CEO declaration in respect of a company's tax return: May 12, 2005

Tax Executive, The, May-June, 2005

TEI President Judith Zelisko urged Congress to reject as unsound a proposal to require company chief executive officers to sign a declaration that the corporate tax return complies with the Internal Revenue Code and that the company has processes in place to ensure the return is accurate in all material respects. In the May 12, 2005, letter to the Chairmen of the House Ways and Means and Senate Finance Committees, Ms Zelisko pointed out that a company's Senior Tax Executive already declares under penalties of perjury that the tax return is accurate and complies with the Code. Moreover, in response to the Sarbanes-Oxley Act, companies have instituted numerous internal controls, which must be certified by management under and reviewed by independent auditors, to ensure the accuracy of their reported financial information including taxes. The CEO tax return declaration will distract CEOs from activities, including corporate governance, where their expertise is best used.

As part of the tax title of the highway bill, See JCX-27-05, Description of the Chairman's Modification to the Provisions of the "Highway Reauthorization and Excise Tax Simplification Act of 2005" (April 19, 2005), the Senate Finance Committee approved a provision to require company chief executive officers (CEOs) to sign under penalties of perjury a declaration that the company has in place procedures to ensure that the annual federal tax return complies with the provisions of the Internal Revenue Code and that the CEO has received reasonable assurances of the accuracy of all material items in the return. As the preeminent association of in-house business tax professionals, TEI believes the CEO declaration provision is ill-advised and urges that it be removed from the final highway bill.

TEI appreciates that the CEO declaration is intended to increase corporate transparency and accountability. Although well intentioned, this proposal will consume valuable corporate resources without meaningfully enhancing corporate accountability. In this regard, it is important to note that significant steps and processes are already in place to promote corporate transparency and compliance. In particular, apart from the existing requirement for a corporate officer to sign a return under penalties of perjury, the internal control requirements mandated by the Sarbanes-Oxley Act of 2002 over financial matters (which include the provision for taxes), as well as the enhanced tax return disclosure rules and penalties for non-disclosure, advance the goals of transparency.

In contrast, CEO involvement, in the manner required by this legislative provision, would enhance neither the accuracy of a return nor the underlying processes to ensure its accuracy. Instead, the provision would inject the CEO into the return preparation and approval process and thus has the potential for distracting CEOs from activities (including corporate governance) where their professional expertise is best used. We submit that the proposal is ill-advised and counter-productive and should be excluded from the final legislation.

If you have any questions about TEI's position, please contact TEI's Executive Director, Timothy J. McCormally, or Chief Tax Counsel, Eli J. Dicker, at 202.638.5601.