PUBLIC HEARING

 TAX COMPLIANCE PROCESS

 

TAPES 21, 22 A-B, 23 A

 

SENATE REVENUE COMMITTEE

FEBRUARY 2, 2005  9:00 AM  STATE CAPITOL BUILDING

 

Members Present:                  Senator Ryan Deckert, Chair

                                                Senator Charles Starr, Vice Chair

                                                Senator Gary George

                                                Senator Floyd Prozanski

                                                                       

Members Excused:                 Senator Rick Metsger

 

Witnesses Present:                Debra Buchanan, Oregon Department of Revenue  

                                                Rep. Greg Macpherson, District 38

                                                Jody Wiser, Tax Fairness Oregon

                                                Del Diebig, Retired revenue agent

                                                Mike Roach, National Federation of Independent Businesses

                                                Richard York, Portland

                                                Gordon Hillesland, Retired IRS agent                                    

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Barbara Guardino, Committee Assistant

 

 

TAPE 21, SIDE A

006

Chair Deckert

Calls meeting to order at 9:03 a.m. This is day two of discussion on tax compliance process. Will look at proposals.

 

PUBLIC HEARING, TAX COMPLIANCE

029

Paul Warner

Directs members’ attention to Abusive Tax Shelters & Transactions (EXHIBIT 1), California Tax Amnesty: Who’s eligible, how to apply (EXHIBIT 2) and State Tax Amnesty Programs (EXHIBIT 3).

 

047

Warner

Gives definition on abusive tax shelters and why they became so common. Accounting firms have pushed these schemes. California has suffered a significant amount of loss.

 

088

Chair Deckert

Asks for an example of a scheme in California.

 

092

Debra Buchanan

Gives an example.

 

105

Warner

Continues discussion on exhibit 1, abusive tax schemes. Money won’t be collected for several years due to appeal process.

 

129

Warner

Discusses Compliance Strategies, page 2, highlights # 5.

 

150

Chair Deckert

Asks if enough has been done in other states to allow Oregon to follow suit.

 

157

Warner

Oregon is in much better shape than if it was just starting on its own.

 

175

Warner

Discusses exhibit 2, California tax amnesty, which began Feb. 1.

 

225

Warner

Discusses last sentence under question 5, page 2, “California has a tax information exchange agreement with the IRS.”

 

245

Chair Deckert

Does Oregon share information with the IRS?

 

250

Buchanan

Yes, this works both ways.

 

256

Warner

Reviews question 8: Who is eligible? Discusses elements of application.

 

299

Warner

Discusses exhibit 3, list of states with amnesty programs. Notes Florida’s unique intangibles tax.

 

330

Buchanan

Refers to slide show handout, California’s Effort to Combat Abusive Tax Avoidance Transactions (EXHIBIT 4).

 

349

Buchanan

Page 1: Gives estimates of revenue losses.

Page 2: Graph showing individual and corporate tax revenues.

Pages 4-5: Reporting Requirements, Investor Penalties, Promoter Penalties.

 

370

Chair Deckert

Question concerning enforcement in California.

 

380

Buchanan

Believes California set up a unit to track down violators. Will confirm.

 

385

Buchanan

Page 5: bottom: Other Curtailments

Page 6: Voluntary Compliance Initiative (VCI)

 

399

Buchanan

Page 7: VCI by Total Revenue, VCI by Taxpayers

 

424

Buchanan

Page 8: VCI Options by Revenue

 

445

Chair Deckert

 

Asks for clarification concerning taxpayers who pay and then appeal.

TAPE 22, SIDE A

021

Buchanan

Responds, it’s a gray area as to what is an abusive tax shelter. Answers follow-up questions.

 

040

Buchanan

Page 9: VCI Returns by Tax Year

 

055

Buchanan

Page 10, bottom: Concurrent Activities. California’s legislation was going on at the same time the federal government was discussing the same issue. Answers questions.

 

 

Page 11: SPSI Report

 

090

Buchanan

Gives examples of abusive tax shelters under federal rules.

 

101

Buchanan

Page 13: Discusses what Oregon Department of Revenue is doing to combat tax schemes.

 

120

Buchanan

Page 14: Personal taxes. Penalties under current Oregon law are on page 17.

 

145

Chair Deckert

Questions on issue of 8-year statute of limitations.

 

157

Buchanan

Page 15: Information on amnesty

 

177

Buchan

Oregon has an informal mini-amnesty program already. It has voluntary disclosure agreements. Must consider whether money would be collected anyway.

 

207

Chair Deckert

Notes, President Bush allocated money toward federal tax collection. Has Oregon benefited by this?

 

214

Buchanan

Will get that information.

 

225

Rep. Greg Macpherson

Sponsor of tax amnesty bills. See Improve Compliance with Oregon Income Tax, Outline of HB 2486 and HB 2487 (EXHIBIT 5). House introduced two bills this week, HB 2486 and 2487.

 

278

Rep. Macpherson

Outlines five proposed changes:

·         abusive tax shelters – HB 2486

 

313

Rep. Macpherson

Major international accounting firms are busy thinking of ways to avoid taxes.

 

327

Rep. Macpherson

Discusses HB 2486, lead bill.

 

397

Rep. Macpherson

Bill would include an amnesty program. Does not predict Oregon’s plan will be as successful as California, which was dealing with dot-com bubble. But this is the time to closely consider this program because Oregon’s statute of limitations is about to run out.

 

462

Rep. Macpherson

·         withholding on retirement payments – HB 2487

·         withholding on sales of Oregon real estate by nonresidents – HB 2487

 

TAPE 21, SIDE B

066

Sen. George

Asks question concerning retirement issue. Knows someone who was advising him to exploit a loophole by moving out of Oregon.

 

077

Rep. Macpherson

Responds, Congress has limited states’ ability to tax retirement amounts received here when that person has moved to another state.

 

089

Sen. George

Follow-up questions.

 

102

Rep. Macpherson

·         state collection of local income taxes – HB 2487

 

140

Chair Deckert

If Oregon moved forward on the fourth proposal, it would be codifying a very decentralized tax structure here. It would lock in a tax structure that may not be good for economic development.

 

152

Rep. Macpherson

Responds, fourth proposal does not create any new taxing authority.

 

179

Rep. Macpherson

·         holders of professional and occupational licenses – HB 2487

 

196

Rep. Macpherson

Gives concluding statements, asks committee to consider his ideas.

 

233

Jody Wiser

See written testimony (EXHIBIT 6) verbatim. Tax Fairness Oregon examines what’s happening with tax enforcement here.

 

245

Wiser

Contends there are four reasons Oregon needs to increase its efforts to collect taxes: revenue, the integrity of the voluntary tax system, an enforcement gap and an opportunity gap.

 

313

Wiser

Four, we have an opportunity gap (page 2).

 

334

Wiser

Examples – I will use myself and my sons as examples

 

400

Wiser

Tax Fairness Oregon’s ideas to address these issues (page 4): Abusive tax shelter initiative. Suggests legislature increase statute of limitations to 10 years for auditing.

 

TAPE 22, SIDE B

030

Wiser

Continues testimony on tax fairness. Believes there should be a broad publicity campaign.

 

052

Del Diebig

Testifies in favor of tax shelter reform. See written testimony, Quantifying the Oregon Tax Gap, Income Tax – Individual and Corporate (EXHIBIT 7).

What is a tax gap?

 

091

Diebig

Directs members’ attention to Exhibit A within his testimony, Tax Gap Analysis. Compares tax gap to Exhibit B, Most Serious Problem, Nonfiling and Underreporting by Self-Employed Taxpayers

 

117

Chair Deckert

Asks Diebig to estimate how much of the uncollected tax is people who would comply but don’t have the money.

 

122

Diebig

Responds, Legislative Revenue Office has that information.

 

127

Diebig

Continues testimony, see page 2, What is the Individual Income Tax Gap?

 

161

Diebig

What is the Corporate Income Tax Gap? Directs members’ attention to Exhibit C within written testimony.

 

181

Diebig

Historical Data on the Tax Gap, page 3

Directs members’ attention to Exhibit D in written testimony.

 

197

Diebig

What Isn’t Included in the Tax Gap?

 

238

Diebig

Concluding statements, page 4. IRS no longer audits corporations.

 

302

Mike Roach

Testifies on issue of tax fairness through better tax compliance. See written testimony, verbatim (EXHIBIT 8).

 

379

Richard York

Testifies in favor of tax collection. See Public Humiliation Helps States Collect Delinquent Taxes, verbatim (EXHIBIT 9).

 

447

Roach

Suggests making part of amnesty program to allow businesses and individuals to remain anonymous unless they don’t come forward.

 

 

 

TAPE 23, SIDE A

043

Gordon Hillesland

See written testimony, paraphrased (EXHIBIT 10). Discusses purposeful inefficiency in the current tax collecting system in the Internal Revenue Office. Discusses illegal tax protester movement.

 

113

Hillesland

Directs members’ attention to newspaper article in exhibit 10, Tax troubles shadow redevelopment official.

 

110

Chair Deckert

Adjourns meeting at 11:00 a.m.

 

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant      

                       

Exhibit Summary:

1.      Franchise Tax Board – Abusive Tax Shelters & Transactions, Warner, 4 pp.

2.      California Tax Amnesty: Who’s eligible, how to apply, etc., Warner, 5 pp.

3.      State Tax Amnesty Programs, November 22, 1982 – Present, Warner, 3 pp.

4.      California’s Efforts to Combat Abusive Tax Avoidance Transactions, Buchanan, 24 pp.

5.      Improve Compliance With Oregon Income Tax, Outline of HB 2486 and HB 2487, Macpherson, 1 pp.

6.      Testimony to Senate Revenue Committee, Jody Wiser, Tax Fairness Oregon, Wiser, 4 pp.

7.      Quantifying the Oregon Tax Gap, Income Tax – Individual and Corporate, Diebig, 8 pp.

8.      Testimony of Mike Roach, Roach, 2 pp.

9.      Public Humiliation Helps States Collect Delinquent Taxes, York, 2 pp.

10.  Senate Revenue Committee Testimony, Hillesland, 10 pp.

11.  Testimony of Gil Moss, 2 February 2005, Moss, 5 pp.