Requiring CEOs to sign corporate tax returns: June 11, 2003

Tax Executive, The, May-June, 2003

On June 11, 2003, Tax Executives Institute submitted the following letter to members of the Senate Committee on Finance, urging Congress to abandon a proposal to require Chief Executive Officers to sign corporate tax returns. Originally passed by the Senate as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the proposal was dropped before the bill was enacted. Senator Charles Grassley, chairman of the Committee on Finance, however, has pledged to support the proposal on future tax legislation.

On behalf of Tax Executives Institute, I submit the following comments on provisions that were included in recent tax legislation that would require the Chief Executive Officer (CEO) of a corporation to sign the corporation's federal income tax returns. As the preeminent association of business tax professionals, TEI shares Congress's interest in maintaining the integrity of the nation's self-assessment tax and financial reporting systems. We fully support the goals of enhancing corporate accountability and improving the tax system, but regret that such proposal would not have the salutary effects hoped for and, indeed, could prove counterproductive. We urge the Committee to abandon it insofar as it would require the CEO to focus on the tax returns of a company rather than the process of ensuring the complete and proper reporting of its tax obligations.

Tax Executives Institute

Tax Executives Institute was established in 1944 to serve the professional needs of business tax professionals. Today, the Institute has 53 chapters in the United States, Canada, and Europe. Our more than 5,300 members are accountants, attorneys, and other business professionals who work for 2,800 of the leading companies in North America and Europe. As an international professional organization, the Institute is firmly dedicated to developing and effectively implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. TEI also supports efforts to ensure that companies fairly present their financial condition in financial statements and related documents filed with the Securities and Exchange Commission.

CEO Signatures on Corporate Tax Returns

TEI urges Congress to abandon the proposal to require the CEO to sign a corporation's federal tax return and certain other related documents or statements. (1) We well appreciate the desire to enhance corporate governance and accountability in the aftermath of recent financial reporting failures. Regrettably, the CEO signature proposals would not advance that goal. Indeed, such a requirement would place undue burdens on fully compliant companies, distract senior management from pressing duties of managing the business and dealing with customers, and potentially impede competitiveness.

Congress has already acted forcefully in this area. The Sarbanes-Oxley Act of 2002 significantly strengthened the accountability of CEOs and Chief Financial Officers for corporate financial matters, including new and strengthened civil and criminal penalties for violations. CEOs are now required to certify the financial statements of corporations, which contain a provision for taxes. (2) This certification requirement properly and adequately ensures that the CEO is committed to, and responsible for, the fair presentation of the company's financial results, including its tax positions, and that the CEO and the company have taken adequate steps to institute and maintain a process to achieve that result.

The tax affairs of major corporations, especially those with operations in numerous countries, are extraordinarily complicated. The same is true for the technical process of reporting them. For this reason, the day-to-day responsibility for compliance with the technical rules and reporting requirements is prudently delegated to the Chief Tax Officer (or similarly titled individual) who has been specially trained. While the senior officers remain ultimately responsible for the company's compliance with the tax laws--as well as environmental, worker safety, and other laws--rarely would a CEO be personally aware of and conversant with the myriad tax rules that apply to literally thousands of transactions reflected in the company's tax returns. The CEO is typically charged with process-related responsibilities, whereas the Chief Tax Officer is normally given the responsibility for technical legal compliance.

Indeed, the level of detail and specialized knowledge demanded in the preparation and submission of complex corporate tax returns makes it absolutely necessary and proper to delegate responsibility for examining and affirming under penalties of perjury the completeness and accuracy of the return (3) to an employee with the requisite level of professional tax expertise, training, and experience--the Chief Tax Officer.

Given the complexity of most companies' tax affairs, TEI has significant misgivings about the wisdom or practicality of redirecting that task to the CEO. Thus, the proposal should be set aside not to "let the CEO off the hook"--indeed, he or she is already held accountable, both civilly and criminally, for the company's affairs--but for wholly practical reasons. Corporate tax returns are often several thousand pages in length, (4) and making the necessary review and certification of them is not a perfunctory task. In addition to making the required substantive legal and accounting judgments, and familiarizing himself or herself with the facts and circumstances underlying the computations, the officer signing the return must devote substantial time and attention to reviewing and understanding the documents.