ataxingmatter

The Subprime Loan Debacle: Whose Fault, and What remedy?

The U.S. economy, and the stock market in particular, have been in a volatile up and down lately, stemming from the easy credit that permitted some borrowers to borrow more than they could afford to buy a home on the assumption that prices would always go up.  See, e.g., the series of articles by Jeremy Peters and others in the last month's New York Times:  Edmund Andrews & Jeremy Peters, Persistent Fear Drives Stocks Down, NY Times, Aug. 29, 2007; Jeremy Peters, What a difference a simple rate cut makes, NY Times, Aug. 18, 2007; Jeremy Peters and Louis Uichetelle, A Day of Wild Market Swings and Global Anxiety, NY Times, Aug. 17, 2007; Geraldine Fabrikant & Jeremy Peters, This Time Mutual Funds are Losers Too, NY Times, Aug. 14, 2007; Jeremy Peters, Stocks Tumble as French Banks React to Home Loan Worries, NYTimes, Aug. 10, 2007; Jeremy W. Peters and Wayne Arnold, Stocks are Volatile after Global Sell-Off, NYTimes, August 10, 2007.   As rates increased on adjustable rate mortgages and borrowers realized that they could not pay or refinance, the credit crunch set in.  Defaults and foreclosures are up,  and sales are down, as more houses come on the market to depress sales in a vicious cycle, because people fear that prices will go down even more, later.  Credit suddenly tightens beyond the housing markets, as commercial paper investors get finicky and big corporate deals get renegotiated.  The stock and bond markets ricochet off every piece of news.

There are a number of interesting aspects to this crisis that I have been trying to think through, as each day's market assessment comes in.  We have long claimed that we are helping Americans own their own homes through our tax policy for mortgage interest deduction, yet it functions as an upside-down subsidy since most Americans do not itemize and so cannot benefit from the deductions and most of the benefit of the deduction goes to Americans at the top of the income distribution who have mortgage loans at or beyond the maximum qualified amount.  In the last twenty years, Wall Street has sung the praises of securitizations of mortgage loans--through real estate mortgage investment conduits (REMICs) and collateralized debt obligations (CDOs) and grantor trust securitizations--vehicles that provide the desired debt-for-tax characterization of the interests issued--that permit lenders to off-load the risk to a wide range of investors and use the proceeds of the securitizations to make new mortgage loans.  But the weak side of those securitizations is showing in the current default climate.  Homeowners cannot go down to their local bank and work out their mortgage loan--the loan has been sold to a sponsor who put together the securitization, and the loan is being serviced by a servicer with no connections to the homeowners' communities.  Modifying a loan in a securitization vehicle may be harder to do.  Banks who underwrote securitization vehicles and provided buy-back guarantees (probably thinking that such a time would never come to pass except on an acceptably small number of loans) may find themselves with substantial outlay requirements for loans they don't want.   It seems that it is the little guy who is most likely to get really hurt by all this.

Take one example of the kind of riskier undertakings put in motion with the surge in CDO and REMIC deals.   I'm thinking about the relatively new "guaranteed maturity class" created for REMIC securitizations, that effectively have a put right to a sponsor or other financial entity to buy the related mortgage loans for MORE THAN THE CURRENT FAIR MARKET VALUE in order to pay off the REMIC classes at the guaranteed maturity date.  The big REMIC sponsors started doing those deals in 2000, even though I have always had my doubts that the buyback at less than market value was permitted under the REMIC rules for this purpose.  Now some of those buybacks may be required, when the mortgage loans are worth less than expected.

Like the Long Term Capital Management Hedge Fund bailout, people have been talking about the need to help the big banks through this liquidity crunch caused by the softening housing markets and the subprime lending crisis.  As New York Times op-ed writer James Grant reports in his August 26, 2007 editorial, The Fed's Subprime Solution,  the "sheer size" of the CDO market is a shocker--$1 trillion.  The other stunner is "[t]he shocking fragility of recently issued debt ....[with] alarming numbers of defaults despite high employment and reasonably strong economic growth."  There have already been losses at big banks, and there will probably be more.  And the credit markets are considered too weak to withstand the pressure.  The Fed on August 17 lowered the discount rate it applies for direct loans to banks, to reassure them that the loose money period would continue. But Wall Street wants the Fed to come to the rescue of the big financial institutions (again) by reducing its federal funds rate.  Grant's assessment is on the mark:  one problem underlying our credit markets is "the notion that, while the risks inherent in the business of lending and borrowing should be finally borne by the public, the profits of that line of work should mainly accrue to the lenders and borrowers.  It has not been lost on our Wall Street titans that the government is the reliable first responder to scenes of financial distress, or that there will always be enough paper dollars to go around to assist the very largest financial institutions."  Ultimately, Grant concludes, having the Fed step in too readily to stop so-called 'bear' markets is a problem:  "capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

Textron, Inc.: Tax Accrual Workpapers, Attorney-Client Privilege, and Work Product Protection

Judge Ernest Torres, writing for the District Court of Rhode Island, concluded that Textron Inc's tax accrual workpapers prepared by accountants, with review and changes by tax attorneys for the company, are protected by the attorney-client privilege, the tax-practitioner privilege and the work product doctrine.  However, the attorney-client privilege and tax-practitioner privilege were waived when the company shared the papers with its external auditor (the doing of which, though the court glosses over it in the opinion, is almost certainly the PRIMARY reason that the papers were created in the first place, since the auditor is required to assess tax reserves for GAAP and the company needs a document trail to establish the rationales for the amount of its tax reserves).  But the court concluded that work product protection was not waived, and that the IRS had not shown substantial need, so the papers were not discoverable.

The First Circuit, where RI sits, has regretably adopted the overbroad work product "because of" test, first set forth in the Second Circuit's Adlman opinion.  That test is so easy to satisfy that any document  that provides a rationale for its being created connected with the word 'litigation' would probably qualify.  It is a wrong-headed test that turns the purpose of work-product protection on its head, especially in the tax context.  Work product protection is supposed to give an attorney a "zone of privacy" when he is preparing a case for trial, so that he can work through strategies and approaches without revealing his every hand to his adversary.  Preparation of tax accrual papers to make the determination of how much funds should be considered reserved in the eventuality that the tax positions taken over time by a company on its returns are not held up after an audit is not an activity at that stage of an adversarial process--in fact, it should not be viewed as adversarial at all at that stage.  As the court clearly shows, the purpose of the workpapers at issue was to set aside reserves based on the positions taken on the tax return just filed.  The assessments of success on the merits provide the basis for the positions taken in the return, which is a document that is disclosed to the IRS.  Accordingly, protection seems inappropriate for a document that sets those assessments out on an item by item basis in order to determine the reserves that should be reserved based on the positions taken on the tax return.  

Courts do not seem to understand that the "because of" test for work product protection is too flimsy a reed on which to provide protection in the tax context, at least. Determinations of the merits of an uncertain tax position REQUIRE the CPA or attorney or taxpayer to consider the possibility of success on the merits before a court.  Such consideration is required for two reasons--the "realistic possibility of success on the merits" and "more likely than not" standards set forth in the Code for evaluating positions to determine whether they are strong enough to be advised or reported on a return and the fact that there are judicial doctrines (substance-over-form, step transaction, economic substance, business purpose) that must be evaluated to determine whether a position may be reported on a return.  The First Circuit did not seem to take that into consideration.  It treated the workpapers sought as privileged and work-product protected simply because they consisted of lists of items that were considered uncertain because they were based on unclear tax law and a percentage estimate of the likelihood of each of those items' being upheld in litigation (apparently determined in the first place by the company's CPAs, but reviewed and sometimes changed in consultation with the company's internal tax counsel).

Textron admitted that it provided these documents to its external auditor and that these documents were necessary for the auditor to prepare its opinion that the financial statements conformed to GAAP requirements.  And the company's Vice President of Taxes claimed that "Textron's ultimate purpose in preparing the tax accrual workpapers was to ensure that Textron was 'adequately reserved with respect to any potential disputes or litigation that could happen in the future."  The court concluded that it was "reasonable to infer" that Textron's preparation of the work papers was "also prompted in part to satisfy the independent auditor." 

The IRS made the correct arguments--that preparation of such documents do not constitute legal advice but are merely an aspect of an accounting function.  Let's face it--either lawyers are doing primarily business work when they engage in such activities with CPAs to help the CPAs assess the proper amount of reserves, or the CPAs are practicing law without a license when they assess the potential risks of litigation and make determinations about tax reserves.  There's a fairly strong argument that the kind of tax advice provided by CPAs should not be considered legal advice but business advice, and that when lawyers provide that kind of advice, it should neither be privileged nor  entitled to work product protection.

New Phishing Scams using IRS Logo

The IRS  announced today (August 28) in IR-2007-148 that it has become aware of a new email scam using the IRS logo to draw customers in.  This one is a phony satisfaction survey, purportedly sent to randomly selected participants, with a promise of an $80 credit provided by the IRS to those who participate.  One of the responses calls for name and phone number.  Participants who participate thinking they are working with the IRS will likely end up giving out valuable financial information to the scammers.

The IRS does not use emails to contact taxpayers.  If you receive such an email, don't open attachments or click on links.  Instead, the IRS would like you to forward the email to phishing@irs.gov.  The notice indicates that the IRS has received more than 30,000 emails forwarding about 400 separate phishing schemes. 

Energy Tax Breaks

As the country gets more serious about global warming--both because most scientists have concluded that human activity is a major contributor to the problem and because most Americnas have concluded that we ought to do something about it now, rather than waiting until it is too late to avoid the worst impact of the problem--legislators are finally starting to consider ways to counteract our growing energy consumption.

One of the tools we seem to be using for almost any problem is the tax code.  We have long given numerous breaks to oil companies to encourage them to extract oil, including the oil depletion allowance and for refineries, the ability to use the "manufacturing" deduction (section 199) to reduct their tax rate. See Congressional Research Service, Energy Tax Policy: History and Current Issues (July 28, 2006) (noting that energy subsidies under Reagan led to negative effective tax rates in some cases, that policy was more balanced under the first President Bush and President Clinton, both of whom focused on legislation in support of renewable energy;  and that the 2004 Jobs Act and the 2005 Energy Policy Act under the second Bush introduced new tax breaks for Big Oil, although the latter bill did focus more on tax breaks for renewable energy sources). 

Given the oil industry's record profits with the price of oil continuing to rise, as we near peak oil, we near the time that we have to substitute some other energy source that can be sustainable for the long term. 

Congress has considered various bills* over the last two years that would reduce or eliminate many of the incentives to the oil industry and use those revenues to encourage alternative energy.  See, e.g., 2006 release from Congressman Larson (describing the Oil Subsidy Elimination Act of 2006, which would have eliminated the Last in-First out inventory accounting and noting his support for elimination of the manufacturing deduction for the  oil industry, which provided millions in unnecessary tax relief to Big Oil);  Senator Baucus's June 2007 release (describing the Finance Committee's consideration of a bill that would support alternative energy by eliminating the manufacturing deduction for Big Oil, tightening the foreign tax credit rules, deal with excise tax fraud and extend an excise tax to support clean-up funds).  The elimination of the manufacturing deduction would raise about $11.4 billion over ten years, enough to fund much of the renewable energy provisions.  Baucus preempts criticism of the bill by noting that the JCT did not expect these provisions to result in an increase of gas prices at the pump, because price depends on a variety of factors other than the availability of tax incentives.  Baucus heralds a "new era [that] requires a dramatic shift away from tax incentives for oil and gas production."

*H.R. 2776 is the Renewable Energy and Energy Conservation Tax Act.  It would put more resources towards renewable and clean energy, provide a credit for energy efficient residential property, and support environmentally friendly transportation and raise revenues by eliminating the manufacturing deduction and altering the foreign tax credit.  See this JCT analysis of the bill. 

*H.R. 6 passed the Senate on June 21 and includes strong energy conservation standards. 

Tax competition, the flat tax, and other free market tax dreams

I recently began receiving an email update from the "market center blog" run by Andren Quinlan (Center for Freedom and Prosperity Foundation, and president of CFP organization) and Dan Mitchell (Cato Institute).  The Center for Freedom and Prosperity (that logo is on the market center blog page, even though the blog claims that it represents the opinion of the two bloggers and not their organizations) is an organization that talks a lot about "free" markets:  it casts itself as fighting against the OECD, which it views as an international tax cartel, and protecting the financial privacy of Americans.  As the Wikipedia entry notes (written with a slant that suggests organization members may have had a hand in the drafting or editing), it is a lobbying group for market liberalization that many associate with offshore financial centres.  Since it spends a considerable amount of its lobbying energy on tax issues--propagandizing AGAINST progressive taxation and AGAINST cooperation among developed countries in finding reasonable tax systems that can be upheld in a globalized financial environment--, I thought it would be worth considering.

The CFP promotes the idea that tax competition is a per se good--i.e., that it is a positive development when governments attempt to attract businesses to their jurisdictions by lowering tax rates, leading to a 'race to the bottom' in taxes that may well relegate vital government programs to the trash bin. The Center is therefore directly opposed to efforts like that in the OECD to bring nations together in a cooperative endeavor to make tax systems work well, rather than letting tax competition in a globalized financial world reduce tax systems to the lowest common denominator.   That antagonism to government cooperation in ending tax haven abuses and the downward spiral of tax competition depends on at least two related assumptions--that smaller government is necessarily better and that tax competition won't starve governments below the amount "really" necessary.  Of course, those programs that remain when budgets are cut tend to be those that are favored by people in power or powerful people.  The Center doesn't talk much about those issues, but makes what I call the "free market generic argument" that tax competition and small government promote economic growth.  See for example this "study" on the benefits of tax competition and smaller government arguing that the agencies of Energy, Education, Commerce, Housing & Urban Development, and Agriculture are illegitimate and that all of Social Security and Medicare should be handled as private functions.  The study also claims that the US standard of living is better than in Europe, which is a highly contestable statement, given the uneven distribution of resources and the lack of many of the safety net features available in most European democracies. It promotes the "Rahn curve" --a "theory", much like the Laffer curve-on-a-napkin "theory", that claims there is an optimal low government size as share of GDP for encouraging economic growth, but doesn't distinguish between totalitarian governments and sustainable democracies.

As I've noted in prior postings, reliance on this kind of abstract ideology of a free market  minimalizes the important role of government institutions in directly fostering economic growth and indirectly doing so through provision of a stable market environment in the first place, as well as an educated citizenry and much of the infrastructure that supports human commerce (road, utilities, communication systems, etc.).   It further trivializes the fact that unmediated commerce may leave a few powerful groups in control of the economic system (not exactly a "free" market) and create gross inequalities that actually hamper the kind of broad-based economic growth on which sustainable democracies can be built.

The Center's "fact sheets" tend to be high on opinion and low on fact.  So tax credits, which are designed to protect companies from against over-taxation in a world-wide tax system, are "factually" described by the Center as "offering scant relief because America's corporate tax rate is so high compared to other nations."  See  the fact sheet on territorial taxation. This is simply not true, since the foreign tax credit is a sought-after benefit that companies very astutely massage to significantly lower their income tax liability on their US source income.  Recent legislation permitting substantally more cross-crediting in the calculation of the foreign tax credit makes the credit even more valuable (too valuable, in my opinion, in that it reduces U.S. tax rates when it should not).   Interestingly, in other Center materials, the Center admits that the United States is actually a tax haven. Statutory tax rates are just the starting point for determining corporate taxation, and in fact many major public companies have very low federal corporate income tax liability (in part because of the foreign tax credit). 

Another example is the Center's propaganda for a flat tax.  A flat tax is literally a tax that is charged at a fixed rate rather than at a series of progressive rates depending on the level of income (thus creating brackets of income subject to tax at a certain rate).  For several years now, one of the themes of various organizations pushing for radical changes in the federal income tax system, such as the Cato Institute, has been support for a "flat tax" in the United States, in spite of the strong and steady majority support across the country for a progressive tax system.  The intent, one guesses, is to erode that support through the use of media bites and "spin" in the way we ordinarily see now in political campaigns.

If the only thing one read were the Center's propaganda on the flat tax, it might be easy to believe that the flat tax is the panacea the Center says it is--something that would reduce complexity, create fairness, ramp up economic growth, and of course further the "free" market. The Center claims that a flat tax is necessarily tied to changing the U.S. tax system from a world-wide income basis to a territorial taxation basis.  See  the fact sheet on territorial taxation.  That's clearly not the case--our current system could be made into a flat tax system by merely removing the graduated taxing provisions.

And of course it makes "Laffer Curve" arguments for the value of a flat tax--if you lower tax rates to a single flat rate, you will generate economic growth and get high tax revenues.  What are the flat tax countries cited by the Center and the market center blog?  Estonia, Bulgaria, Albania, Montenegro, Slovakia, Macedonia, Kyrgrzstan and other emerging economies for which a simple system may make considerable sense.  To suggest that the United States would benefit from an equally simple system, and to disregard the evidence from other developed economies, seems both naive and misleading.

Take another example--the Center sets up Iceland's change to lower flat tax rates as the reason for a recent expansion of economic growth there. See this release. But Iceland is in fact more highly taxed than many countries, and more regressively taxed than is likely good for the long term health of the country.   In addition to a labor tax (36%), capital tax (10%), corporate tax (18%), estate tax of 5% and payroll taxes of 6%, it also has a value-added tax of about 25% (see Deloitte's Global Indirect Tax Rates).  So perhaps the message should be that high taxes lead to robust economic growth? 

Partnership Carried Interests: will Congress act?

I suspect a number of conversations around law schools lately resemble one I just had with an informed colleague this afternoon about the "carried interest" situation.  My colleague thinks that the issue is relatively easy to understand:  a group of service providers have been able to take advantage of partnership rules generally to treat their service provider income as capital gains rather than ordinary income like the rest of those who provide services for a living. But he also thinks the Congressional response is most likely to be to do nothing.  There are powerful lobbies activated to argue for the preservation of the "break" for hedge and equity fund managers, and it is hard for those who believe this is an equity issue to mobilize.   Who, after all, would pay for Washington lobbyists to help further the cause of equitable treatment of service providers?

Interestingly, the OMB Watch blog had a piece  just yesterday about this very issue--called "Carried interest issue gathering momentum."  You can read it at this link.  It reports on (among other things) the effort by labor groups and others to mobilize non-profit groups to push for action on this issue.  Citizens for Tax Justice has set up an electronic sign-on letter that starts out as follows:

The undersigned organizations urge you to support legislation sponsored by Congressman Sander Levin (H.R. 2834) that would close the tax loophole for what private equity fund managers call "carried interest."

As Warren Buffett recently stated, it's an outrage that Americans who are paid millions or even billions for their labor can be subject to lower federal tax rates than their middle-income receptionists."

Organizations that want to sign on can go to the following link to become participants in this grassroots lobbying campaign on behalf of equitable taxation of service provider income: CTJ petition.

The OMB Watch bulletin also suggests that momentum is growing in Congress to support action on the Levin legislation.  Sen Schumer, whose constitutents include the financial world of Wall Street and environs, was initially reluctant but now appears tentatively on board.  Similarly, Sen. Baucus seems convinced that this legislation makes sense, especially as a revenue raiser for another important item, the temporary "patch" for the AMT.  Of course, like much political action, we won't know whether Congress will act til it does (or doesn't).  Maybe I should stake out a mini-wager with my colleague on whether Congress will do the right thing.  I'm hoping Congress does act.

Government and markets: they work together

The New York Times editorial, The Less-Than-Generous State, on August 16, 2007 is one that people should read in its entirety.  Here's an excerpt.

The United States has long had one of the most meager tax takes in the industrial world. America’s social spending — on programs ranging from Medicare and Social Security to food stamps — is almost the stingiest among industrial nations. Among the 30 industrialized countries grouped in the Organization for Economic Cooperation and Development, only four — Turkey, Mexico, South Korea and Ireland — spend less on social programs as a share of their economy.

Long a moral outrage, this tightfisted approach to public needs is becoming an economic handicap. Shortchanging public health impairs America’s competitiveness. If the United Statesis to reap the rewards of globalization, the government must provide a much more robust safety net — to ensure public support for an open economy and protect vulnerable workers.

This is part of the message of democratic egalitarianism that I have been preaching.  Iin the long run, the mantra that "government is bad" and "private markets can handle anything" has to give way to a reasoned and balanced approach.  Private markets are particularly good at some endeavors (and shouldn't need any government subsidy to make a profit).  Providing food for the table is one of those (though you wouldn't know it from the government largesse that gets handed out to huge agribusiness producers and to no-till government "farmers" every year).  Government is particularly good at some endeavors--providing safety nets for workers, rules for importers, and decent schools for poor neighborhoods are examples (though the "government is bad" mentality has made it hard for the schools to survive, since good schools requires good money, and that means redistributing from rich areas to poor ones).  The fact is, markets need stable, non-corrupt, working governments, and governments need stable, non-corrupt, working markets.  And both need a good tax system that raises revenues to support the programs that government needs to run in order to have the economic system--markets and government--work properly.

Tax Patents: PTO approach

At the ABA tax meeting in August, the Patent and Trademark Office representative indicated that they would continue to issue patents, juding them on the regular patent eligibility issues, not on whether they were "good or bad for the public."  See the BNA daily tax RealTime, August 16, 2007 (quoting PTO's Wynn Coggins.

Perhaps the most worrisome aspect of Coggins' statement is her view that the PTO is up to the task of determining the eligibility of tax strategies for patenting.  She commented at the ABA meeting that  the PTO has "'great expertise' in the tax area and a solid partnership with the Internal Revenue Service on this issue."  I find that a significant stretch.  The PTO has a number of highly trained technicians, but it does not have a stable of experienced tax lawyers.  The partnership with the IRS is better than no input from the IRS, but does not result in the PTO having the expertise that it needs.  It is a little like a graduate of a mid-tier law school purporting to develop tax expertise after a summer working with a few good tax lawyers on a couple of good tax deals, at best. 

I'm still pinning my hopes on Congress realizing that tax strategy patents are a public policy mistake--both from the perspective of patent and tax law.  There is no need to accelerate development of tax strategies so the purpose of patent law is not satisfied.  And regretably, the patenting of tax strategies would likely have the effect of strengthening rather than tempering the tax minimization norm that already leads many tax advisers to lose sight of the proper boundaries on advising aggressive tax measures.

PTO's Wynn Coggins noted that "the Patent Office doesn't look at whether a patent is good or bad for the public"  but whether it is truly new rather than based on prior art.

Partnership Carried interests and Fund Managers' Taxation: SEIU speaking out

As I have discussed in various prior postings (most are under the "distributive justice" category), there is much talk (but still little action) about the taxation of sums paid to equity and hedge fund managers as "carried interests" --profits interests in partnerships backed by little or no actual equity investment by the managers.

Now a new group is joining the discussions.  The Service Employees International Union (SEIU) issued a statement  accusing private equity fund managers of "hurting working Americans, risking pension returns, and cutting into federal and state revenues, while reaping hundred million-dollar payoffs and avoiding paying their fair share of taxes."  Leroy Baker, US Union Attacks Private Equity Taxation, Tax-News.com, August 17, 2007.  Union President Sterns called the taxation of carried interest at the ordinary income or capital gains rate just "the tip of the iceberg."  Id.

The poster case used by the union is ManorCare, a health company with which the union has long had disagreements.  Here's its description of the tax disadvantages for ordinary taxpayers caused by the Carlyle Group's buyout (and planned 'rip and flip') of the firm.

[The union] highlighted the Carlyle Group's purchase of nursing home giant HCR-ManorCare for $6.3 billion, stating that it expects the Group to own the company for approximately five years. ...ManorCare will receive an estimated $14 billion in state and federal tax-funded payments while it is owned by Carlyle, and CEO Paul Ormond will make as much as $186 million as a result of the deal. ... ManorCare will pay no corporate taxes while it is owned by Carlyle, cutting federal, state and local tax revenue by more than $600 million over five years, based on an analysis using "conservative assumptions".  Id.

Whatever one thinks of this particular buyout deal, it is appropriate that ordinary citizens understand better the way that private equity and hedge funds work and the kinds of tax subsidies they enjoy.  Bringing these deals out into the sunshine is a good idea, and having an informed discussion about the impact on the economy and on workers can only be beneficial.  And hopefully Congress will redress the inequities caused by the tax subsidies--including the treatment of carried interest and the availability of the passive income exception to the publicly traded partnership rules.

Taxpayer Advocacy Panel Releases 2006 Report

The IRS's Taxpayer Advocacy Panel, a federal advisory group, has released its 2006 Taxpayer Advocacy Report.  Here's the description of the group, which was consolidated in 2002 from various regional advisory panels.

The Taxpayer Advocacy Panel (TAP) was established to improve IRS responsiveness to taxpayer needs and to provide advance input on key program changes that impact customer service. TAP is an independent advisory group, established in conformance with the Federal Advisory Committee Act (FACA), with volunteer members from all over the country appointed by the Secretary of the Treasury to represent each state, the District of Columbia, and Puerto Rico.

Each member of TAP serves on area and issues committees, with the goal of bringing to IRS attention taxpayer concerns and advocating for solutions to those problems.  This year, the TAP also hosted seven town hall meetings with the National Taxpayer Advocate.

The TAP report sets out 58 recommendations.  Here's a sample.

• eliminate or improve From 2553 for Subchapter S elections, so that S corporations more accurately file their returns (improving forms is always a good idea; one wonders if the number of non-elections is due to lots of sloppy tax advisers that need to be better regulated)
• cross-reference W-4 and W-4P so employees understand the relationship between withholding on wages and on pensions (good idea!)
• encourage corporations to inform their employees about the Earned Income Tax Credit (a letter to corporations to encourage them to inform their employees about EITC might be a waste of government effort if there is no requirement; corporations that care about employees probably already inform them of the program)
• develop less burdensom alternatives for determining the home office deductions  (I suspect that many homeowners take home office deductions that would not be correct if thoroughly audited, so I would add that any simplification should require vigorous substantiation)
• require only summary reporting on securities trading (I disagree strongly with this recommendation, because this is an area subject to considerable taxpayer manipulation and in fact more detailed reporting may be necessary)
• suggestion that all IRS notices that require response by a due date include a prominent notice on the outside of the envelope "Timely Response Required" (sounds very reasonable to me!)