done in a vacuum in the government, as well-meaning and well-intentioned as the folks are working on it, there's a big piece that's missing in the form of input from the rest of us.

MR. BERGIN: This is what I don't understand when it comes to the fear of getting it wrong that you talked about, Linda. Putting Congress aside for a moment -- and I no longer know what informal guidance means. For me, it's become a completely moving target. I can't define it. I don't know if anybody can. But what's wrong with the IRS putting something out -- and one of the purposes of Tax Notes, for example, when I was the editor, the IRS puts something out and we have people, practitioners, who write in very quickly and we can publish it very quickly, hey, we think you need to do this, this, and this to the particular guidance that was put out. Why is that a bad thing? Why is that something to be afraid of? Or am I missing something here?

MS. STIFF: I don't think that is bad.

MR. DESMOND: Yeah, I will weigh in just -- and not to defend or make the counterpoint, but I do recall -- and there's a growing trend in litigation to kind of get behind the scenes in how guidance was developed, and you know, discovery requests being made and those kinds of things. And I've been on both sides of it, but speaking from experience in government, I remember being very bothered -- and not because I had any concerns with the transparency, but when there are transparency requests made and the government has to respond by searching years and years of e-mails and files for drafts of a regulation that was circulated between very low-level, relatively low-level drafting attorneys to turn over a draft of a regulation, most of it was never turned over because of appropriate privileges and protections, but somebody thinks that, you know, two line attorneys at the IRS discussing language for regulations is somehow relevant to their litigation. That kind of thing really is a problem.

MR. BERGIN: Agreed.

MR. DESMOND: So, on that level, there is a concern about transparency. I think having said that, when things are actually issued and IRS is taking and giving direction to its own people, I think that's a totally different category. But I would put the marker down from my experience having to deal with, you know, going back looking for drafts of regulations and somehow, you know, putting together and spending weekends putting privilege logs together so we wouldn't have to turn the stuff over was not an efficient use of my time at the Treasury Department.

MR. RIZEK: Well, one of the things that needs to be resolved if this trend to informal forms of guidance continues, which I think we all recognize has increased in recent years and it's probably going to continue for a variety of the reasons we've discussed this morning, one of the issues that needs to be resolved if that happens is the extent to which both taxpayers can rely on it and it should be cited and used as authority. I think somebody needs to revisit 6110(k)(3) at some point. We really need to rethink and the places in the regs that need to have modifications to accommodate these informal forms of guidance, like the 601 regs where notices aren't even mentioned, you know; like the 6662 regs that were discussed. I think a lot of this goes back to what is going to be relied upon and in what circumstances.

Corresponding with that is the judicial question of how much deference should be given to it, and before Mayo it was pretty easy to teach sort of a spectrum of deference depending on the amount of process. I think Mayo largely has confirmed that. But it is also said that tax is not -- the tax world isn't exceptional. The general rules apply. Except we all know that's not really true, because there's lots of informal kinds of guidance that the IRS puts out that you don't see, notwithstanding the Mead Corp., for most other bureaus of the government.

So, we need to really rethink what informal guidances effects are. And until we do that, just putting out more informal guidances is just going to leave us in this quandary we're in here.

MS. STIFF: But to me it takes the discussion back full circle, because, Chris, I don't think it's bad for the IRS to say proposing this and get the feedback and be told where they're wrong. I think what happens -- you've got the situation that Mike described, certainly, but more importantly then, if you go that route you're putting yourself subject to the formal guidance process again. And I think we're back to, do we need different processes for different kinds of issues? And if we do, then can we build in the reliance and the other things that we would look for without encumbering it back with that long, elongated process that Mike described earlier? And I think it's trying to acknowledge simply that maybe we do need something. But then it needs to come with the protections, and so Chris's answer may be the best way to get there.

MR. DESMOND: I think that, also, just to pick up, Linda, you made the point and I think others have as well, about the resource problem?

MS. STIFF: Mm-hmm.

MR. DESMOND: Which I think we all identify.

MR. BERGIN: Yes.

MR. DESMOND: I don't think that on the Appropriations Committee level people really understand the resource issue -- and perhaps "understand" is the wrong word, but don't have a holistic appreciation of it, because certainly from my perspective as a practitioner, and even from my perspective having worked in the government, although there is a challenge to finding $148,000 to pay a line attorney at the GS-15 Level at the Treasury Department, if you don't do that and, you know, 12 sets of guidance regulations, formal publications don't get out, the consequence is that dozens, hundreds, or thousands of taxpayers have to run around the table for hours on end trying to figure out what the answer is. And correlatively, the IRS agents have to spend dozens, hundreds, or thousands of hours running around the table responding to that. So, you know, a penny saved here is a little bit foolish, because putting the resources toward the guidance process -- if you think about it holistically -- does save all sorts of resources down the road but ends up getting wasted because there are so many unanswered questions in the tax area that all sorts of resources are spent by taxpayers and IRS trying to come up with the right answer -- and the courts -- because many of these get thrown into litigation where there isn't a good answer. And there are a lot of taxpayers who are trying to figure out what the right answer is, and you get into contentious discovery issues and all sorts of other things. So, the resource question is one that I think we can think about a lot more broadly than just, you know, where do where find $148,000 for a line attorney, you know, to help guidance move on the formal side.

MR. BERGIN: Right. Neil, I'm going to get to you, but it gets even worse. We were talking about the resource issues, that the IRS isn't going to get any more. In the current atmosphere the IRS is going to make it less as discretionary spending gets cut. It's even worse than that. Eli?

MR. DICKER: Yeah --

MR. BERGIN: That's Eli Dicker.

MR. DICKER: Eli Dicker from Tax Executives Institute, and we represent in-house tax professionals. And I want to pick up on a point that both Mike had made and then Chris had alluded to as well with regard to the guidance gap. And my members are looking for certainty or greater certainty, greater predictability in their ability to plan, make their widgets, build their factories, and fill out their returns and file them. And if the schedule UTP -- the way our members look at the UTP, and we should be -- we should give credit where credit is due with regard to the schedule UTP where it started from and now where it is. But now the rubber meets the road and then September is rolling around, October is rolling around, folks are going to be filing those schedules UTP. And the services made it very, very clear that they will, at least in this first cycle, hold on to those forms in order to get it right. And then getting it right speaks to training of the agents getting it right, speaks to how that information is being shared and released. But I think also getting it right is also going to mean ferreting out or gleaning from the areas that are identified as uncertain, and if concise description has any validity to it, then that will provide the good grist from which the business plan might be brought forward into 2011, 2012, and forward to identify those areas that are really, really ripe. So, it is not what type of guidance -- and I leave that to other smarter -- but at least focusing on the areas where taxpayers, those who are actually filing the returns, are identifying where their gaps in the guidance may very well be. Open question whether or not any of that data might be filed -- and, Chris, there's the light bulb for you -- with regard to the issues that might arise. Obviously not connected to taxpayers, but what are the issue areas that are the subject of these UTP disclosures and how you make the leap from those issue areas and get those into the guidance sausage-grinding factory and the sausage-grinding process that Mike and others have described. That's what our members will care about so when they're putting boxes and triangles on a whiteboard and the questions arise, well, what does the guidance say about this area or that area? Well, hopefully, several cycles down the road. If this schedule UTP is the game changer from both sides, then it will generate better guidance, more fruitful -- at least more focused guidance vis-á-vis particular taxpayers.

MR. BERGIN: Thanks, Eli. Anybody? Go ahead, Marty.

MR. LOBEL: I don't practice for the IRS.

MR. BERGIN: This is Marty Lobel.

MR. LOBEL: I'm sorry, you're right. But a couple of things seem to be threading through this, speaking as a position from a tax analyst is, number one, the culture of the IRS has been secrecy, secrecy above all else. And when they got in trouble, they got a congressional committee to pass a statute keeping APAs private because they were a trouble area. Most of the process, I've heard here, could be truncated.

I would be willing to bet you dollars to donuts that you probably have 30 or 40 reviewers for every rev, and that maybe three people in that process really care. There is a way of changing the system so that you can be much more efficient and not waste all that manpower, expensive manpower.

We at Tax Analysts have found the IRS only responds to litigation, by and large. And we've filed, I think, six FOI suits, all of which we won. There are ways of presenting this information efficiently so the public can comment early so you don't go down the road where, you know, you're going to get blindsided later on and waste all that time and effort. In terms of the IRS's perception of taxpayers, most of the people I've met at the IRS I thought were really first-rate and they really cared about doing the right thing. But they also recognize that most

taxpayers don't want to pay taxes, so they'll be real creative about coming right up to the edge of the tax code, but try not to go over it, and it's up to the IRS to tell them where the edge is, and, quite frankly, they've done a terrible job in doing that.

And given the prospects for decreased resources, I think the IRS has to rethink its processes, and I know the IRS makes an elephant look easy to move, but you've really got to think through, and it's up to business, quite frankly, to help them do it.

Rather than take an adversarial position up on the Hill and before the IRS, you know, how about making some constructive suggestions like saying, you know, you really don't need 30 layers of review. You can give them an opportunity to review it if they care about it. Most of the -- I work for Senator Proxmire, and we had a fight with the State Department one time, and somehow the sheet, the cover sheet got sent with a letter, there were 53 sign-offs on it. Ridiculous.

And the IRS sometimes becomes even worse than that because the issues are a lot more complex. You know, speaking as a policy analyst, this is appalling. We're wasting resources, we ought to be becoming much more productive, and the idea of wasting time before OMB and Treasury for an issue that might be domestic, you know, and may affect a small subset is a waste of time and effort.

MR. BERGIN: A question here.

MR. RIZEK: Marty points to one other thing that's going on as an alternative to the publish guidance process, which is the use of different kinds of informal issue resolution processes with the service, the advance pricing agreement process, advance issue resolution, pre-filing agreements, even post audit, things like fast track settlement and so forth.

And what they put pressure on is

something that Marty mentioned and that Tax Analysts has been instrumental and very involved in in the past 20 or 30 years, is 6103 and 6110, and I think that's an entire issue for another conference, Chris, which we might want to have at some point, but the informal guidance that goes on in the development of those positions and those agreements is definitely there. I'm personally familiar with situations where it becomes known within an industry that this is the deal you can get on this uncertain issue and here's how you go about doing it, or even in appeals, this is how issues get settled when there's no formal appeals guidelines out. That's a real long-term, big issue for the servers, way beyond just the informal guidance process, but it's definitely there.

MR. KEIGHTLEY: You have to deal with taxpayer privacy on those issues.

MR. RIZEK: Absolutely.

MR. KEIGHTLEY: It's easy to make these public, have the taxpayer make them public.

MR. DESMOND: Can I just make a quick point -- ways that I think ties into something that Armando had said in terms of not having a confirmed assistant secretary? When I was at Treasury, one of the things I identified is, can we try to reinvent the structure here so that there isn't as much overlap, so that the lines of authority are a little bit more clear, because my office, the Tax Legislative Counsel, had evolved over time. You know, back in the day, the Tax Legislative Counsel was sort of the counsel of all of the issues underneath it, international was carved off into a parallel branch, benefits was carved off into a parallel branch, and there's a lot of overlap there.

But I think that, and somebody can correct me, the problem with getting any reform there is that we never had a confirmed assistant secretary, except for Eric Solomon for a year and a half, and he was dealing with the financial meltdown for much of that time.

I think for probably eight of the last ten years, and somebody can correct me, we've not had a confirmed assistant secretary, somebody to come in with the President's sort of signature and seal of approval confirmed by the Senate to say, this railroad doesn't make sense, let's fix it, let's conform it, and not doing it in the time of crisis like we had in '08, that all of the resources were committed to, but somebody to take a step back.

And I know when Pam Olson, one of the last confirmed assistant secretaries, was there, some efforts were made to do that, you know, but those positions turn over over time, and I think that Armando put his finger on that. I mean, not having somebody in that leadership role to come in and say, look, you know, let's just think about some housekeeping here, making this railroad, because now a lot of the structure and tax policy is kind of an accident of history and it doesn't match up with the way business is done, with the way guidance is being published, and it creates these problems.

MR. BERGIN: Yeah, I think, Phil, you made the point of the absence of Treasury and the informal area, do you see it getting worse?

MR. PILLAR: Well, I wonder if some of the -- possibly, but I wonder if some of the developments we've discussed might converge to change that. As Eli described it, the process for UTP, the issuance of a draft form and the evolution, Chris alluded to the draft rev. proc for ex parte communication, and does Mayo suggest that, as Chris pointed out, if tax guidance is no different, the application of the APA, which Mike alluded to also, warrants the notice and comment process to be applied to all published guidance.

MR. DESMOND: I will say, because I didn't talk about the APA, there's a case coming out of the D.C. Circuit now, the Cohen case involving telephone excise tax which I think puts that, you know, kind of stark relief. A number of us were there at the time as the Treasury or, I guess, the government lost a number of cases. There was a rev. proc put out or a notice I guess that's being challenged in that case.

There were a lot of kind of pragmatic reasons why that was done, why it was done, the Treasury and IRS were trying to get out billions of dollars very quickly to taxpayers. I mean, there are a lot of pragmatic reasons and that's an illustration of one of why, you know, full-blown notice and comment does not always fit, so I think you have to be careful about generalized rules.

This should all be subject to notice and comment because, you know, if you have a return deadline in a week and a half, you can't go through a notice and comment. And there are a lot of reasons under the tax law, tax administration, why you need to act very quickly in instances like that. Sorry, Fred, we cut you off about 20 minutes ago.

MR. MURRAY: I wanted to make actually now a list of points. First of all, following on the last point, one of the arguments that we made when I worked there in the '90s on the APA issues and that the ABA tax section and the AICPA and a number of other groups wrote in to support was that, just your point, that there are lots of times when notice and comment, particularly a prolonged notice and comment period, is actually destructive to the taxpayer's interest because we can't get guidance out and there's a real need for it. So I think whatever comes out of this discussion and any reconsideration of some of these points has to take that into account.

Secondly, to Marty's point about secrecy, I'd like to take some issue with that. I think there are appropriate cases where attorney-client privilege, deliberation process privilege or other privileges should apply, both inside the government, and also in taxpayers' deliberations, and where secretary may be appropriate.

And a lot of us have some concerns about the disclosure, for example, of APAs and some of the data under those APAs that might be made public, or whether a disclosed APA, where a lot of that was redacted, would be of any use to anyone anyway, so, you know, I think that warrants a separate discussion. And I guess my last point is that, as someone who had to spend a lot of time trying to get things through the building and out the door, there are reasons why a lot of the offices in the building are involved in particular sign-offs. And when you have an organization as large as the Internal Revenue Service and the Treasury Department with as many offices that may be there for various reasons, it's important to coordinate the process so that you don't put out guidance out of one part of the building that somehow compromises or makes dysfunctional some other part of the -- another important process somewhere else.

Now, I think it's a fair question that Mike raises, whether or not someone should, from time to time, reexamine the structure of the building, how things are set up, which -- I mean one of the things we were looking at before I left was whether we ought to flip the TLC -- the Tax Legislative Counsel -- and the International Tax Counsel, because so many more issues have some international focus, does it really make sense to have a domestic side of the Office of Tax Policy have preeminence in a world where so many things are global.

So I mean that's all fair, but I do think it's important to recognize that in any large bureaucracy there is a reason for a lot of this process, and it's actually, you know, protective of our system.

MR. LOBEL: Well, two things. I don't mean to say there's no reason for secrecy, I'm saying an overwhelming emphasis on secrecy has really hurt, and all it does is give Jeremiah more targets to aim at.

Secondly, in terms of --

MR. MURRAY: That's full employment.

MR. LOBEL: Well, it is, and he's done a good job. But you give the other agency or other offices the right to opt in if they want to rather than have to sign off. You give them, say, three days, do you want to be involved in this process, and most of the time they'll say no.

MR. MURRAY: I think there are obviously improvements that could be made to the process, including some of the statutes that we've talked about earlier, I just think it's important not to throw out the baby with the bath water.

MR. BERGIN: And I think, Chris, you had a good suggestion. I mean it may be -- Linda and I have discussed from 30,000 or 60,000 feet -- if you look at the state of what's disclosable and what's not disclosable, and clearly, Tax Analysts has been involved in that for a long time. It's an interesting picture -- let's just leave it at that, and probably a subject for a good conference to reconsider where we are today.

MR. RIZEK: I want to put in one other --

MR. BERGIN: Jim, I'll get right to you, I promise.

MR. RIZEK: -- pitch for (inaudible) Mayo Foundation for tax exceptionalism here, because we see, as tax lawyers, a lot of situations in which the informal guidance we're talking about has a lot of positives to it, and resolving these issues without having to go through notice and comment procedures is, I think everybody in this room would agree, a good thing if some of those other issues such as the extent of disclosure, the reliance, the impact of when it's cited and so forth, those things could be resolved.

MR. BERGIN: Yeah, and I think the tax press would be helpful to the IRS if they put things out. We have a relatively new venture at Tax Analysts called tax.com, which is out in the web world, and I write for it, I put posts up there and have been blindsidingly amazed at the difference between the readers of Tax Notes who are polite and thoughtful and the lunatics that are out in the Web world.

I wrote a post, and I just assumed I was writing to Tax Notes readers, which was a mistake, about the IRS's decision, and I was making a tax point to allow the deduction for breast pumps. Oh, my God. I mean I was accused of being anti-motherhood. I don't know why, I'm a product of motherhood. So as long as the IRS doesn't put out their informal guidance on Facebook, I think our readers would be happy to help them because they're very respectful.

We've got about 10 minutes left and I was going to -- oh, I'm sorry, Jim, I forgot you.

MR. KEIGHTLEY: I was just going to make a point, in making the system work, even as complex as it is, management makes a difference. If you track -- because what happens is, people start debating issues down in the trenches and then they just lock up, and somebody, rational or irrational, has to reach down and say, ok, we're going this way, move it to the next level. And so managing that process, no matter how complex it is, needs people who are willing to look down and track it, where it is, who's got it, what their timeline is in terms of getting something out, and then make sure it happens. Because, as I say, lawyers will debate things forever, and you've got to sort of say, ok, end of debate. And, you know, these are legitimate debates that are going on and somebody has to peck away and say we're going this way, so that's my only point.

MR. DESMOND: That can be an issue, just to put a point on that. If guidance takes too long to get out, and suddenly the issue is being developed in exam in litigation, it becomes real hard to change somebody's mind on something. Even though it's a gray, open question, if the exam side has taken a position, if the Justice Department has taken the position of litigation, and this came up a number of times when I was at Treasury, where we had guidance going on, very important guidance, and we couldn't move because there were positions being taken and --

MR. KEIGHTLEY: Then you can't move and move onto something else. I mean, you know, if it's like, look, you're giving up a whole litigation world, then the answer is, boom --

MR. DESMOND: Right, but then --

MR. KEIGHTLEY: -- you're out of here and you move on to the next case, that's all.

MR. DESMOND: -- guidance by litigation --

MR. KEIGHTLEY: That's my point, is --

MR. DESMOND: -- guidance by litigation, which is not the way to run the railroad either.

MR. KEIGHTLEY: Well, that's true.

MR. BERGIN: I was said -- was going to say, we have a few minutes left, not to put you on the spot, Mr. Rizek.

MR. RIZEK: That's fine.

MR. DESMOND: It's time for you to dance, Chris.

MR. BERGIN: I want to go around and see if we can get some recommendations for some good ideas. And I was going to ask Chris a question, because he's always very thoughtful here. Your point about the tax shelters I think is a really important point. Back in the day I was the crusading editor of Tax Notes, it was hammering away and breaking the news on the tax shelter stuff, mainly through Mr. Sullivan here, and Mr. Sullivan was writing some wonderful pieces, and we were getting hit pretty hard because he was making the point that there were billions and billions of dollars going out of the Treasury, and, of course, we were getting . . . no, that's not . . . well, that wasn't right.

And I remember at the time, I had an argument with -- not an argument, a discussion with Tom Field, who's the founder of Tax Analysts, and I thought it was a generational issue of lawyers of my generation were having little ethics problems. And I remember teasing Bernie Wolfman that I wanted to teach a course at Harvard entitled "How to Say No," because I didn't think people were.

This has created, as you point out, a lot of tension. How can the Tax Bar help ease the tension created, because there's a lot of fallout from these shelters? I agree with Pam when she said the war's over, absolutely. But what can the Tax Bar do to maybe help ease the mistrust that was created by that whole episode?

MR. RIZEK: Hey, you know, that's a really hard question. I mean, there is no doubt, as Jim pointed out and you and Marty wrote about that there was a lot of bad behavior among the tax community. And I don't know how you fix that. I think more transparency on the taxpayer side, which is an answer that is widely viewed as sort of the silver bullet from Congress and sometimes by the IRS, I think it's what's behind all the disclosure rules, it's what's behind UTP. You know, I think that goes a way to solving that problem.

But it's a two-way street. One of the -- I think the best example of a situation where a desire to get people who really did behave badly has put pressure on systemic issues, a 6501 basis overstatement regs. I mean, everybody realizes that somebody was getting away with something there. And the service wasn't going to allow that, and as a result they enacted these regulations which have been the result of a lot of litigation and created a lot of hostility between the government and the IRS. I think it's a two-way street. I think people just need to calm down.

Now from the Tax Bar, what I'm hopeful is that the Office of Professional Responsibility and what we've seen of criminal prosecutions against some tax professionals, in addition to all the systemic things that we've talked about are going to deter that kind of bad behavior in the future.

But I think it's cyclical. I think, you know, you -- we had a wave of tax shelters in the early '80s. We had another wave around 2000. I think we're going to be -- the pendulum has swung back for a little while. We're not going to see that for a while. And 15 years from now I'll probably be defending people at tax shelters again.

MR. BERGIN: Jim?

MR. KEIGHTLEY: I think the most recent round of tax shelters were considerably more egregious and handled by people who should have known better than the ones we handled -- I mean, when we were dealing with doctors and lawyers and -- in appraisals that were, you know, inflated. But, you know, I think the most recent round was really far more reprehensible than what I've seen in previous tax shelters. And there were factual manipulations that were just -- should have known better.

And I think -- and I'm -- you know, you can shift it to the IRS and I'm going to shift it right back at you and going to say, why doesn't TEI get all those returns and, you know, don't disclose them? But make that list and have your people come together and say these are the issues which we're disclosing. Now, we need to fix X, Y, and let them come forward and say this is what we need to fix. I mean, this is -- as I say, the IRS is outnumbered and surrounded. And there's a certain mentality that comes out of that whole approach. And so, I think the outside bar -- the ball should be in their court, appropriately. We've got big organizations, ABA, Tax Section, AICPA, TEI. That's when the leadership needs to step up and do something about it, I think.

MR. BERGIN: How strong is the tension in your opinion? Anybody's opinion? Between the regulator and the regulated in the tax area right now? Anybody want to take that one?

MR. DICKER: Well, the question is which segment of taxpayer are you talking about? Are you talking about the cap taxpayers band? Are you talking about the CIC band?

MR. BERGIN: No, LB&I.

MR. DICKER: Are you talking -- ok. So you're -- ok. So you're talking about taxpayer -- you know, hard to make generalizations. You're talking about taxpayers who are in the overwhelming majority of cases, are represented by the quality of representation that Mike and Phil and Chris and others and Jim bring to the table.

Hard to make a generalization, but I think the communication has improved.

MR. BERGIN: Good.

MR. DICKER: That's not to say that it is warm and fuzzy. It is in the nature of a contentious relationship. It is in the nature of a controversy. I mean, it's called tax controversy for, you know, good reason. (Laughter) It is. I mean, in the nature of the definition.

MR. DESMOND: In my experience, I think most of the tension that I see is at the lower levels. It's the taxpayer trying to deal with an exam team. And more often than not, we representing taxpayers would love to see the issue elevated to Chief Counsel. Would love to see an issue addressed by Treasury. And it's sort of what we perceive, perhaps incorrectly, as a misguided approach by an exam agent who just doesn't understand when and when not the economic subsidies should apply. So you get a lot of kind of what are perceived as irrational approaches. And all you're wanting is to bring more kind of firepower to the table by the government.

So it's not an us versus them, government versus taxpayer. It's kind of getting the right resources to the table. And oftentimes, that doesn't happen. It's really hard to elevate issues. There's tension on the field level. They don't want to get the Chief Counsel's Office involved, because they're just going to, you know, stop making this argument. So, that's where I think I see from a personal perspective the tension. It's not a guidance and it's not a government versus taxpayer. It's different levels.

MR. BERGIN: Okay. So it's a really bad idea to cut the IRS's resources, right now probably? Marty? Marty Sullivan.

MR. SULLIVAN: Yeah. Marty Sullivan. I'm not an attorney by any means. But I did work at the Treasury, and I did work in Congress. And one thing that is very striking when you go from Treasury to the Congress is how issues that are incredibly important inside 1500 Pennsylvania Avenue are just parenthetical footnotes in the Congress. And therefore, I absolutely agree with Linda that you shouldn't be depending on more funds.

But that is not -- that seems to be the most important issue at the table here, is you can't separate that either. Because there's no doubt to how low they can go. And maybe we can't prevent cuts, but maybe we should prevent them from being massive cuts.

And we all make good speeches about how we shouldn't cut the IRS budget. But if it doesn't get out of this room, it isn't worth nothing. And Eli, if your group -- somebody like your group could say something to the pro-business factions in the Congress that we need IRS regulation, that would be something I think people might listen to. It might not make the Tea Party happy, but it is something -- it's a message that has to be gotten across. So don't dismiss it, although be realistic about it. I agree with you.

I'll just make two other quick points. I know Americans are hyperlexic, which makes me wonder what do other countries do? We didn't mention one word here about the guidance process in other countries. And so I would be -- as best practices, I'd be interested to see if we could learn something from the other countries.

And then finally, one last point about the intersection between Congress and the IRS. When we were drafting laws in Congress doing very technical things, we don't know what we're doing. Because we're not practitioners. We're legislators. And we'd say, could we have the -- we'd love to have somebody like the IRS. Not -- with all -- not TLC, because they're in the stratosphere. We want people who working on the lines who could say, can we have an IRS guy come over here and help us out with some of the -- no. No.

MS. STIFF: Not if we want to continue.

MR. SULLIVAN: We're not allowed to make policy; we're not allowed to be involved. And I think that's a really short-sighted rule. Because we're not asking people, the IRS to come in and lobby to make policy. We're asking for their expertise. And I think that rule should be revisited so we don't have to spend 30,000 years doing section 199 regulations. We can have that done right up front in the legislative process.

I just -- a couple.

MR. KEIGHTLEY: That could be fixed easily. I mean, I have lived there where I got chastised for talking directly to people --

MR. SULLIVAN: I know.

MR. KEIGHTLEY: -- yeah.

MR. SULLIVAN: I called somebody up. They go, I can't talk. I can't talk to you.

MR. KEIGHTLEY: But I -- you know, I actually talked to somebody once and then I got a call from the Chief Counsel saying, did you talk to this person? Yeah. You know, they were going to do something to rationalize -- I suggested doing something rational. And I said yeah, and so, you know.

But that all ties to the bureaucracy and Treasury and that could be fixed. And give responsible people to the Hill, you know, some people you can trust and a specialist in some industry or whatever you may be playing with for the day that the Hill does. So anyway, that's manageable and fixable.

MR. BERGIN: It is, after all, only the profit center that gets ignored.

MS. STIFF: Just one other --

MR. LOBEL: Well, when I was on the Hill we all had our stoolies in the IRS or Treasury. I mean, and they all had an axe to grind. And that's why we are -- oftentimes we got in trouble, because we'd rely on someone who was trying to do something that was contrary to what the powers that be wanted to do.

MR. BERGIN: Linda? And I'm going to get -- we're just about out of time.

MS. STIFF: Just two seconds.

MR. BERGIN: Give everybody on the panel a last word. We'll start with Linda.

MS. STIFF: And this isn't profound. But it goes back to something that Jim said at the start. And that is that what we're describing is this cumulative effect over years of having a fairly stable workforce in play at IRS. And I don't have the Chief Counsel stats at the top of my head, but in LB&I by the end of, I think, this year or either next year, more than 50 percent of their workforce will have been refreshed in the last 3 years. No reason to believe that it's -- that's not a function of the IRS. That's a function of the Boomer phenomenon and the fact that the civil service retirement system has changed.

So whatever it is we look to in the future, I think we're going to have to factor in the fact that we may not be dealing with the numbers of 30-year people with the depth that Chris and Jim were describing that we've all -- if this process came from that, then there's going to be something else as a result of that lack. Maybe it'll be better, I don't know, but it's going to be different.

MR. BERGIN: Any other panelists?

SPEAKER: I'm afraid to find out.

MR. BERGIN: Fred, give you the last word.

MR. MURRAY: I'll just say in response to one of Marty's questions that I've done a fair amount of international work over the years. And had on occasion to even participate in the policy process and some other places. And I'll paraphrase who I believe was President Eisenhower who said that our system is not very good but it's a whole lot better than all the rest. So, -- you know, we have lots of problems. But I've seen worse elsewhere.

MR. BERGIN: I'd like to end right there. That's a good ending. I want to thank the panel. You guys were excellent. Thank you all. (Applause)


(Whereupon, at 10:58 a.m., the PROCEEDINGS were adjourned.)