Section of Taxation
Public Policy—Government Submission Archives

December 22, 1999

The Honorable Charles O. Rossotti
Internal Revenue Service
Room 3000
1111 Constitution Avenue, NW
Washington, DC 20224

Mr. Jonathan Talisman
Acting Assistant Secretary for Tax Policy
U.S. Department of the Treasury
Room 1000
1500 Pennsylvania Avenue, NW
Washington, DC 20220


On behalf of the Section of Taxation of the American Bar Association let me express congratulations on the publication Notice 99-59. We hope this Notice will put an end to a particularly troublesome category of tax shelter transactions.

As you well know, we have for some time been very concerned about the increased development, marketing and implementation of so-called tax products which have no purpose other than the reduction of a taxpayers normal federal tax obligation. Originally targeted for use by large corporate taxpayers, these tax shelter devices are now being increasingly marketed to smaller businesses and wealthy individuals. Government action to stop this activity is badly needed. Notice 99-59 and the strong statements accompanying it are an important step. We particularly welcome the words of Secretary Summers when he says the aim is to build on a culture of compliance. This is essential if we are to protect the integrity of our self-assessment tax system.

I should also emphasize that we continue to think the Internal Revenue Service needs additional legislative tools to support its anti-tax shelter campaign. Present disclosure and penalty rules need to be reshaped to address today's marketplace, and the scope of doctrines developed by the courts to prevent tax avoidance should be clarified and reemphasized in the Code.

While we are awaiting helpful legislation, however, there is much that can be done to respond to this problem administratively. Notice 99-59 states that, through a series of contrived steps, taxpayers claim tax losses for capital outlays that they have in fact recovered. Such artificial losses are not allowable for federal income tax purposes. This is a clear statement by the government that the so-called loss generators class of products do not achieve their tax avoidance objective under existing law and if attempted may subject the taxpayer and other participants to penalties. We think it is an important signal to send and we commend you for doing so.

We look forward to continuing to work with you on critical tax system issues such as these.

Sincerely yours,

Paul J. Sax


William V. Roth, Jr., Chairman, Senate Finance Committee
Bill Archer, Chairman, Committee on Ways and Means
Daniel P. Moynihan, Ranking Democratic Member, Senate Finance Committee
Charles B. Rangel, Ranking Democratic Member, Committee on Ways and Means
Lindy L. Paull, Chief of Staff, Joint Committee on Taxation
Pete Singleton, Chief of Staff, Committee on Ways and Means
James D. Clark, Chief Tax Counsel, Committee on Ways and Means
Janice Mays, Minority Chief Counsel, Committee on Ways and Means
John L. Buckley, Minority Chief Tax Counsel, Committee on Ways and Means
Frank Polk, Majority Staff Director, Senate Finance Committee
Mark Prater, Chief Tax Counsel, Senate Finance Committee
David Podoff, Minority Chief of Staff, Senate Finance Committee
Russell Sullivan, Minority Chief Tax Counsel, Senate Finance Committee