Revised Corporate Tax Shelter Discussion Draft

February 14, 2001

Mr. Russ Sullivan
Chief Tax Counsel
Senate Finance Committee
United States Senate
203 Hart Office Building
Washington, DC 20510

Dear Mr. Sullivan:

We appreciate the opportunity to comment on the bipartisan revised staff discussion draft of proposed tax shelter legislation that was released on October 5, 2000, by the Senate Finance Committee majority and minority staffs (the "Draft"). This letter is presented on behalf of the Section of Taxation. It has not been approved by the House of Delegates or the Board of Governors of the American Bar Association and, accordingly, should not be construed as representing the policy of the Association.

We compliment both staffs on the Draft and believe that it represents both a substantial improvement to the prior draft released by the staffs on May 24, 2000, and a significant contribution to the ongoing process of crafting appropriate legislation to halt abusive corporate tax shelters. The Draft includes a number of provisions and revisions that we suggested in our prior comment letter dated June 22, 2000, and a number of provisions that we previously have advocated or supported in testimony before the Senate Finance and House Ways & Means Committees and in correspondence. This letter does not repeat those prior recommendations and supportive comments. We particularly welcome the inclusion in the Draft of a separate penalty for failure to comply with the disclosure requirements under section 6011 of the Internal Revenue Code of 1986, as amended (the "Code"). We also applaud the elimination of the complex penalty structure that appeared in the prior draft. The requirement of a process for approving the assertion of penalties is similarly welcome. The remainder of this letter provides our comments on provisions in the Draft that either are new or that differ from our prior recommendations

We look forward to working with the staffs on these and any other issues related to the Draft.

Sincerely,

Richard M. Lipton
Chair, Section of Taxation

cc: Mark Prater, Chief Tax Counsel, Senate Finance Committee
     Lindy L. Paull, Chief of Staff, Joint Committee on Taxation

Issues Addressed

1. Section 6662A: Penalty for Participation in an Abusive Tax Shelter Device
   1. Definition of Abusive Tax Shelter Device
   2. Minimum Tax Reduction Thresholds
   3. Amount of Penalty and Waiver Thereof
2. Section 6662: Substantial Understatements of Participants in Tax Shelters other than Abusive Tax Shelter Devices
3. Section 6707A: Penalty for Failure to Include Tax Shelter Information with Return
4. Section 6701(a): Modifications of Penalties for Aiding and Abetting Understatement of Tax Liability Involving Tax Shelters
5. Section 6708(a): Failure to Maintain Lists
6. Section 330(b): Regulation of Individuals Practicing before the Department of Treasury
7. No Penalty on Tax-Indifferent Parties

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