Proposed PBGC reporting regulations threaten confidentiality of tax returns - US Pension Benefit Guaranty Corporation - Tax Executives Institute IRS Administrative Affairs Committee

Tax Executive, The, Jan-Feb, 1996

On November 30, 1995, Tax Executives Institute submitted the following comments to James J. Keightley, General Counsel of the Pension Benefit Guaranty Corporation, relating to the annual financial and actuarial reporting requirements imposed under section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA). The comments were prepared under the aegis of the Institute's IRS Administrative Affairs Committee, whose chair is Robert L. Ashby of Northern Telecom Inc. David L. Klausman of Westinghouse Electric Corp., vice chair of TEI's Federal Tax Committee, materially participated in the development of the Institute's comments.

On behalf of Tax Executives Institute, Inc., I am writing to comment on a proposed regulation issued by the Pension Benefit Guaranty Corporation (PBGC), relating to the annual financial and actuarial reporting requirements imposed under section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA). The proposed regulations were issued on July 6, 1995, under Title 29 of the Code of Federal Regulations, section 2628, and published in the FEDERAL REGISTER (60 Fed. Reg. 35308). Our comments focus on Prop. Reg. [subsections] 2628.7(e)(1)(iii) and (f), which we believe both impose an unnecessary paperwork burden on companies subject to the regulations and undermine the confidentiality accorded tax returns and return information under the Internal Revenue Code (IRC).

Background

Tax Executives Institute is a volunteer, professional association of approximately 5,000 accountants, lawyers, and other professionals who are responsible for managing the tax affairs of their companies. TEI members must contend daily with business pension and tax laws, including those affecting the taxation of companies and their pension plans, from planning, recordkeeping, and compliance perspectives. TEI represents a cross-section of the business community. We are dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and the government alike.

The Institute is firmly committed to maintaining a tax system that works - both for taxpayers and the government. We believe the diversity and training of our members enable us to bring a balanced and practical perspective to your attention in respect of the need to safeguard the confidentiality of tax returns and return information.

Discussion

Section 772(a) of the Retirement Protection Act of 1994(1) added section 4010 to ERISA. Under section 4010, certain contributing sponsors and all members of their controlled groups (referred to in the regulations and hereinafter as "Filers") must submit annually to the PBGC financial and actuarial information prescribed by the PBGC in regulations. Under section 4010(a)(2), Filers must provide the PBGC with audited or unaudited financial statements. Prop. Reg. [sections] 2628.7(e)(1)(iii) states that where audited or unaudited financial statements are unavailable, the Filer may submit copies of federal tax returns to satisfy the financial information requirement. Prop. Reg. [sections] 2628.7(f) authorizes the PBGC to "require any Filer to submit additional actuarial or financial information that is necessary to determine ... the financial status of a Filer."

TEI recommends that Prop. Reg. [sections] 2628.7(e)(1)(iii) be deleted from the final regulation. In addition, we submit that the phrase "additional financial information" in Prop. Reg. [sections] 2628.7(f) is vague and overbroad, and are concerned that the phrase may be interpreted to include requests for the Filer's federal income tax returns. Consequently, TEI recommends, at a minimum, that the scope of Prop. Reg. [sections] 2628.7(f) be narrowed to exclude tax returns or tax return information from the "additional actuarial or financial information" to be sought from Filers.(2)

Under current law, the PBGC is authorized to request and receive copies of a company's federal tax return and other return information necessary "for purposes of ... the administration of Titles I and IV" of ERISA. See IRC [sections] 6103(l)(2). By requiring a taxpayer to submit documents that have already been submitted to the IRS and that the PBGC has a right to obtain, the proposed regulations would unnecessarily burden taxpayers with redundant paperwork and filing requirements.

More important, we believe that the proposed regulations would diminish the confidentiality accorded to taxpayers under the Internal Revenue Code. Where the PBGC obtains tax returns and return information from the IRS pursuant to IRC [sections] 6103, the tax returns and return information remain subject to stringent requirements to ensure the confidentiality of the information. In particular, IRC [sections] 6103(p)(4) requires the PBGC to adhere to stringent rules to safeguard confidential taxpayer information obtained from the IRS.(3) Moreover, IRC [sections] 7213 imposes criminal sanctions against federal employees and other persons who disclose any confidential return or return information in violation of IRC [sections] 6103. By contrast, under Prop. Reg. [sections] 2628.10, tax return information submitted directly to the PBGC would be minimally protected by the Administrative Procedures Act, which imposes no similar criminal or civil sanctions.