CONFERENCE REPORT ON H.R. 4520, AMERICAN JOBS CREATION ACT OF 2004 -- (Extensions of Remarks - October 11, 2004)
Mr. ENGLISH. Mr. Speaker, I submit the following exchange of letters between myself and Chairman THOMAS for submission into the RECORD related to debate on H.R. 4520, The American Jobs Creation Act of 2004, which took place October 7, 2004.
House of Representatives,
Washington, DC, October 7, 2004.
Hon. WILLIAM M. THOMAS,
Chairman, Committee on Ways and Means, Longworth House Office Building, Washington, DC.
DEAR MR. CHAIRMAN: I am writing to raise a concern regarding regulations issued several years ago by the Internal Revenue Service (IRS) in which they apply an expansive new interpretation of the law retroactively.
Congress enacted section 263(g) of the Internal Revenue Code as part of the Economic Recovery Tax Act of 1981 ("ERTA") to discourage the use of certain "straddle" type tax shelters known as "cash and carry" transactions. In the Report accompanying ERTA, the Senate Finance Committee noted that "[t]he committee intends to discourage these transactions, sometime called 'cash and carry' shelters, in its legislation." The Committee also described the nature of the "cash and carry" transactions Congress was trying to discourage, in detail.
Twenty years later, on January 17, 2001 the Treasury Department issued a set of proposed regulations under section 263(g), that would expand the scope of 263(g) beyond so-called cash and carry transactions, and states in its effective date section that the new rules apply to "..... interest and carrying charges properly allocable to personal property that are paid, incurred, or accrued after the date these regulations are adopted as final ..... for a straddle established on or after January 17, 2001."
Despite the clear legislative intent, the IRS has attempted to apply the proposed regulations expanding the coverage of 263(g) to transactions undertaken prior to January 17, 2001, and a number of field agents have indicated to taxpayers that absent clear guidance to the contrary, they will continue to apply this expansive interpretation of section 263(g) on a retroactive basis.
When the tax writing committees decide to change the law in a way that might affect ongoing transactions our normal practice is to put the public on notice through an announcement. Once we have so acted, it is considered fair to make the change effective on the date of the announcement because taxpayers have been given fair warning.
I would like to know if you agree with my conclusion that the IRS should follow rules that are equally fair. If a change in the law which was not made as a result of a legislative mandate is announced in regulations, do you agree that the change should be prospective?
Thank you for considering this matter and I look forward to your response.
Sincerely,
PHIL ENGLISH.
--
House of Representatives,
Committee on Ways and Means,
Washington, DC, October 8, 2004.
Hon. PHIL ENGLISH,
House of Representatives, Longworth House Office Building, Washington, DC.
DEAR MR. ENGLISH: I am writing in response to your letter regarding Sec. 263(g) of the Internal Revenue Code and the Internal Revenue Service's (IRS) application of related regulations.
Without in any way questioning whether IRS interpretation in this case was appropriate, I agree with your conclusion that the expansion of the scope of 263(g) should have been prospective. I believe the Secretary of Treasury should do whatever is necessary to make sure that the regulations that have been brought to my attention by your letter are implemented in that manner.
Sincerely,
William M. Thomas,
Chairman.