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News from NAM's Tax Team

December 21, 2000

In This Issue – links to the specific topics in this newsletter:

"To avoid gridlock in the 106^th Congress, it is critical that the House Republican and Democratic leadership get together and talk on a regular basis." House Ways and Means Committee member Ben Cardin (D-MD-3^rd) at the NAM Tax Committee meeting, Dec. 5, 2000, Washington, D.C.

Tax Legislation Wrap-up: In a rush to end the 106^th Congress, legislators did pass several tax relief proposals, but left behind on the table some important NAM tax priorities. On the positive side, both Houses approved legislation to restore the installment sales rule and protect the confidentiality of competent authority and prefiling agreements between taxpayers and the IRS (see items below). Congress also approved a package of community renewal incentives. The President is expected to sign these proposals into law before the end of the month. The tax provisions dropped in the end-of-the-session negotiations included a package of important pension reforms, repeal of the telephone excise tax, and tax relief for companies with pending asbestos claims. However, legislators are likely to revisit these issues when they return next year. The pension reform package enjoys broad, bipartisan support and is viewed, by some, as an easy victory early in the 107^th Congress. For more information, contact Dorothy Coleman at (202) 637-3077, dcoleman@nam.org, Monica McGuire at (202) 637-3076, mmcguire@nam.org or Kimberly Pinter at (202) 637-3071, kpinter@nam.org

The Latest on FSCs: As expected, the November 15 enactment of the FSC replacement regime did not put the issue to rest. On November 17, the European Union stated that, in its view, the United States failed to comply with the WTO ruling, and requested the United States enter into consultations, which took place on December 4. Also on November 17, the EU requested authorization to impose retaliatory sanctions. Per agreement, the United States on November 27 requested arbitration of the sanctions request, but these proceedings are suspended until after a final WTO ruling on the validity of the new regime. The EU abandoned consultations on December 7, requesting formation of a WTO panel to review the new regime. The WTO’s Dispute Settlement Body (DSB) approved the request - without U.S. objection - at a December 20 meeting. The parties are expected to agree to delay any further action until after the beginning of 2001. Otherwise, the clock would begin immediately and the EU brief would be due by the end of the year. Once the clock begins, a panel ruling is expected within 90 days.

Meanwhile, Deputy Treasury Secretary Stuart Eizenstat is cautiously optimistic about the ability of the FSC replacement regime to withstand WTO scrutiny. In comments at the December 5^th Tax Committee meeting, he characterized European sanction threats as purely political and more generally commented that growing globalization will require increased U.S. attention to other countries’ tax laws. For further information about this issue, contact Kimberly Pinter at (202) 637-3071, kpinter@nam.org

The Return of the Installment Sales Rule: NAM’s yearlong effort to reverse legislation enacted in late 1999 repealing the installment sales rule is paying off. Before leaving town on December 15, the House and Senate passed legislation (H.R. 3594) that would restore the installment sales rule, allowing small business owners to use seller-financing when selling their business. The President is expected to sign the legislation, which is retroactive to December 1999. This is a real holiday present for small businesses. The installment method is used in approximately nine out of ten small business sales for a variety of reasons, including the ability to spread the capital gains tax payment over the life of the sale. The installment method has benefits beyond those related to taxes. It provides more flexibility for sellers to structure their sale and obtain a higher price for the business. At the same time, it allows buyers to purchase a business for which bank financing is unavailable. The installment method also ensures that the seller will continue to have a financial interest in the ongoing success of the business. For smaller enterprises that tend to have more of their total value attributed to good will, this assurance is often necessary for the sale to proceed.

R&D Tax Credit: The outlook is promising for enactment in 2001 of a permanent R&D tax credit given President-elect George W. Bush’s support for permanency during his campaign. Through its leadership role in the R&D Credit Coalition, the NAM will help launch a legislative and education campaign with the new Congress on the benefits of the credit to manufacturing and the U.S. economy. As part of this effort, NAM is looking for input from small and mid-sized manufacturers that use the credit or have customers that use the credit. If you have any information, please contact Monica McGuire at (202) 637-3076, mmcguire@nam.org

We also encourage NAM members that use the R & D credit to complete the PricewaterhouseCoopers survey on the R&D tax credit, see NAM’s homepage at www.nam.org in the tax and budget issues category. The survey, prepared in conjunction with the Tax Council Policy Institute, is confidential and intended to identify the most common and critical areas of controversy between the IRS and taxpayers regarding the R&D tax credit. Please return completed survey by January 5, 2001 to PWC, Attn: Dan Wiles, 1301 K Street, NW, Suite 800W, Washington, DC 20005.

An Enhanced Cost Recovery System: In comments to the Tax Committee on December 5, J.D. Foster, chief of staff to House Ways and Means Committee member Phil Crane (R-IL) reiterated that the 107^th Congress is likely to take a serious look at reforming our current cost recovery system. One of the proposals being floated around the business community is the 10-5-3-1 system. Under this proposal, the cost of all machinery and equipment placed in service after Dec. 31, 2000, would be recovered in 10, 5 or 3 years. Computers, software, semiconductor manufacturing equipment and other high-tech assets like "smart" machine tools would be expensed. The definition of "high tech assets" is expected to be broad, including computer and computer-related equipment integral to manufacturing, production, extraction, generation, transportation, distribution and communications. At this point, we are looking for input from NAM members on the definition of high-tech assets. For more information about the proposal or to provide input on examples of high tech assets, please contact Dorothy Coleman at (202) 637-3077, dcoleman@nam.org.

Confidentiality of Competent Authority: In another victory for the NAM, Congress December 15 approved legislation guaranteeing the confidentiality of competent authority agreements, pre-filing agreements, closing agreements, and all related background information. The proposal was included in the omnibus conference report, H.R. 4577. The confidentiality proposal was first introduced as H.R. 5044 on July 27, and Reps. Amo Houghton (R-NY), Sander Levin (D-MI), and Sam Johnson (R-TX) reintroduced a modified version as H.R. 5463 on October 12. The latest version of the bill has the full support of Treasury. The NAM worked closely with two other business groups to achieve this important victory. For more information, contact Kimberly Pinter at (202) 637-3071, kpinter@nam.org.

Moving Ahead on Death Tax Repeal: The effort to push for death tax repeal with the new Administration and Congress has already begun. In comments to the Tax Committee on December 5, House Ways and Means Committee member Jennifer Dunn (R-WA) confirmed that she and House Ways Means Committee member John Tanner (D-TN) plan to reintroduce repeal legislation in the 107^th Congress similar to HR 8, the bill that passed both the House and Senate this year. Dunn said she has talked with President-elect George Bush about the issue. According to one source, the Bush Administration may include, in its fiscal 2002 budget proposal, a plan to phase-out the death tax over a five-year period. The NAM continues as a co-director of the Family Business Estate Tax Coalition, the largest business coalition lobbying for death tax repeal. Coalition members will be meeting in early January with Reps. Dunn and John Tanner to discuss next year’s strategy. The coalition also will meet with Sen. Jon Kyl (R-AZ), the chief sponsor of repeal legislation in the Senate. Sen. Kyl has been mentioned as a possible new member of the Senate Finance Committee.

Blacklisting Regulations: The NAM has joined with other major business groups in filing a legal challenge to the federal contracting regulations, aka the "blacklisting regulations," which were published in the Federal Register on December 20. The regulations would revise the Federal Acquisition Regulation (FAR) that governs eligibility for federal contract awards and create a "blacklist," denying employers and employees the right to work on federal contracts. Under the rules, eligibility for federal contracts would be subject to a contracting officer’s judgment of "satisfactory compliance" with a wide array of complicated laws, including tax, labor, employment, environmental and antitrust laws. "These blacklisting regulations have nothing to do with good or ‘reinvented’ government, and we have no other choice but to go to court to prevent this blatant political move from costing responsible contractors important federal business," Mike Baroody, NAM’s senior vice president for policy, communications and public affairs, said in a press release.

IRS Industry Issue Resolution Pilot Program: The IRS is interested in hearing suggestions from taxpayers as well as industry associations and other groups representing taxpayers on issues and possible solutions for resolution. The objective of this pilot program is to provide guidance to resolve frequently disputed tax issues that are common to a significant number of large or mid-sized business taxpayers as an alternative to the traditional post-filing examination process. Please send comments to IRS’ Attn: Richard Druk; Large & Mid-size Business Division LM:PFTG; Mint Bldg., 3rd Floor M-3-321;1111 Constitution Ave, NW; Washington, DC 20224 or fax to: (202) 283-8427 or emailed to pftg2@irs.gov.

Tax Staff Changes: Kolan Davis, long-time tax aide to Senate Finance Committee member Charles Grassley (R-IA), will take over as staff director and chief counsel of the Finance Committee. Sen. Grassley is expected to become Finance Chairman. On the Democratic side, Russ Sullivan is expected to remain chief tax counsel for the Finance Committee. Maria Freese of Sen. Baucus' office has moved from his personal staff to work on the Senate Finance Committee minority staff where she'll be handling primarily issues affecting individuals. Sen. Baucus will become the Ranking Minority Member on the Finance Committee in the 107th Congress.

In order to keep you up-to-date on the latest tax staff changes, NAM will continue its producing updated lists of congressional tax-writing committee members, tax aides and office moves. To access the latest version, click here.

NAM Tax Policy Department Scheduled Events

Tax and Budget Policy Committee Spring Meeting: Wednesday, May 9, 2001, Washington, D.C. (Daylong event).

Washington Advisory (tax) Council Biannual Reception: Wednesday, May 9, 2001, 5:00-7:00 p.m., Washington, D.C. Reception for NAM members only to meet Members and tax aides of the congressional tax-writing committees in the 107^th Congress.

To obtain information or register for these events, please contact Maureen Green by e-mail at mgreen@nam.org or by phone at (202) 637-3073.

Tax Talk is a monthly e-mail newsletter from the NAM Tax Policy Department. Please feel free to distribute this within your organization. For additions or deletions to this list, please contact Maureen Green, mgreen@nam.org.

Copyright ã 2000 National Association of Manufacturers