Statements on Introduced Bills and Joint Resolutions
Floor Speech
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Mr. LEVIN. Mr. President, today, I am introducing the Partnership Auditing Fairness Act, a bill designed to improve and streamline the audit procedures for large partnerships. This bill would ensure that large for-profit partnerships, like other large profitable businesses, are subject to routine audits by the Internal Revenue Service, IRS, and eliminate audit red tape that currently impedes IRS oversight. This legislation mirrors a provision in the Tax Reform Act of 2014, introduced earlier this year by Congressman David Camp.
This legislation would fix a problem that has gained only more urgency with time and the explosion in growth of large partnerships, including hedge funds, private equity funds, and publicly traded partnerships. In a September 2014 report, the Government Accountability Office, GAO, determined that the number of large partnerships, defined by GAO as those with at least 100 partners and $100 million in assets, has tripled since 2002, to over 10,000, while the number of so-called C corporations being created, which include our largest public companies, fell by 22 percent. According to the GAO report, some of those partnerships have revenues totaling billions of dollars per year and now collectively hold more than $7.5 trillion in assets, but the IRS is auditing only a tiny fraction of them. According to GAO, in 2012, the IRS audited less than 1 percent of large partnerships compared to 27 percent of C corporations. Put another way, a C corporation is 33 times more likely to face audit than partnership.
A recent hearing by the Permanent Subcommittee on Investigations, which I chair, demonstrated the critical need to audit large partnerships for tax compliance and abusive tax schemes. Our July 2014 hearing presented a detailed case study of how two financial institutions developed a structured financial product known as a basket option and sold the product to 13 hedge funds that used the options to avoid billions of dollars in Federal taxes. The trading by those hedge funds was mostly made up of short term transactions, many of which lasted only seconds. However, the hedge funds recast their short-term trading profits as long-term option profits, and claimed the profits were subject to the long-term capital gains tax rate rather than the ordinary income tax rate that would otherwise apply to hedge fund investors engaged in daily trading. One hedge fund used its basket options to avoid an estimated $6 billion in taxes. Those types of abusive tax practices illustrate why large partnerships like hedge funds need to be audited by the IRS just as much as large corporations.
During its review, GAO found that large partnerships are often so complex that the IRS can't audit them effectively. GAO reported that some partnerships have 100,000 or more partners arranged in multiple tiers, and some of those partners may not be people or corporate entities but pass-through entities--essentially, partnerships within partnerships. Some are publicly traded partnerships, which means their partners can change on a daily basis. One IRS official told GAO that there were more than 1,000 partnerships with more than a million partners in 2012.
GAO also found obstacles in the law. The Tax Equity and Fiscal Responsibility Act, TEFRA, now 3-decades-old, was enacted at a time when many partnerships had 30-50 partners; it does not adequately deal with current realities. That is why I am introducing legislation to repeal some of its provisions and streamline the audit and adjustment procedures used for large partnerships so that the IRS can exercise effective oversight to detect and deter tax noncompliance or tax abuse schemes.
Three technical aspects of TEFRA create particularly difficult obstacles to IRS audits and tax collection efforts for large partnerships. The first requires the IRS to identify a ``tax matters partner'' to represent the partnership on tax issues, but many partnerships do not designate such a partner, and simply identifying one in a complex partnership can take months. Second, notifying individual partners prior to commencing an audit costs time and money, yet produces few if any benefits. Third, TEFRA requires that any tax adjustments called for by an audit be passed through to the partnership's taxable partners, but the IRS's process for identifying, assessing, and collecting from those partners is a manual rather than by electronic process, which makes it laborious, time consuming, costly, and subject to error. For example, if a partnership with 100,000 partners under-reported the tax liability of its partners by $1 million, the IRS would have to manually link each of the partners' returns to the partnership return. Then, assuming each partner had an equal interest in the partnership, the IRS would have to find, assess, and collect $10 from each partner. That collection effort is not practical nor is it cost effective. In addition, under TEFRA, any tax adjustments have to be applied to past tax years, using complicated and expensive filing requirements, instead of to the year in which the audit was performed and the adjustment made.
Fixing the technical flaws in TEFRA is critical to ensuring that the audit playing field is level for all taxpayers. An essential element of any system of taxation is that it be fair--that is, that all those who pay taxes have a reasonable expectation that they are being treated in the same fashion as other taxpayers. Without fairness, not only does a tax system violate ethical principles, but the system itself fails to collect taxes owed, arouses resentment and complaints, and can even spark widespread noncompliance. The current situation in which large corporations are audited 33 times more than large partnerships is neither fair nor sustainable.
The Partnership Auditing Fairness Act would eliminate the existing audit disparity by streamlining the audit process for large partnerships. It would simplify audit notification and administrative procedures. It would no longer require the IRS to waste audit time trying to find a tax matters partner. It would allow the IRS to audit, assess, and collect tax from the partnership, rather than passing the adjustments through to and collecting from each taxable partner. It would apply any tax adjustments to the tax year in which the adjustments were finalized, rather than past tax years under audit.
The enormous discrepancy in audit rates between partnerships and other business forms raises a fundamental question of fairness. If one type of entity can be nearly free of IRS audits, businesses that do pay their taxes and are subject to the audit process rightly feel disadvantaged. That lack of fairness is something we simply can't tolerate.
For these reasons, in the next Congress, I urge my colleagues to consider supporting this legislation to fix the large partnership audit problem.
Mr. President, I ask unanimous consent that a bill summary be printed in the Record.
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Mr. LEVIN. Mr. President, when the War Powers Resolution was passed over a Presidential veto in 1973, its supporters expected that the War Powers Resolution would ensure that a national dialogue takes place before the employment of the U.S. Armed Forces in hostilities. The President--then President Nixon--was concerned that the War Powers Resolution's termination of certain authorities after 60 days unless extended by Congress would create unpredictably in U.S. foreign policy.
The War Powers Resolution, as a practical matter, has not been effective. Every subsequent President since President Nixon has viewed the War Powers Resolution as an unconstitutional impingement on the President's powers as Commander in Chief. So the 60-day trigger in the act has never been used to terminate hostilities, and the national dialogue envisioned by the authors of the resolution has failed to come about.
I have a proposal to amend the War Powers Act in those instances where nonstate actors are the target. We are the target of them. They must become and should become the target for us to try to deter and respond to them when they attack us and try to terrorize us.
I have introduced a bill today with a suggested amendment to the War Powers Act.
When the War Powers Resolution was passed over a Presidential veto in 1973, its supporters expected that the War Powers Resolution would ensure that a national dialogue takes place before the employment of the U.S. Armed Forces in hostilities.
The President, on the other hand, argued that the enactment of the legislation ``would seriously undermine this Nation's ability to act decisively and convincingly in times of international crisis.'' In his veto message, President Nixon argued that: ``As a result, the confidence of our allies in our ability to assist them could be diminished and the respect of our adversaries for our deterrent posture could decline. A permanent and substantial element of unpredictability would be injected into the world's assessment of American behavior, further increasing the likelihood of miscalculation and war.''
The President was particularly concerned that the War Powers Resolution's termination of certain authorities after 60 days unless extended by Congress would create unpredictability in U.S. foreign policy. The War Powers Resolution requires the President to consult ``in every possible instance'' prior to introducing U.S. Armed Forces into hostilities and to report to Congress within 48 hours when, absent a declaration of war, U.S. Armed Forces are introduced into ``hostilities or ..... situations where imminent involvement in hostilities is clearly indicated by the circumstances.'' After this report is submitted, the resolution requires that U.S. troops be withdrawn at the end of 60 days, unless Congress authorizes continued involvement by passing a declaration of war or some other specific authorization for continued U.S. involvement in such hostilities.
Every subsequent President has viewed the War Powers Resolution as an unconstitutional impingement on the President's powers as Commander in Chief. As a result, the 60-day trigger in the Act has never been used to terminate hostilities, and the national dialogue envisioned by the authors of the Resolution has failed to come about.
At this very moment, our troops have been engaged in hostilities in Iraq and Syria for more than 60 days, without the enactment of an authorizing resolution by Congress. Some believe that the continuing hostilities are a violation of the War Powers Resolution. Others argue that the War Powers Resolution has not been triggered, because our military actions can be justified under earlier authorizations. Either way, it is clear that the 60-day limitation in the resolution has had no more force and effect in the case of the battle against ISIS than it did in earlier actions in Bosnia, Kosovo, and elsewhere.
I believe that the War Powers Resolution needs to be modernized to make it more relevant to the situations our military is likely to face in the 21st century--in particular, the ongoing struggle against new and evolving terrorist groups.
Today, I filed a bill that would amend the War Powers Resolution to authorize the President to act against non-state actors like ISIS, where he judges it necessary to address a continuing and imminent threat to the United States, subject to a resolution of disapproval by Congress under the War Powers Resolution. This approach would allow the President to take decisive action to address imminent terrorist threats, while reserving a clear role for Congress through a resolution of disapproval. I believe that this approach would provide for a national dialogue on the use of military force with respect to non-state actors like ISIS, while avoiding the dead end provided unworkable requirement of the current War Powers Resolution, under which congressional inaction could require U.S. troops to suddenly disengage from the enemy while in harm's way.
My amendment would provide that the authority to use U.S. Armed Forces against non-state actors would terminate after 60 days unless either: 1, the President's actions are based on a law providing for the use of military force against a non-state actor; or 2, the President notifies Congress that continued use of military force is necessary because the non-state actor poses a ``continuing and imminent threat'' to the United States or U.S. persons, and Congress does not enact a joint resolution of disapproval under expedited procedures.
Expedited procedures under the War Powers Resolution would ensure that Congress considers the issue. Under these procedures, if a resolution of disapproval is filed in a timely manner by any Senator, the Senate Foreign Relations Committee would have 15 calendar days to report the resolution or be discharged. The Senate would then have 3 days to consider the Resolution, with time equally divided between proponents and opponents of the measure. As with any joint resolution, the measure could be vetoed, and such a veto would be subject to an override vote in Congress.
I believe this approach would provide greater clarity for the Executive and Legislative branches and I hope a future Senate will consider it.
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