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Treas.
HJ
10
.A13
P4
v.413
Department of the Treasury
PRESS R E L E A S E S
The following numbers were not used:
JS-1333, 1441, 1465, 1468, 1470 and 1482
3-1282: Treasury A n d IRS Issue Guidance O n <br> S Corporation, Tax Exempt Entity Transaction
Page 1 of 2
m
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
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April 1, 2004
js-1282
Treasury And IRS Issue Guidance On
S Corporation, Tax Exempt Entity Transaction
The Treasury Department and the Internal Revenue Service today issued guidance
on certain kinds of abusive tax avoidance transactions involving S corporations and
tax-exempt entities, such as charities. These transactions are structured to
improperly shift taxation away from taxable S corporation shareholders to an
exempt party, for the purpose of deferring or avoiding taxes.
In Notice 2004-30, the IRS says it intends to challenge these transactions on a
number of grounds. It further declares that these abusive transactions are
considered "listed transactions." Participants in a listed transaction w h o are
required to file tax returns must disclose their participation to the IRS. In addition,
promoters of listed transactions must keep lists of investors and, in certain cases,
register those transactions with the IRS.
This notice is the first time the IRS has exercised its authority under the tax shelter
regulations to specifically designate a tax-exempt party as a "participant" in a tax
avoidance transaction.
"The participation of tax-exempt entities in these abusive transactions is a
worrisome trend," said Mark W . Everson, Commissioner of Internal Revenue. " W e
are acting today to ensure the integrity of our charities. W e don't want Americans to
lose faith in a unique and vital part of our nation's social fabric."
"These transactions are structured to eliminate tax on certain S corporation
shareholders by inappropriately shifting income to a tax-exempt organization. This
abuses the special status that the law gives to tax-exempt organizations," said
Gregory F Jenner, Acting Assistant Secretary (Tax Policy). "Use of tax-exempt
organizations as mere accommodation parties should not be permitted."
In addition, the IRS will amend Form 8886, Reportable Transaction Disclosure
Statement, to require parties filing the forms to identify the names of all parties to a
listed transaction. This includes any tax-exempt parties that facilitate the
transaction.
The tax-exempt area is one of the IRS's four top service-wide priorities. The IRS will
discourage and deter non-compliance within tax-exempt and government entities,
and the misuse of such entities by third parties for tax avoidance or other
unintended purposes.
Notice 2004-30 is attached.
-30LINKS
ttp://www.treas.gov/press/releases/js 1282.htm
5/27/2005
s-1282: Treasury A n d IRS Issue Guidance O n <br> S Corporation, Tax Exempt Entity Transaction
•
•
•
•
Page 2 of 2
The IRS H o m e page
The U.S. Mint
U.S. Secret Service
Department of Justice
REPORTS
• Notice 2004-30
p://www .treas.gov/press/releases/js 1282.htm
5/27/2005
j-1283: Treasury A n d IRS Issue Guidance O n <br> Intercompany Financing Through Partnerships
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
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April 1, 2004
js-1283
Treasury And IRS Issue Guidance On
Intercompany Financing Through Partnerships
The Treasury Department and the Internal Revenue Service today issued guidance
on certain kinds of abusive tax avoidance transactions in which corporations use
partnerships to obtain inappropriate deductions for interest payments to related
entities. These transactions are now "listed transactions." Participants in these
transactions must disclose them to the IRS. In addition, promoters of listed
transactions must keep lists of investors and, in certain cases, register those
transactions with the IRS.
"This is another step in our ongoing efforts to prevent taxpayers, both individual
and corporate, from engaging in abusive tax avoidance transactions," said Acting
Assistant Secretary for Tax Policy Gregory F. Jenner. "In the transaction described
in the Notice, related corporations provide financing through a partnership in an
attempt to achieve a more favorable tax result than if they had done the financing
directly. Congress did not intend that partnerships be used to implement tax
reduction strategies instead of for legitimate business purposes."
The transactions described in Notice 2004-31 are structured to avoid rules limiting
the deduction of interest on certain debt issued to related persons that are exempt
from tax, such as foreign corporations. In these transactions, a foreign corporation
invests in the preferred stock of a domestic subsidiary through a partnership. The
other partner in the partnership is another domestic subsidiary of the foreign
corporation. The second domestic subsidiary argues that it is able to deduct most
of the foreign corporation's return on its investment because the foreign
corporation's return is structured as a guaranteed payment by the partnership.
Notice 2004-31 is attached.
-30-
REPORTS
• Notice 2004-31
p://www.treas.gov/press/releases/js 1283 .htm
5/27/2005
Part III - Administrative, Procedural, and Miscellaneous
Intercompany Financing Using Guaranteed Payments
Notice 2004-31
The Internal Revenue Service and Treasury Department are aware of a type of
transaction, described below, in which a corporation claims inappropriate deductions for
payments m a d e through a partnership. This notice alerts taxpayers and their
representatives that these transactions are tax avoidance transactions and identifies these
transactions, and substantially similar transactions, as listed transactions for purposes of §
1.6011-4(b)(2) of the Income Tax Regulations and §§ 301.6111-2(b)(2) and 301.61121(b)(2) of the Procedure and Administration Regulations. This notice also alerts parties
involved with these transactions of certain responsibilities that m a y arise from their
involvement with these transactions.
FACTS
The transactions described in this notice use a partnership in an attempt to convert
interest payments that would not be currently deductible under § 163(j) into deductible
payments. O n e such transaction involves the formation of a partnership (PRS) by a
domestic corporation (DC2) and a foreign person (FP). F P is the c o m m o n foreign parent,
or an affiliate of the c o m m o n foreign parent, of the affiliated group (within the meaning of §
1504(a), but without regard to § 1504(b)(3)) to which D C 2 and a second domestic
corporation (DC1) belong. In the transaction, FP and D C 2 contribute property to P R S .
P R S contributes a substantial portion of the contributed assets to D C 1 in exchange for
preferred stock. Under the partnership agreement, F P is entitled to (1) a substantial
guaranteed payment for the use of capital, and (2) a disproportionately small share
(relative to FP's capital contribution) of both the gross dividend income from D C 1 and
PRS's deductions for guaranteed payments. Under the partnership agreement, D C 2 is
entitled to a disproportionately large share (relative to DC2's capital contribution) of both
the gross dividend income from D C 1 and PRS's deductions for guaranteed payments.
Each year, DC1 pays substantial dividend income to PRS on the preferred stock.
P R S allocates to D C 2 the dividend income as well as PRS's deductions for guaranteed
payments. If the guaranteed payment right to F P were instead debt of D C 1 to FP, then
1
interest on such indebtedness would be subject to the limitations imposed by § 163(j).
D C 2 claims, based on its affiliation with D C 1 (the corporation paying the dividend),
a 100 percent dividends received deduction under § 243(a)(3) for its distributive share of
dividend income. In addition, D C 2 deducts its distributive share of the guaranteed
payment. Consequently, D C 2 claims a substantial net deduction.
In one variation of this transaction, PRS has an obligation to make guaranteed
payments to a partner (X) unrelated to F P and its affiliates and PRS's obligation to m a k e
guaranteed payments to X is assured by a related party, such as FP, in a manner similar to
a disqualified guarantee as defined in § 163(j)(6)(D), so as to avoid treatment as
disqualified interest under § 163(j)(3)(B).
DISCUSSION
The Service intends to challenge the purported tax benefits of these transactions on
various grounds. The Service m a y treat FP as directly acquiring an equity investment in
D C 1 , because F P and D C 2 lack the requisite non-tax business purpose to form a valid
partnership. S e e A S A Investerings Partnership, v. Commissioner, T.C. M e m o 1998-305,
aff'd, 201 F.3d 505 (D.C. Cir. 2000), cert, denied, 531 U.S. 871 (2000); Andantech, L L C .
v. Commissioner, T.C. M e m o 2002-97, aff'd, 331 F.3d 972 (D.C. Cir. 2003). The Service
also m a y challenge the transaction under the partnership anti-abuse rule contained in §
1.701-2. In addition, the Service m a y challenge the purported tax results on the grounds
that the allocations under the partnership agreement lack substantial economic effect (as
discussed below) and are not in accordance with the partners' interests in the partnership
as required by § 704(b).
In particular cases, the Service may argue that the allocations lack economic effect.
Alternatively, where the allocations have economic effect, or are d e e m e d to have
economic effect, the Service m a y assert that such economic effect is not substantial. The
economic effect of allocations is not substantial if, at the time the allocations became part
of the partnership agreement, (i) the after-tax economic consequences to one partner
might, in present value terms, have been enhanced compared to such consequences if the
allocations had not been contained in the partnership agreement, and (ii) there w a s a
strong likelihood that the after-tax economic consequences of no partner would, in present
value terms, have been substantially diminished compared to such consequences if the
allocations were not contained in the partnership agreement.
In the example described above, under the partnership agreement, DC2 is entitled
to a disproportionately large share of both the gross dividend income from D C 1 and PRS's
deductions for guaranteed payments. To the extent the dividend income and guaranteed
payment deduction offset, this allocation will not alter the economic returns of D C 2 and F P
compared to their returns if such items were allocated to FP. Neither D C 2 nor F P suffers a
2
detriment to its after-tax economic consequences as a result of the special allocations.
However, the allocations in the agreement will improve the after-tax consequences to D C 2
because a larger share of partnership items will allow D C 2 to claim a larger net deduction
attributable to the dividends received deduction. The Service m a y argue, based on this
analysis or on other relevant analyses, that the economic effect of the allocations in the
agreement is not substantial and that the allocations are not in accordance with the
partners' interests in the partnership.
Transactions that are the same as, or substantially similar to, the transactions
described in this notice are identified as "listed transactions" for purposes of §§ 1.60114(b)(2), 301.6111 -2(b)(2) and 301.6112-1 (b)(2) effective April 1, 2004, the date this notice
w a s released to the public.
Independent of their classification as "listed transactions," transactions that are the
s a m e as, or substantially similar to, the transactions described in this notice m a y already
be subject to the disclosure requirements of § 6011 (§ 1.6011-4), the tax shelter
registration requirements of § 6111 (§§ 301.6111-1T, 301.6111-2), or the list maintenance
requirements of § 6112 (§ 301.6112-1). Persons w h o are required to register these tax
shelters under § 6111 but have failed to do so m a y be subject to the penalty under
§ 6707(a). Persons w h o are required to maintain lists of investors under § 6112 but have
failed to do so (or w h o fail to provide those lists w h e n requested by the Service) m a y be
subject to the penalty under § 6708(a). In addition, the Service m a y impose penalties on
parties involved in these transactions or substantially similar transactions, including the
accuracy-related penalty under § 6662.
The principal authors of this notice are David J. Sotos of the Office of Associate
Chief Counsel (International) and Sean Kahng of the Office of Associate Chief Counsel
(Passthroughs and Special Industries). For further information regarding this notice
contact Mr. Sotos at (202) 622-3860 or Mr. Kahng at (202) 622-3050 (not a toll-free call).
3
-1284: State-By-State Breakdown of the Combined Effects O f The Economic Growth and Tax Relief R... Page 1 of 1
PRLSS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
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April 1, 2004
js-1284
State-By-State Breakdown of the Combined Effects Of The Economic Growth
and Tax Relief Reconciliation Act of 2001 & The Jobs and Growth Tax Relief
Reconciliation Act Of 2003
The table attached estimates the number of taxpayers by state that would benefit
from the combined effects of the Economic Growth and Tax Relief reconciliation Act
of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
The Acts
Create a newl 0-Percent Bracket Expansion
Reduce Income Tax Rates
Reduce the Marriage Penalty
Increase the Child Tax Credit
Reduce Individual Tax Rate for Corporate Dividends and Capital Gains
-30-
REPORTS
State-by-State Table & Footnotes
50 State Fact Sheets
tp ://w w w. t r e a s g ^
ises/js 1284.htm
5/27/2005
84: State-By-State Breakdown of the Combined Effects O f The Economic Growth and Tax Relief R... Page 1 of 1
F R O M THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 1,2004
js-1284
State-By-State Breakdown of the Combined Effects Of The Economic Growth
and Tax Relief Reconciliation Act of 2001 & The Jobs and Growth Tax Relief
Reconciliation Act Of 2003
The table attached estimates the number of taxpayers by state that would benefit
from the combined effects of the Economic Growth and Tax Relief reconciliation Act
of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
The Acts
• Create a newl 0-Percent Bracket Expansion
• Reduce Income Tax Rates
• Reduce the Marriage Penalty
• Increase the Child Tax Credit
• Reduce Individual Tax Rate for Corporate Dividends and Capital Gains
-30REPORTS
• State-by-State Table & Footnotes
• 50 State Fact Sheets
//www.treas.gov/press/releases/jsl284.htm
COMBINED EFFECT OF THE
E C O N O M I C G R O W T H AND TAX RELIEF RECONCILIATION ACT OF 2001 (EGTRRA) &
JOBS AND G R O W T H TAX RELIEF RECONCILIATION ACT OF 2003 (JGTRRA)
STATE-BY-STATE DISTRIBUTION
BASED ON N U M B E R OF RETURNS FILED IN 2003 THAT W O U L D HAVE BENEFITED F R O M THE ACTS
(in thousands)
Entire
EGTRRA
and
JGTRRA
Acts'
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Reduction in
New
Top
1 0 % Bracket
Rates
93,845
24,987
33,034
26,282
23,007
23,658
1,264
264
243
1,825
1,617
466
83
580
283
419
61
469
239
278
61
382
157
304
70
380
201
2,889
3,082
403
365
72
473
326
59
865
741
255
70
400
124
12,436
11,012
3,449
3,798
1,723
1,393
1,562
1,261
462
458
84
566
458
100
290
5,410
2,578
1,260
1,795
1,511
1,252
1,377
676
896
795
619
660
477
452
433
400
107
72
148
164
113
122
101
89
4,668
2,267
1,072
4,180
2,044
971
980
881
1,371
1,446
1,211
1,233
Massachusetts
Michigan
Minnesota
Montana
Mississippi
2,587
3,680
1,970
2,359
3,321
1,803
325
886
287
742
Missouri
North Carolina
North Dakota
Nebraska
Nevada
2,045
2,941
1,824
2,578
237
641
845
213
578
761
DC
Other Areas
410
320
80
320
445
Virginia
Washington
Wisconsin
West Virginia
Wyoming
2,971
6,172
2,949
1,987
South Dakota
Tennessee
Texas
Utah
Vermont
Reduction in
Rates on
Capital Gains
and Dividends'2
1,474
494
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Increase in
Child Tax
Credit
105,522
2,192
N e w Hampshire
N e w Jersey
N e w Mexico
N e w York
Ohio
Reduction of
Marriage
Penalty
Addendum:
Returns with
Business
Income 3
Benefiting
from Acts
Specific Provisions of the Acts
528
1,236
1,465
1,170
1,067
460
190
761
373
594
278
474
219
121
128
992
470
284
197
237
249
87
692
342
465
419
161
673
255
358
407
122
538
208
272
266
99
533
246
298
318
130
467
813
672
106
251
561
931
476
80
260
652
823
458
62
150
617
723
482
104
178
669
940
79
217
246
526
798
58
163
211
421
593
46
131
177
440
666
73
168
163
182
125
871
118
124
718
139
1,558
818
916
503
47
125
406
578
35
115
189
484
139
3,034
1,115
1,227
620
540
111
185
127
803
161
6,949
4,451
6,161
4,036
1,926
1,650
1,014
1,587
996
1,932
1,259
921
858
1,143
1,274
4,647
998
1,143
4,190
185
272
385
422
306
316
220
271
1,037
1,503
1,142
1,007
411
373
1,425
1,243
103
252
126
428
95
389
91
270
291
322
912
93
293
3,391
1,091
277
247
2,025
7,321
1,775
6,359
40
359
91
646
70
547
53
396
84
442
1,584
2,308
1,934
1,518
1,668
772
243
691
221
139
48
285
78
210
58
161
51
196
70
2,834
2,328
2,113
2,549
2,112
1,931
579
189
509
170
786
600
457
86
36
938
781
713
203
65
687
572
525
151
48
673
534
459
110
40
584
524
446
110
54
236
771
211
637
79
140
34
163
44
138
55
159
46
126
Notes and footnotes appear on following page.
Notes
T h e figures in the table are based on tabulations of all individual income tax returnsfiledand processed through the IRS Individual Master
File (IMF) during calendar year 2003. Most returnsfiledin 2003 were for tax year 2002.
Classification by state was based on the address used on the return. Usually this address is the taxpayer's home address. However, some
taxpayers m a y have used the address of a tax attorney or accountant, or a place of business, and that address could be in a different state than
the taxpayer's home.
Footnotes
The number of returns benefiting from each of the specific provisions shown may not add to the number benefiting from the entire package
because some returns will benefit from more than one provision. In addition to the provisions shown separately, the Acts include an increase
in exemption levels for the alternative m i n i m u m tax ( A M T ) .
Only returns with capital gains and dividend income are included. Returns reporting no such income can also benefit from the provision
because they will receive higher returns on other investments.
3
Returns with business income are those that report at least one dollar of income or loss from a sole proprietorship, farm proprietorship,
partnership, S corporation, and/or rental income.
;-1285: Media Advisory: <br> Secretary S n o w T o Deliver C o m m e n c e m e n t Address at Kenyon College
Page 1 of
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 1, 2004
js-1285
Media Advisory:
Secretary S n o w To Deliver Commencement Address at Kenyon College
Secretary of the Treasury John Snow will deliver the commencement address at
Kenyon College's one hundred seventy-sixth Commencement ceremony on May 22
in Gambier, Ohio.
Born in Toledo, Ohio, Secretary Snow attended Kenyon College as a freshman and
a sophomore, before transferring to the University of Toledo where he received his
Bachelor's degree in 1962.
7www.treas.gov/press/releases/js 1285.htm
5/27/2005
s-1286: Taxpayer Advocacy Panel Recruitment Applications N o w Being Accepted <br> Deadline T o A... Page 1 of 2
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 1, 2004
js-1286
Taxpayer Advocacy Panel Recruitment Applications Now Being Accepted
Deadline To Apply Is April 30, 2004
The Department of Treasury, along with the Internal Revenue Service, is inviting
individuals to help improve the nation's tax agency by applying to be members of
the Taxpayer Advocacy Panel. The mission of the Panel is to provide citizen input
into enhancing IRS customer satisfaction and service by identifying problems and
making recommendations for improvement with IRS systems and procedures;
elevating the identified problems to the appropriate IRS official; and referring
individual taxpayers to the appropriate IRS office for assistance in resolving their
problems. The Panel's subcommittees will consist of 10 to 17 volunteer members
who serve at the pleasure of the Secretary of Treasury and will function solely as
advisory bodies.
The TAP program works directly with the National Taxpayer Advocate's Office on
issues identified by the Taxpayer Advocacy Panel. The National Taxpayer
Advocate is the taxpayers' representative within the IRS and reports directly to the
IRS Commissioner and to Congress through an annual report.
"Because of the Administration's actions to greatly expand the Taxpayer Advocate
Panel to all 50 states, it now is able to play an even more critical role—ensuring that
taxpayers from every corner of the country will have their voices heard," said
Treasury Secretary John Snow. "To reach the goal of providing world-class service
to the hard working Americans w h o pay the taxes, one of the most vital things w e
must do is listen better to their concerns and suggestions, and ensure that their
rights are being fully protected. After all, it's their money."
"We are committed to working with taxpayers to improve the customer-service
focus of the IRS," stated Nina Olson, National Taxpayer Advocate. "Working with
taxpayers directly helps us identify issues that may not be on the IRS radar screen.
W e can also hear their concerns about issues the IRS is already addressing."
Taxpayer Advocacy Panel (TAP) members:
• Get direct input from taxpayers about their experiences with the IRS.
• Identify and prioritize issues of greatest concern to taxpayers.
• Make recommendations to the IRS and Treasury on customer-service
issues.
• Work with the IRS to help taxpayers address key issues and concerns.
• Report annually to Treasury and the National Taxpayer Advocate.
To qualify as a TAP member, applicants must be U.S. citizens, be able to make a
significant time commitment to the panel, and meet certain other eligibility
requirements.
Further details and the application are available at www.improveirs.org or by calling
1-866-602-2223.
Applications can be mailed to:
Milwaukee T A P Office
://www.treas.gov
ises/js 1286.htm
: Taxpayer Advocacy Panel Recruitment Applications N o w Being Accepted <br> Deadline T o A... Page 2 of 2
Stop 1006MIL
310 West Wisconsin Avenue
Milwaukee, Wl 53203-2221
Applications must be received by the
Milwaukee T A P Office by April 30, 2004.
-30-
w.treas ?™'/™^ss/releases/js I286.htm
5/27/2005
Page 1 o f 2
js-1287: Fact Sheet: <br> W h o Pays The Most Individual Income Taxes?
PRCSS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 1,2004
js-1287
Fact Sheet:
W h o Pays The Most Individual Income Taxes?
The individual income tax is highly progressive - a small group of higher-income
taxpayers pay most of the individual income taxes each year.
• In 2001, the latest year of available data, the top 5 percent of taxpayers paid
more than one-half (53.3 percent) of all individual income taxes, but
reported roughly one-third (32.0 percent) of income.
• The top 1 percent of taxpayers paid 33.9 percent of all individual income
taxes in 2001. This group of taxpayers has paid more than 30 percent of
individual income taxes since 1995. Moreover, since 1990 this group's tax
share has grown faster than their income share.
• Taxpayers who rank in the top 50 percent of taxpayers by income pay
virtually all individual income taxes. In all years since 1990, taxpayers in
this group have paid over 90 percent of all individual income taxes. In 2000
and 2001, this group paid over 96 percent of the total.
• The President's tax cuts have shifted a larger share of the individual income
taxes paid to higher income taxpayers. In 2004, when most of the tax cut
provisions are fully in effect (e.g., lower tax rates, the $1,000 child credit,
marriage penalty relief), the projected tax share for lower-income taxpayers
will fall, while the tax share for higher-income taxpayers will rise.
• The share of taxes paid by the bottom 50 percent of taxpayers will fall from
4.1 percent to 3.6 percent.
• The share of taxes paid by the top 1 percent of taxpayers will rise from 30.5
percent to 32.3 percent.
• The average tax rate for the bottom 50 percent of taxpayers falls by 16
percent as compared to a 12 percent decline for taxpayers in the top 1
percent.
Share of Individual Income Taxes and Income, 1990-2001
Share of Individual Income Taxes
[Share of Adjusted Gross Income]
Top 1 %
2001
2000
1995
1990
Top 5 %
Top
10%
Top
25%
Top
50%
Bottom
50%
33.9
53.3
64.9
82.9
96.0
4.0
[17.5]
[32.0]
[43.1]
[65.2]
[86.2]
[13.8]
37.4
56.5
67.3
84.0
96.1
3.9
[20.8]
[35.3]
[46.0]
[67.2]
[87.0]
[13.0]
30.3
48.9
60.8
80.4
95.4
5.6
[14.6]
[28.8]
[40.2]
[63.4]
[85.5]
[14.5]
25.1
43.6
55.4
77.0
94.2
5.8
Vwww.treas.gov/press/releases/js 1287.htm
5/27/2005
-1287: Fact Sheet: <br> W h o Pays The Most Individual Income Taxes?
Page 2 of 2
|| [14.0] || [27.6] || [38.8] || [62.1] || [85.0] || [15.0]
Source: Internal Revenue Services. Percentiles based on adjusted
gross income.
Projected Share
Income Taxes and
Share of Individual
[Share of Adjusted
With the
Tax Cuts
Without the
Tax Cuts
of Individual
Income in 2004
Income Taxes 1
Gross Income]
Top
1%
Top
Top
Top
Top
Bottom
5%
10%
25%
50%
50%
32.3
52.8
64.8
83.0
96.4
3.6
[15.3]
[29.9]
[41.5]
[64.6]
[86.4]
[13.6]
30.5
50.2
62.6
81.8
95.9
4.1
[15.3]
[29.9]
[41.5]
[64.6]
[86.4]
[13.6]
Source: U.S. Treasury, Office of Tax Analysis.
1
Estimates of taxes paid ignore any behavioral responses to the tax
cuts.
-30-
yw.treas.gov/press/releases/js 1287.htm
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;-1288: Argentina: Economic Challenges in the W a k e of Default<br>Randal K. Quarles<br>Assistant S... Page 1 of 2
PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 1, 2004
js-1288
Argentina: Economic Challenges in the Wake of Default
Randal K. Quarles
Assistant Secretary of Treasury for International Affairs
Speech for AEI Conference
March 31, 2004
Overview
The United States has played and continues to play an active role in supporting
efforts to reestablish economic stability in Argentina. This includes our support for
the eight-month "transitional" IMF program launched in January 2003, which w a s
focused on stabilization and strengthening recovery through the electoral period.
Following the presidential transition in May, Argentina and the IMF developed a
three-year program in September 2003 that aims at addressing first, the root
causes of the Argentine financial crisis and, second, the n e w problems created by
the crisis. The focus is fixing chronic fiscal weakness, rebuilding the banking
sector, and establishing a framework for cooperative engagement with creditors to
restructure debt.
Argentina's debt default is the most complex emerging markets debt restructuring
exercise to date. Argentina has approximately $100 billion in private sector claims
it is seeking to restructure, when past due interest claims are taken into account.
The complexity is not only due to the size of the restructuring, but also to the
number of different currencies and legal jurisdictions in which the debt w a s issued,
as well as the number of different types of bondholders involved, including sizeable
holdings by retail investors in Italy, Japan, and Germany, and the large number of
local Argentine holders. A major challenge of the restructuring effort will be to take
into account and craft an offer that will be attractive to different bondholders, while
preserving the principle of inter-creditor equity.
A successful debt restructuring is a critical component of Argentina's economic
recovery and will be a measure of the overall success of the IMF program.
Argentina will need substantial investment to generate economic growth and raise
its living standards over the long term. While Argentina grew robustly last year, the
sustainability of the recovery will depend increasingly on restored financial market
access, especially access to international capital markets, in order to finance
Argentina's investment needs.
A successful debt restructuring would pave the way for Argentina as a sovereign
borrower to return to capital markets. It would also provide a significant boost to
Argentina's corporate sector and its ability to attract international finance, as well as
encouraging foreign direct investors. Finally, it would help resolve bank balance
sheet problems and, in conjunction with the banking sector strategy laid out in the
program, lay the basis for resumed bank lending.
IMF Program/Lending Into Arrears Policy
A s you are aware, IMF lending policies require transparent and constructive
negotiations by Argentina with its private creditors to secure the broad creditor
support in a debt restructuring needed to achieve a sustainable debt situation and
facilitate Argentina's progressive reintegration into international capital markets.
Ultimately, the success of the restructuring exercise will be determined by the level
of creditor participation and the resolution of outstanding claims.
//www.treas.gov/press/releases/js 1288.htm
s-1288: Argentina: Economic Challenges in the W a k e of Default<br>Randal K. Quarles<br>Assistant S... Page 2 of 2
W e see the IMF role as threefold: to help Argentina formulate an effective
stabilization and growth strategy, to provide n e w financing for the period of the
program to give Argentina breathing space to implement reforms, and to require
good faith negotiations with creditors on a sustainable debt restructuring. But it is
not the IMF's role to impose the terms of the deal. T h e fiscal component of the
program intentionally left the primary surplus for future years unspecified above a 3
percent floor in order to give Argentina and its creditors the flexibility to reach a
sustainable agreement.
Second Review Commitments
In its most recent Letter of Intent, prepared in connection with the second IMF
program review, Argentina has m a d e a number of important commitments that
should advance meaningfully its debt restructuring process.
First, Argentina has committed to engage in constructive negotiations with all
representative creditor groups, including the Global Committee for Argentine
Bondholders (GCAB). Argentina has committed to ensuring that these discussions
are meaningful by taking into account creditors' proposals in the design of the debt
exchange offer. Allowing creditors real input into the design of the offer will help
build mutual trust and is the surest w a y for Argentina to achieve the broad creditor
support needed for a comprehensive and sustainable debt restructuring.
We look forward to the upcoming discussions between Argentina and its creditors in
Buenos Aires to advance meaningfully the negotiation process needed to reach a
sustainable resolution of Argentina's debt. W e urge both sides to m o v e
expeditiously in their discussions of possible debt exchange offers and c o m e to a
fair, mutually agreeable deal.
Second, Argentina has committed to retaining its recently hired investment bank
advisors throughout the restructuring process, as long as the banks meet their
contractual obligations. With the recent issuance of the presidential decree,
Argentina has formalized the hiring of these advisors and it will n o w be engaged in
an intensive process of working with the banks to advance its debt negotiations.
Given the complexity of this restructuring, the role of bank advisors will be key. T h e
banks' willingness to participate and put their reputational capital at stake is a
positive sign regarding the potential for a debt restructuring process that will
succeed.
Third, Argentina has committed to finalizing with its investment bank advisors an
appropriate minimum participation threshold necessary for a broadly supported
restructuring. A minimum participation threshold provides a concrete target to
incentivize both the debtor and creditors to reach an agreement that is mutually
acceptable, thereby promoting the broad creditor support needed for a successful
exchange and debt sustainability. This commitment is important in order to avoid a
piecemeal restructuring process.
Conclusion
The United States has been a consistent and forceful advocate for IMF
engagement with Argentina and for a successful resolution of Argentina's debt
default. It does not serve the interest of the international community to see
Argentina fail in stabilizing its economy or in laying the basis for growth. But
Argentina itself has the greatest stake in a successful debt restructuring and w e
expect Argentina will act in its o w n long-term interests.
//www.treas.gov/press/releases/js 1288.htm
5/27/2005
JS-1289: The Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 1 of 5
1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 2, 2004
JS-1289
The Honorable John W. Snow
Prepared Remarks: The Financial Services Roundtable
Scottsdale, Arizona
April 2, 2004
Thank you so much for having me here today.
It's great to be with a group of financial leaders who are doing so much good for our
economy and our country.
Your industry is achieving great things, and posting record results. It's good to see,
since a strong financial services industry is essential to the growth for every other
industry in the economy. After all, you provide the funding for expansions.
Here's some of your good news: The FDIC recently reported that U.S. banks and
thrifts earned a record of $120.6 billion in 2003, easily surpassing the previous
record total of $105.1 billion in 2002. And over half - 59 percent - of these
institutions reported higher earnings in 2003 compared to 2002.
Both the banking industry's annual return on assets and return on equity reached
all-time highs of 1.38 percent and 15 percent, respectively.
Best of all, demand and lending for business loans is up - that's good news for
folks w h o are looking for jobs, and I appreciate the critical role your industry plays in
capitalizing those businesses that create the jobs.
We are in the midst of an economic recovery, and your work is clearly part of the
economic growth that w e are seeing.
So I'm delighted to be here, and to be able to commend you on your work.
I am encouraged by what I see on the direction of our economy. We're clearly on
the right path and there can be no doubt that President Bush's leadership on tax
cuts has m a d e the biggest difference. W h e n combined with low interest rates, the
Bush tax cuts are having the intended impact.
Just one year ago, the American economy was in a very different position than it is
today. Then there was talk of a double-dip recession, with some commentators
holding out the specter of deflation. Even those who saw the economy in pretty
good shape characterized the recovery as at best wobbly, weak or anemic.
Now, as you well know, the economy is in a strong recovery, with a GDP growth
rate of 6.1 percent in the last half of 2003 - the fastest six-month growth rate in
nearly 20 years. Leading private forecasts are projecting growth of four percent plus
for the 2004 year, well above historical growth rates. The latest Blue Chip report
forecast G D P would grow 4.7 percent in 2004, the highest in 20 years.
Exports are up. The manufacturing sector is beginning to come back. The housing
industry remains strong. Business confidence is up and business spending has
).7/www.treas.gov/press/releases/j sl289.htm
1289: The Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 2 of 5
rebounded. W e are beginning to see s o m e come-back in the labor markets. It is
heartening to see that initial jobless claims have been at their lowest point in over
three years.
By sustaining this growth going forward, I am confident that we will see good jobs
pick up in the months ahead, as indicated by all the private sector surveys which
indicate strong jobs growth over the course of the next year.
I'm optimistic about growth in other industrialized nations as well. Japan is starting
to see sustainable growth. Although the economies in Germany and France are
sluggish, growth is picking up in Europe generally.
I want to tell you a little bit about the G7 meeting that the United States hosted this
February in Boca Raton, Florida.
I was honored to have a series of bilateral meetings at the G7, and had productive
conversations with all of m y counterparts from other nations.
All parties there agreed on an Agenda for Growth, which urges each country to
remove any structural impediments to economic growth, thus increasing jobs and
raising incomes. W e all recognize that the world suffers from a growth deficit. A
higher growth rate in all G 7 countries is good for our country, and vice-versa. W h e n
other G 7 countries grow, it creates markets for our manufacturers - which is very
important to us and our economy. It also helps exports and our balance of
payments. Ultimately, w e all have a stake in one another's growth, and any and all
growth is a win-win situation for us.
We also discussed and agreed upon the need for flexibility in setting exchange
rates, and h o w important a strong dollar is to both the U.S. and the global economy.
This is all part of our economic present and future here in the U.S. Another
important part of our economic picture is our federal budget and the federal deficit.
The deficit is too large, but it is understandable and it is manageable. While
addressing the deficit, w e must remember that it is not historically overwhelming.
It is understandable, given the extraordinary circumstances of recent history.
R e m e m b e r that w e are fighting a type of war that w e have never fought before. W e
are fighting an enemy that requires a much broader variety of government
resources than anything we've ever confronted. And w e began this fight when w e
were economically wounded.
With continued economic growth - which depends importantly on making the
President's tax cuts permanent - and restrained federal spending, w e can cut the
deficit in half over the next five years.
Economic growth increases Treasury receipts and helps to reduce deficits. But that
isn't enough. W e also have to control government spending.
The President's proposed budget combines both strategies - making tax cuts
permanent and tight spending controls. By doing so we'll be able to cut the deficit
in half over the next six years to below 2 % of G D P - low by historical standards.
The final, and most important, piece of our economic picture that I want to discuss
today is jobs.
While the economy is recovering, the Bush Administration is not satisfied with the
pace of job creation. W e will not be satisfied until every American w h o seeks a job
can find a job.
However, we are keenly aware of the fact that job creation looks very different
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JS-1289: T h e Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 3 of 5
depending on which of the surveys you are referencing.
According to the Household employment survey conducted by the Department of
Labor's Bureau of Labor Statistics, from January 2001 to January 2004,
employment increased in 34 states and fell in 16 states.
While, according to the Payroll survey, also conducted by the Department of
Labor's Bureau of Labor statistics - also from January 2001 to January 2004 employment increased in 15 states and fell in 35 states.
Employment in the Household survey reached a low point in January 2002, two
months after the November 2001 recession trough. Since then, the household
survey has registered an employment gain of 2.4 million.
The Payroll survey, in contrast, continued to show a decline in jobs through August
of last year and since January 2002 has fallen by 341,000.
Thus, the gap in growth shown by the two measures has totaled 2.7 million since
January 2002.
The two surveys are conducted differently, and the payroll survey is missing out on
a category that is increasingly significant in today's economy, and that's the selfemployed.
I think that's significant, because self-employment is becoming a more viable,
inviting option to more people all the time.
We also have incredible rates of productivity. That's good news, but it impacts the
jobs numbers as well.
That said, I know that we are going in the right direction, and I know that the
financial services community is helping us get there.
In addition to your economic contributions, you're keeping Americans safer, and
that m e a n s a lot to our economy at the end of the day.
You're working with us to protect people from identity theft, and to protect America
from terrorists by identifying and cutting off their blood money.
Last year at this time, we were talking about renewing the Fair Credit Reporting
Act... and today we're celebrating it. The work you did to show Congress the
importance of our nation's credit reporting system w a s invaluable.
Thanks to your help on that legislation last year, information to protect consumers
can m o v e faster than identity thieves.
FCRA makes our credit market more robust and available for more Americans, for
people w h o had never been able to get a mortgage before, for young people to
finance their education, to welcome people into the financial mainstream out of the
reach of the loan sharks... so there is much to celebrate about renewing those
national standards.
You're protecting your customers against identity thieves, and you're also helping
protect America against terrorists.
Out of the horror of September 11th, 2001, came a tremendous resolve in the
financial community to cut off the terrorists' lifeblood: their money.
Institutions large and small have committed themselves to the task.
>://www.treas.gov/press/releases/js 1289.htm
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JS-1289: The Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 4 of 5
You've done everything that the Treasury Department has asked of you during this
fight, and I want to personally thank you for your efforts.
Compliance with Section 314 of the Patriot Act - which requires everyone to share
information - has been exemplary.
Under our 314 process, law enforcement provides the names of suspected
terrorists or significant money launderers to Treasury's Financial Crimes
Enforcement Network (FinCEN), which vets the requests and, if appropriate, sends
them on to your organizations. We've asked that you then search your recent
account and transaction records for potential matches, and report them back to
FinCEN.
You've done it, and our country is safer because of it.
We understand that the 314 process is an extraordinary tool... it is one that
provides law enforcement with valuable leads to follow the money trail. And without
your help it would be useless.
We've also asked financial institutions to establish risk-based procedures to verify
the identity of customers w h o open accounts, pursuant to section 326 of the Patriot
Act. While w e insist that you form a reasonable belief as to the customer's identity,
w e have also worked hard to ensure that the regulations give you the flexibility to
decide which forms of identification work best for you in your communities to verify
customer identity. This reflects our judgment that you are in the best position to
m a k e such decisions. W e believe this flexibility enhances the effectiveness of this
regulation.
And we're always looking for ways to provide you with more and better guidance
concerning FinCEN's regulations. This is our part of the bargain, our half of the
partnership. S o let's keep up the dialog... let us know when we're not clear, or
w h e n w e can do better - because the better our regulations are understood by you,
the more successful our critical enforcement efforts will be.
And I want to add that that my colleagues at the Securities and Exchange
Commission (SEC) have the s a m e thing in mind - that kind of open dialog - as they
develop another set of regulations pertaining to your business, and that's in the
area of mutual fund reform.
The Administration supports the SEC taking strong action when harm is done to
investors, but believes that care must be taken to preserve the valuable benefits
and flexibility that mutual funds provide. They're focusing primarily on four issues:
1) late trading, market timing and related abuses; 2) mutual fund governance; 3)
conflicts of interest and 4) fee disclosure.
So please know that your government wants to work with you... we know that you
help this economy grow, and that's critical to the job creation w e need.
And we especially appreciate your role helping us to win the war on terror. It is
another way, and it's a critical way, in which w e work together to keep the American
economy healthy and growing.
Growth is the key. It will lead to more jobs and deficit reduction. I know that the
people in this room today appreciate the benefits of economic growth as well as
anyone... maybe that's w h y you're growing so much yourselves.
Your success is good for the American economy. It's good to see. And it's great to
be here with you today.
Thank you. I'll be happy to take your questions now.
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p://www
.
ss/releases/jsl289.htm
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JS-1290: Statement of Secretary John S n o w on March Employment Report
Page 1 of 1
:i
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 2, 2004
JS-1290
Statement of Secretary John Snow on March Employment Report
Today's employment report clearly demonstrates the positive impact the President's
pro-growth economic policies are having on job creation. The economy added
308,000 jobs in March, the biggest monthly increase in four years, bringing total job
growth since August to 759,000. Strength is apparent across the board, including
strong job growth in construction, retail and business services.
The President's tax relief for millions of American families and businesses has
reinvigorated the economy and is driving job creation. Economic growth is likely to
continue at a robust rate, the manufacturing sector continues to improve,
homeownership levels are at an all time high, and American families are keeping
more of their hard-earned money in after-tax income.
The President's leadership will continue to provide the American people with the
resources and skills needed to fuel the economic recovery and strengthen this great
nation.
://www.treas.gov/press/releases/js 1290.htm
5/27/2005
Page 1 o f 2
JS-1291: Fact Sheet: H o w Have The President's Tax Cuts Encouraged Investment?
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 2, 2004
JS-1291
Fact Sheet: H o w Have The President's Tax Cuts Encouraged Investment?
The President's tax cuts have reduced the marginal effective tax rate (METR) on
new investment, which is measured as the share of an investment's economic
income needed to cover taxes over its lifetime. Lower M E T R s encourage additional
investment, capital accumulation, and, in the long-term, higher living standards.
As shown in the table below, reductions in personal income tax rates, including the
lower tax rates on dividends and capital gains, enacted in 2001 and 2003 have
reduced the M E T R in the corporate sector by 18 percent, and in the overall
economy by 16 percent.
The temporary bonus depreciation provision enacted in 2001 and expanded in 2003
to 5 0 % provides a potent short-term investment stimulus. This provision lowered
the M E T R on new equipment investment from 24.8 percent to 13.0 percent in 2003,
and could even reduce it further in 2004, the year the provision expires.
Leveling the Playing Field
Taxing income from alternative investments at a more uniform M E T R - "leveling the
playing field" -- promotes the efficient allocation of resources within the economy by
allowing market fundamentals, rather than taxes, to guide financing and investment
decisions.
By lowering the tax rate on dividends and capital gains, the 2003 Tax Act increased
tax uniformity by substantially reducing the M E T R on income from corporate equity
financed investment, relative to other sources of capital income, such as debt and
non-corporate income.
Effect of the President's tax cuts on the marginal effective tax rate on
n e w investment
OwnerEconomy
Occupied
Business Sector
DD
Corporate Noncorporate Total
D
Housing
wide
Without tax
cuts
31.9%
20.8% 27.6%
4.0%
19.4%
With tax cuts
1/
26.3%
18.9% 23.4%
3.5%
16.2%
%
Reduction
-17.6%
-12.5%
-16.5%
-9.1%
15.2%
Source: U.S. Department of the Treasury, Office of Tax Analysis.
tp://www.treas.gov/press/releases/js 1291 .htm
5/27/2005
JS-1291: Fact Sheet: H o w Have The President's Tax Cuts Encouraged Investment?
Page 2 of2
1/ Includes the effects of lower regular tax rates and lower tax rates on
dividends and capital gains, but not the temporary 50 percent bonus
depreciation provision.
-30-
p://www.treas.gov/press/releases/js 1291 .htm
5/27/2005
5-1292: Treasury and IRS Issue Guidance on <br>S Corporation, Tax Exempt Entity Transaction
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 1, 2004
JS-1292
Treasury and IRS Issue Guidance on
S Corporation, Tax E x e m p t Entity Transaction
The Treasury Department and the Internal Revenue Service today issued guidance
on certain kinds of abusive tax avoidance transactions involving S corporations and
tax-exempt entities, such as charities. These transactions are structured to
improperly shift taxation away from taxable S corporation shareholders to an
exempt party, for the purpose of deferring or avoiding taxes.
In Notice 2004-30, the IRS says it intends to challenge these transactions on a
number of grounds. It further declares that these abusive transactions are
considered "listed transactions." Participants in a listed transaction w h o are
required to file tax returns must disclose their participation to the IRS. In addition,
promoters of listed transactions must keep lists of investors and, in certain cases,
register those transactions with the IRS.
This notice is the first time the IRS has exercised its authority under the tax shelter
regulations to specifically designate a tax-exempt party as a "participant" in a tax
avoidance transaction.
"The participation of tax-exempt entities in these abusive transactions is a
worrisome trend," said Mark W . Everson, Commissioner of Internal Revenue. " W e
are acting today to ensure the integrity of our charities. W e don't want Americans to
lose faith in a unique and vital part of our nation's social fabric."
"These transactions are structured to eliminate tax on certain S corporation
shareholders by inappropriately shifting income to a tax-exempt organization. This
abuses the special status that the law gives to tax-exempt organizations," said
Gregory F. Jenner, Acting Assistant Secretary (Tax Policy). "Use of tax-exempt
organizations as mere accommodation parties should not be permitted."
In addition, the IRS will amend Form 8886, Reportable Transaction Disclosure
Statement, to require parties filing the forms to identify the n a m e s of all parties to a
listed transaction. This includes any tax-exempt parties that facilitate the
transaction.
The tax-exempt area is one of the IRS's four top service-wide priorities. The IRS will
discourage and deter non-compliance within tax-exempt and government entities,
and the misuse of such entities by third parties for tax avoidance or other
unintended purposes.
-30-
REPORTS
• Notice 2004-30 is attached
www.treas.go v/press/releases/js 1292.htm
5/27/2005
Part III - Administrative, Procedural, and Miscellaneous
S Corporation Tax Shelter
Notice 2004-30
The Internal Revenue Service and the Treasury Department are aware of a type
of transaction, described below, in which S corporation shareholders attempt to transfer
the incidence of taxation on S corporation income by purportedly donating S corporation
nonvoting stock to an exempt organization, while retaining the economic benefits
associated with that stock. This notice alerts taxpayers and their representatives that
these transactions are tax avoidance transactions and identifies these transactions, and
substantially similar transactions, as listed transactions for purposes of § 1.6011-4(b)(2)
of the Income Tax Regulations and §§ 301.6111-2(b)(2) and 301.6112-1 (b)(2) of the
Procedure and Administration Regulations. This notice also alerts parties involved with
these transactions to certain responsibilities that m a y arise from their involvement with
these transactions.
FACTS
In a typical transaction, an S corporation, its shareholders, and an organization
exempt from tax under § 501 (a) and described in either § 501 (c)(3) or § 401 (a) of the
Internal Revenue C o d e (such as a tax-qualified retirement plan maintained by a state or
local government) (the exempt party) undertake the following steps. An S corporation
issues, pro rata to each of its shareholders (the original shareholders), nonvoting stock
and warrants that are exercisable into nonvoting stock. For example, the S corporation
issues nonvoting stock in a ratio of 9 shares for every share of voting stock and
warrants in a ratio of 10 warrants for every share of nonvoting stock. Thus, if the S
corporation has 1,000 shares of voting stock outstanding, the S corporation would issue
9,000 shares of nonvoting stock and warrants exercisable into 90,000 shares of
nonvoting stock to the original shareholders. The warrants m a y be exercised at any
time over a period of years. The strike price on the warrants is set at a price that is at
least equal to 90 percent of the purported fair market value of the newly issued
nonvoting stock on the date the warrants are granted. For this purpose, the fair market
value of the nonvoting stock is claimed to be substantially reduced because of the
existence of the warrants.
Shortly after the issuance of the nonvoting stock and the warrants, the original
shareholders donate the nonvoting stock to the exempt party. The parties to the
transaction claim that, after the donation of the nonvoting stock, the exempt party o w n s
90 percent of the stock of the S corporation. The parties further claim that any taxable
income allocated on the nonvoting stock to the exempt party is not subject to tax on
2
unrelated business income (LIBIT) under §§ 511 through 514 (or the exempt party has
offsetting LIBIT net operating losses). The original shareholders might also claim a
charitable contribution deduction under § 170 for the donation of the nonvoting stock to
the exempt party. In s o m e variations of this transaction, the S corporation m a y issue
nonvoting stock directly to the exempt party.
Pursuant to one or more agreements (typically redemption agreements, rights of
first refusal, put agreements, or pledge agreements) entered into as part of the
transaction, the exempt party can require the S corporation or the original shareholders
to purchase the exempt party's nonvoting stock for an amount equal to the fair market
value of the stock as of the date the shares are presented for repurchase. In s o m e
cases, the S corporation or the original shareholders guarantee that the exempt party
will receive the fair market value of the nonvoting stock as of the date the stock w a s
given to the exempt party if that amount is greater than the fair market value on the
repurchase date.
Because they own 100 percent of the voting stock of the S corporation, the
original shareholders have the power to determine the amount and timing of any
distributions m a d e with respect to the voting and nonvoting stock. The original
shareholders exercise that power to cause the S corporation to limit or suspend
distributions to its shareholders while the exempt party purportedly o w n s the nonvoting
stock. For tax purposes, however, during that period, 90 percent of the S corporation's
income is allocated to the exempt party and 10 percent of the S corporation's income is
allocated to the original shareholders. The transaction is structured for the original
shareholders to exercise the warrants and dilute the shares of nonvoting stock held by
the exempt party, or for the S corporation or the original shareholders to purchase the
nonvoting stock from the exempt party at a value that is substantially reduced by reason
of the existence of the warrants. In either event, the exempt party will receive a share of
the total economic benefit of stock ownership that is substantially lower than the share
of the S corporation income allocated to the exempt party.
DISCUSSION
The transaction described in this notice is designed to artificially shift the
incidence of taxation on S corporation income away from taxable shareholders to the
exempt party. In this manner, the original shareholders attempt to avoid paying income
tax on most of the S corporation's income over a period of time.
The Service intends to challenge the purported tax benefits from this transaction
based on the application of various theories, including judicial doctrines such as
substance over form. Under appropriate facts and circumstances, the Service also m a y
argue that the existence of the warrants results in a violation of the single class of stock
requirement of § 1361(b)(1)(D), thus terminating the corporation's status as an S
corporation. See, e.g.. §§ 1.1361-1(l)(4)(ii) and (iii).
3
Transactions that are the s a m e as, or substantially similar to, the transaction
described in this notice are identified as "listed transactions" for purposes of
§§ 1.6011 -4(b)(2), 301.6111-2(b)(2), and 301.6112-1 (b)(2) effective April 1, 2004, the
date this notice w a s released to the public. Independent of their classification as listed
transactions, transactions that are the s a m e as, or substantially similar to, the
transaction described in this notice m a y already be subject to the disclosure
requirements of § 6011 (§ 1.6011-4), the tax shelter registration requirements of § 6111
(§ 301.6111 -1T and § 301.6111 -2), or the list maintenance requirements of § 6112
(§ 301.6112-1). Under the authority of §1.6011-4(c)(3)(i)(A), the exempt party in the
listed transaction described in this notice will also be treated as a participant in the
transaction (whether or not otherwise a participant). The exempt party will be treated as
participating in the transaction for the taxable year of the purported donation, the
taxable year of the reacquisition, and all intervening taxable years. Pending further
review and possible additional guidance, this notice does not apply to any investment in
employer securities, as defined in § 409(1), by an employee stock ownership plan
subject to the requirements of § 409(p).
Persons who are required to register these tax shelters under § 6111 but have
failed to do so m a y be subject to the penalty under § 6707(a). Persons w h o are
required to maintain lists of investors under § 6112 but have failed to do so (or w h o fail
to provide those lists w h e n requested by the Service) m a y be subject to the penalty
under § 6708(a). In addition, the Service m a y impose penalties on parties involved in
these transactions or substantially similar transactions, including the accuracy-related
penalty under § 6662.
The Service and the Treasury Department recognize that some taxpayers may
have filed tax returns taking the position that they were entitled to the purported tax
benefits of the type of transaction described in this notice. These taxpayers should take
appropriate corrective action and ensure that their transactions are disclosed properly.
The principal author of this notice is Tara P. Volungis of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact M s . Volungis at (202) 622-3070 (not a toll-free call).
5-1289: The Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 1 of 5
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 2, 2004
JS-1289
The Honorable John W. Snow
Prepared Remarks: The Financial Services Roundtable
Scottsdale, Arizona
April 2, 2004
Thank you so much for having me here today.
It's great to be with a group of financial leaders who are doing so much good for our
economy and our country.
Your industry is achieving great things, and posting record results. It's good to see,
since a strong financial services industry is essential to the growth for every other
industry in the economy. After all, you provide the funding for expansions.
Here's some of your good news: The FDIC recently reported that U.S. banks and
thrifts earned a record of $120.6 billion in 2003, easily surpassing the previous
record total of $105.1 billion in 2002. And over half - 59 percent - of these
institutions reported higher earnings in 2003 compared to 2002.
Both the banking industry's annual return on assets and return on equity reached
all-time highs of 1.38 percent and 15 percent, respectively.
Best of all, demand and lending for business loans is up - that's good news for
folks w h o are looking for jobs, and I appreciate the critical role your industry plays in
capitalizing those businesses that create the jobs.
We are in the midst of an economic recovery, and your work is clearly part of the
economic growth that w e are seeing.
So I'm delighted to be here, and to be able to commend you on your work.
I am encouraged by what I see on the direction of our economy. We're clearly on
the right path and there can be no doubt that President Bush's leadership on tax
cuts has m a d e the biggest difference. W h e n combined with low interest rates, the
Bush tax cuts are having the intended impact.
Just one year ago, the American economy was in a very different position than it is
today. Then there was talk of a double-dip recession, with some commentators
holding out the specter of deflation. Even those w h o saw the economy in pretty
good shape characterized the recovery as at best wobbly, weak or anemic.
Now, as you well know, the economy is in a strong recovery, with a GDP growth
rate of 6.1 percent in the last half of 2003 - the fastest six-month growth rate in
nearly 20 years. Leading private forecasts are projecting growth of four percent plus
for the 2004 year, well above historical growth rates. The latest Blue Chip report
forecast G D P would grow 4.7 percent in 2004, the highest in 20 years.
Exports are up. The manufacturing sector is beginning to come back. The housing
industry remains strong. Business confidence is up and business spending has
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JS-1289: The Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 2 of 5
rebounded. W e are beginning to see s o m e come-back in the labor markets. It is
heartening to see that initial jobless claims have been at their lowest point in over
three years.
By sustaining this growth going forward, I am confident that we will see good jobs
pick up in the months ahead, as indicated by all the private sector surveys which
indicate strong jobs growth over the course of the next year.
I'm optimistic about growth in other industrialized nations as well. Japan is starting
to see sustainable growth. Although the economies in Germany and France are
sluggish, growth is picking up in Europe generally.
I want to tell you a little bit about the G7 meeting that the United States hosted this
February in Boca Raton, Florida.
I was honored to have a series of bilateral meetings at the G7, and had productive
conversations with all of m y counterparts from other nations.
All parties there agreed on an Agenda for Growth, which urges each country to
remove any structural impediments to economic growth, thus increasing jobs and
raising incomes. W e all recognize that the world suffers from a growth deficit. A
higher growth rate in all G 7 countries is good for our country, and vice-versa. W h e n
other G 7 countries grow, it creates markets for our manufacturers - which is very
important to us and our economy. It also helps exports and our balance of
payments. Ultimately, w e all have a stake in one another's growth, and any and all
growth is a win-win situation for us.
We also discussed and agreed upon the need for flexibility in setting exchange
rates, and h o w important a strong dollar is to both the U.S. and the global economy.
This is all part of our economic present and future here in the U.S. Another
important part of our economic picture is our federal budget and the federal deficit.
The deficit is too large, but it is understandable and it is manageable. While
addressing the deficit, w e must remember that it is not historically overwhelming.
It is understandable, given the extraordinary circumstances of recent history.
R e m e m b e r that w e are fighting a type of war that w e have never fought before. W e
are fighting an enemy that requires a much broader variety of government
resources than anything we've ever confronted. And w e began this fight when w e
were economically wounded.
With continued economic growth - which depends importantly on making the
President's tax cuts permanent - and restrained federal spending, w e can cut the
deficit in half over the next five years.
Economic growth increases Treasury receipts and helps to reduce deficits. But that
isn't enough. W e also have to control government spending.
The President's proposed budget combines both strategies - making tax cuts
permanent and tight spending controls. By doing so we'll be able to cut the deficit
in half over the next six years to below 2 % of G D P - low by historical standards.
The final, and most important, piece of our economic picture that I want to discuss
today is jobs.
While the economy is recovering, the Bush Administration is not satisfied with the
pace of job creation. W e will not be satisfied until every American w h o seeks a job
can find a job.
However, we are keenly aware of the fact that job creation looks very different
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depending on which of the surveys you are referencing.
According to the Household employment survey conducted by the Department of
Labor's Bureau of Labor Statistics, from January 2001 to January 2004,
employment increased in 34 states and fell in 16 states.
While, according to the Payroll survey, also conducted by the Department of
Labor's Bureau of Labor statistics - also from January 2001 to January 2004 employment increased in 15 states and fell in 35 states.
Employment in the Household survey reached a low point in January 2002, two
months after the November 2001 recession trough. Since then, the household
survey has registered an employment gain of 2.4 million.
The Payroll survey, in contrast, continued to show a decline in jobs through August
of last year and since January 2002 has fallen by 341,000.
Thus, the gap in growth shown by the two measures has totaled 2.7 million since
January 2002.
The two surveys are conducted differently, and the payroll survey is missing out on
a category that is increasingly significant in today's economy, and that's the selfemployed.
I think that's significant, because self-employment is becoming a more viable,
inviting option to more people all the time.
We also have incredible rates of productivity. That's good news, but it impacts the
jobs numbers as well.
That said, I know that we are going in the right direction, and I know that the
financial services community is helping us get there.
In addition to your economic contributions, you're keeping Americans safer, and
that m e a n s a lot to our economy at the end of the day.
You're working with us to protect people from identity theft, and to protect America
from terrorists by identifying and cutting off their blood money.
Last year at this time, we were talking about renewing the Fair Credit Reporting
Act... and today we're celebrating it. The work you did to show Congress the
importance of our nation's credit reporting system w a s invaluable.
Thanks to your help on that legislation last year, information to protect consumers
can m o v e faster than identity thieves.
FCRA makes our credit market more robust and available for more Americans, for
people w h o had never been able to get a mortgage before, for young people to
finance their education, to welcome people into the financial mainstream out of the
reach of the loan sharks... so there is much to celebrate about renewing those
national standards.
You're protecting your customers against identity thieves, and you're also helping
protect America against terrorists.
Out of the horror of September 11th, 2001, came a tremendous resolve in the
financial community to cut off the terrorists' lifeblood: their money.
Institutions large and small have committed themselves to the task.
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JS-1289: The Honorable John W . S n o w Prepared Remarks: The Financial Services Roundtable Scottsdal... Page 4 of 5
You've done everything that the Treasury Department has asked of you during this
fight, and I want to personally thank you for your efforts.
Compliance with Section 314 of the Patriot Act - which requires everyone to share
information - has been exemplary.
Under our 314 process, law enforcement provides the names of suspected
terrorists or significant money launderers to Treasury's Financial Crimes
Enforcement Network (FinCEN), which vets the requests and, if appropriate, sends
them on to your organizations. We've asked that you then search your recent
account and transaction records for potential matches, and report them back to
FinCEN.
You've done it, and our country is safer because of it.
We understand that the 314 process is an extraordinary tool... it is one that
provides law enforcement with valuable leads to follow the money trail. And without
your help it would be useless.
We've also asked financial institutions to establish risk-based procedures to verify
the identity of customers w h o open accounts, pursuant to section 326 of the Patriot
Act. While w e insist that you form a reasonable belief as to the customer's identity,
w e have also worked hard to ensure that the regulations give you the flexibility to
decide which forms of identification work best for you in your communities to verify
customer identity. This reflects our judgment that you are in the best position to
m a k e such decisions. W e believe this flexibility enhances the effectiveness of this
regulation.
And we're always looking for ways to provide you with more and better guidance
concerning FinCEN's regulations. This is our part of the bargain, our half of the
partnership. S o let's keep up the dialog... let us know when we're not clear, or
when w e can do better - because the better our regulations are understood by you,
the more successful our critical enforcement efforts will be.
And I want to add that that my colleagues at the Securities and Exchange
Commission (SEC) have the s a m e thing in mind - that kind of open dialog - as they
develop another set of regulations pertaining to your business, and that's in the
area of mutual fund reform.
The Administration supports the SEC taking strong action when harm is done to
investors, but believes that care must be taken to preserve the valuable benefits
and flexibility that mutual funds provide. They're focusing primarily on four issues:
1) late trading, market timing and related abuses; 2) mutual fund governance; 3)
conflicts of interest and 4) fee disclosure.
So please know that your government wants to work with you... we know that you
help this economy grow, and that's critical to the job creation w e need.
And we especially appreciate your role helping us to win the war on terror. It is
another way, and it's a critical way, in which w e work together to keep the American
economy healthy and growing.
Growth is the key. It will lead to more jobs and deficit reduction. I know that the
people in this room today appreciate the benefits of economic growth as well as
anyone... m a y b e that's w h y you're growing so much yourselves.
Your success is good for the American economy. It's good to see. And it's great to
be here with you today.
Thank you. I'll be happy to take your questions now.
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5/27/2005
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•p://www.treas.gov/press/releases/js 1289.htm
5/27/2005
JS-1290: Statement of Secretary John S n o w on March Employment Report
Page 1 of 1
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 2, 2004
JS-1290
Statement of Secretary John Snow on March Employment Report
Today's employment report clearly demonstrates the positive impact the President's
pro-growth economic policies are having on job creation. The economy added
308,000 jobs in March, the biggest monthly increase in four years, bringing total job
growth since August to 759,000. Strength is apparent across the board, including
strong job growth in construction, retail and business services.
The President's tax relief for millions of American families and businesses has
reinvigorated the economy and is driving job creation. Economic growth is likely to
continue at a robust rate, the manufacturing sector continues to improve,
homeownership levels are at an all time high, and American families are keeping
more of their hard-earned money in after-tax income.
The President's leadership will continue to provide the American people with the
resources and skills needed to fuel the economic recovery and strengthen this great
nation.
p://www.treas.gov/press/releases/js 1290.htm
5/27/2005
fS-1293: Fact Sheet: The Toll O f T w o Taxes: <br> The Regular Individual Income Tax A n d The A M T
Page 1 of 1
F R O M THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 2, 2004
JS-1293
Fact Sheet: The Toll Of Two Taxes:
The Regular Individual Income Tax And The A M T
The alternative minimum tax (AMT) is a second income tax system that runs
parallel to the regular individual income tax. First enacted in the late 1960's, the
A M T was intended to target a small group of high-income individuals - who had
managed to avoid all taxes - to ensure they paid a minimum amount of tax.
Changes since the AMT's original enactment mean that today it reaches into the
ranks of the middle class, potentially denying them the benefit of many of the
deductions, credits, and lower tax rates available under the regular income tax
system. The A M T also significantly increases the complexity of tax filing for
taxpayers subject to the A M T and for millions of additional taxpayers who must
complete A M T forms to determine they are not subject to the AMT.
Left unchanged, the AMT will affect increasing numbers of taxpayers. As can be
seen in the graph to the right, assuming the 2001 and 2003 tax cuts are made
permanent, the number of taxpayers with increased taxes due to the A M T will
increase from 3.3 million in 2004 to 16.2 million in 2005 and to 46.4 million in 2014.
The cost of addressing the AMT will also grow rapidly. Assuming the 2001 and
2003 tax cuts are extended, in 2005 the A M T will increase the amount of tax
individuals pay by $28.0B, rising to $177.2B in 2014.
The graph shows that by 2013 less revenue would be lost from repealing the
regular income tax than from repealing the AMT.
REPORTS
• Cost of Repealing Regular Income Tax vs. Cost of Repealing the AMT
• Number of Individual A M T Taxpayers
)://www.treas.gov/press/releases/js 1293 .htm
5/27/2005
Cost of Repealing Regular Income Tax vs. Cost of Repealing the A M T
(Assumes E G T R R A and JGTRRA sunsets are repealed)
m
2009
2010
Fiscal Year
Number of Individual A M T Taxpayers
(Assumes E G T R R A and J G T R R A sunsets are repealed)
2001
2002
2003
Calendar Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
S-1294: Joint Statement of Treasury Secretary John S n o w and Housing and Urban Development Secret...
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 2, 2004
JS-1294
Joint Statement of Treasury Secretary John Snow and Housing and Urban
Development Secretary Alphonso Jackson
The bill that Chairman Shelby presented to the Senate Banking Committee
incorporated many of the reforms needed for strong oversight of Fannie Mae,
Freddie Mac, and the Federal H o m e Loan Banks, and its passage out of the
Committee, as proposed by the Chairman, would have been a substantial step
forward. However, an amendment adopted by the Committee yesterday would
significantly weaken one of the core powers needed for a strong regulator. The
amendment could reinforce a false impression that the American taxpayer provides
an implicit guarantee to these entities.
To enhance the prudential supervision of the GSEs, the bill should include those
reforms proposed by Chairman Shelby, and those referenced in the letter of March
30 from Secretary Snow to Chairman Shelby. The bill, as amended, is now
unworthy of the reform efforts that Chairman Shelby and many of his colleagues
have championed, and the Administration opposes the bill in its current form.
The Administration will continue to push for the much-needed reforms described in
the letter of March 30 to Chairman Shelby, and remains committed to strengthening
regulatory and market discipline under existing authorities.
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js-1295: O F A C Ruling Confirms Peer Review, Style and Copy Editing Consistent with the Berman Ame... Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 5, 2004
js-1295
OFAC Ruling Confirms Peer Review, Style and Copy Editing Consistent with
the Berman A m e n d m e n t
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC)
Friday issued a ruling to The Institute of Electrical and Electronic Engineers,
Incorporated (IEEE) confirming that O F A C does not regulate the important peer
review process, as well as the process of style and copy editing, with respect to
scholarly papers submitted by authors in a Sanctioned Country.
In a letter to IEEE, OFAC Director Richard Newcomb states that IEEE can
participate in peer review and style and copy editing for purposes of publishing
articles from a Sanctioned Country without the need for authorization from O F A C .
"Today's ruling makes clear that scientific communities in sanctioned countries may
publish their works in U.S. scholarly journals," said Newcomb. "This process is vital
to promoting the free flow of information within the global community of
scholarship."
The International Emergency Economic Powers Act (IEEPA) and the Trading with
the Enemy Act (TWEA) are the principle statues that confer broad authority on the
Executive Branch to implement economic sanctions and embargo programs.
However, informational materials from countries subject to IEEPA (e.g: Iran, Libya
and Sudan) and T W E A (e.g: Cuba) are exempt from regulation under the Berman
Amendment.
In September 2003, OFAC issued a ruling to the effect that IEEE's use of peer
review and style and copy editing may fall into the category of providing a 'service'
for a Sanctioned Country, which is prohibited under IEEPA and T W E A if it resulted
in substantive or artistic alteration or enhancement to the article by U.S. persons.
O F A C requested additional information of these processes.
After further consultations with IEEE, other members of the publishing community
and the U.S. Department of State to develop a more complete understanding of
those processes, O F A C clarified that IEEE's use of peer review and style and copy
editing is consistent with the Berman Amendment.
A redacted version of OFAC's letter to IEEE, which provides the substance of the
ruling, will be available at:
http://www.treasury.gov/offices/eotffc/ofac/actions/index.html.
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js-1296: Treasury's Office of Financial Education Joins the J u m p Start Coalition in Tallahassee to Anno... Page 1 of 2
1
PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 5, 2004
js-1296
Treasury's Office of Financial Education Joins the Jump Start Coalition in
Tallahassee to A n n o u n c e Results of the J u m p Start Personal Finance Survey
of 12th Graders
Deputy Assistant Secretary for Financial Education Dan lannicola, Jr. today joined
the Florida Jump$tart Coalition for Personal Financial Literacy (Florida Jump$tart)
at a press conference to announce the results of Jump$tart's personal finance
survey. The survey w a s administered to 12th graders in random high schools
around the country. The survey's results will help assess the personal financial
literacy of 12th graders, an age when many individuals are entering the job market
or attending college and dealing with their own finances for the first time.
"Financial education is important for all Americans from the youngest individuals
receiving an allowance for the first time to senior citizens preparing to embark on
retirement. It is particularly important that young adults, many preparing to m o v e
into the financial mainstream for the first time, have the practical knowledge and
skills to successfully build a good credit history and manage a budget, that will allow
them to go on and achieve their financial dreams," said lannicola.
lannicola went on to say, "The Department of the Treasury and the entire Bush
Administration share J u m p Start's commitment to helping Americans get the
information they need to m a k e sound financial decisions."
The results of the Jump Start survey showed that while financial literacy among
12th graders has improved since the last survey w a s conducted in 2002, there is
still work to be done.
A recent survey conducted by the Florida Department of Financial Services found
that a m o n g 1,000 Florida employers polled, 64 percent said that they feel worker
productivity would be enhanced by financial literacy training. Further, 83 percent of
employers believe that financial literacy education will help prepare future
employees for the workplace, and 96 percent agreed that financial literacy
education is important in Florida's K-12 curriculum^
Today's press conference took place in the Rotunda of the Old Capitol in
Tallahassee, Florida. Participants in the press conference included T o m Gallagher,
Chief Financial Officer, State of Florida; Alex Sanchez, Chief Financial Officer,
Florida Bankers Association; Rosanna Jacobsen, President, Florida Jump$tart; and
William Cheeks, Eastern States Coordinator for Jump$tart.
The Florida Jump$tart Coalition is a non-profit organization which seeks to improve
the personal financial literacy of Floridians by focusing on the state's youth by
promoting and teaching personal finance skills so that individuals can m a k e
responsible financial decisions.
The Department of the Treasury's Office of Financial Education was established in
M a y 2002. The O F E focuses the Department's financial education policymaking,
and ensures coordination on financial education within the Department and all of its
bureaus. The O F E provides the Department of the Treasury with expertise on the
m a n y complex and interdisciplinary issues involved in financial education, and taps
into the Department's wide base of expertise on finance. The O F E also supports
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Page 2 of 2
the efforts of the Financial Literacy and Education Commission, a group chaired by
the Secretary of Treasury and composed of representatives from 20 federal
departments, agencies, and commissions, which works to improve financial literacy
and education for people throughout the United States.
-30[1]
"FLORIDA'S EMPLOYERS RECOGNIZE NEED FOR FINANCIAL LITERACY,"
Consumer eViews-Florida Department of Financial Services, January 12, 2004
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5/27/2005
JS-1297: Treasury's Office of Financial Education Joins Florida International University to launch Finan... Page 1 of 2
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 6, 2004
JS-1297
Treasury's Office of Financial Education Joins Florida International University
to launch Financial Education Program in Miami
Deputy Assistant Secretary for Financial Education Dan lannicola, Jr. today visited
Florida International University (FIU) in Miami, Florida, to help launch FlU's new
Wealth Management Professional Education Program, lannicola led a discussion
on the importance of financial education in preparing Americans to make informed
financial decisions.
The Wealth Management Professional Education Program will be offered through
FlU's College of Business Administration (CBA). The program will be open to the
public and will offer sessions on managing 401 (k) plans, mutual fund investing,
retirement and estate planning, and strategic wealth and money management.
"Helping people understand basic concepts such as managing money, budgeting,
saving and credit can provide them with the skills necessary to build financial
security and prevent them from making bad financial decisions later in life.
Financial education can make a difference in people's daily lives" said lannicola.
While in Miami, lannicola also visited the Hialeah-Miami Lakes Senior High School
and assisted T o m Glaser, an economics teacher, in teaching The Stock Market
G a m e ™ Program, a Securities Industry Foundation for Investor Education program,
which teaches about the stock market, the American economic system, and the
global economy through educational investment simulations.
Statistics show that financial education is critical. For example, 64% of credit card
holders ages 18 to 24 do not know the interest rates they pay on their credit cards
[1J. According to a 2002 Nellie M a e survey, undergraduate students carry an
average of three credit cards and graduate with an average of $20,402 in combined
education loans and credit cards balances[2]. In 2001 more people filed for
bankruptcy than graduated from college[3].
The positive effects of financial education carry into adulthood. Studies show that
students who received personal financial education have higher savings rates when
compared to those who didn't receive financial education, and individuals w h o have
received financial education tend to participate in employer 401 (k) plans at a higher
rate and with larger contributions than others.
The Department of the Treasury's Office of Financial Education was established in
May 2002. The O F E focuses the Department's financial education policymaking,
and ensures coordination on financial education within the Department and all of its
bureaus. The O F E provides the Department of the Treasury with expertise on the
many complex and interdisciplinary issues involved in financial education, and taps
into the Department's wide base of expertise on finance. The O F E also supports
the efforts of the Financial Literacy and Education Commission, a group chaired by
the Secretary of Treasury and composed of representatives from 20 federal
departments, agencies, and commissions, which works to improve financial literacy
and education for people throughout the United States.
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l
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5/27/2005
J-1297: Treasury's Office of Financial Education Joins Florida International University to launch Finan... Page 2 of 2
[1] Margaret W e b b Pressler, "Now They'll Have to Repay the Piper...," The
Washington Post, December 7, 2003
[2] Tami Luhby, "For Students, A N e w Math / High School Program Shows Youth
that Fiscal Responsibility is More Than Adding and Subtracting," Newsday, May 1i
2003
[3] Patricia Wolff," Area Lawmaker Wants Students to Learn More about Personal
Finance," Oshkosh Northwestern, April 28, 2003
www.treas.gov/press/releases/jsl297.htm
5/27/2005
js-1298: Idaho M a k e s Federal Health Coverage Tax Credit Available
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 6, 2004
js-1298
Idaho Makes Federal Health Coverage Tax Credit Available
Today, Treasury Secretary John Snow applauded Governor Dirk Kempthome for
signing legislation that that makes the state's reinsurance pool available to those
eligible for the Health Coverage Tax Credit Program (HCTC) that will help cover
the cost of health insurance premiums for many Idaho residents.
"I would like to thank the Republicans and Democrats in the legislature who voted
for President Bush's proposal and Governor Kempthorne for signing it. I would also
like to thank Insurance Commissioner Mary Hartung and other interested parties in
Idaho who have worked so hard to make the Health Coverage Tax Credit program
available to 1,600 workers and their families," stated Treasury Secretary John
Snow. "I commend them for their leadership in enacting legislation that makes the
state's reinsurance pool available to those eligible for T A A benefits. The H C T C
program is a real innovation in tax policy, one that w e hope will lead the way for
other innovations that help real people obtain the health care coverage that they
need in a flexible and reliable way. W e want to ensure that those w h o qualify for
the credit get the help they need as quickly as possible."
The Trade Adjustment Assistance Act President Bush signed into law in
2002 included the new Health Coverage Tax Credit (HCTC). Recipients can
receive the H C T C either in advance, to help pay qualified health plan premiums as
they come due, or in a lump sum when they file their federal tax returns. The H C T C
advance payments program began nationally in August 2003. This program
provides an advanced payment of 6 5 % of the premium cost for a qualified health
plan for individuals who are eligible to receive Trade Adjustment Assistance (TAA)
benefits or certain individuals who receive pension benefit payments from the
Pension Benefit Guaranty Corporation (PBGC).
In order to receive the credit, eligible individuals must enroll in qualified health
insurance, such as a C O B R A health plan or State Qualified Health Plan
(SQHP). Currently, thirty-three states and the District of Columbia now have
S Q H P s that enable more than 196,500 of those potentially eligible for the H C T C to
purchase health coverage. Nationwide, there are nearly 250,000 individuals
potentially eligible for the H C T C .
For more information on a particular state and the health insurance programs that
qualify, please visit the H C T C website at www.irs.gov and enter IRS Keyword:
HCTC.
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»ttp://www.treas.gov/press/releases/js 1298.htm
5/27/2005
FROM THE OFFICE OF PUBLIC AFFAIRS
April 7, 2004
2004-4-7-12-51-18-11936
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this ta
totaled $85,051 million as of the end of that week, compared to $84,716 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
TOTAL
March 26. 2003
April 2, 2004
84,716
85,051
1. Foreign Currency Reserves 1
Euro
Yen
TOTAL
Euro
Yen
TOTAL
a. Securities
8,920
14,849
23,769
9,115
15,045
24,160
Of which, issuer headquartered in the U.S.
0
0
b. Total deposits with:
b.i. Other central banks and BIS
12,568
2,983
15,551
12,393
3,023
15,416
b.ii. Banks headquartered in the U.S.
0
b.ii. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the U.S.
0
0
b.iii. Of which, banks located in the U.S.
0
0
21,721
21,703
12,630
12,727
11,045
11,045
0
0
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
2
3
4. Gold Stock
5. Other Reserve Assets
0
II. Predetermined Short-Term Drains on Foreign Currency Assets
March 26. 2003
Euro
1. Foreign currency loans and securities
Yen
April 2, 2004
TOTAL
Euro
Yen
TOTAL
0
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
2.a. Short positions
0
2.b. Long positions
0
3. Other
0
0
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
March 26, 2003
Euro
Yen
April 2, 2004
TOTAL
1. Contingent liabilities in foreign currency
Euro
Yen
TOTAL
0
0
2. Foreign currency securities with embedded options
0
0
3. Undrawn, unconditional credit lines
0
0
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U. S.
3.c. With banks and other financial institutions
Headquartered outside the U.S.
4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
0
0
4.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
/alued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
M Gold stock is valued monthly at $42.2222 per fine troy ounce.
S-1299: S B A Economic Growth Tour to M a k e Stop in Kansas City Treasury Secretary Snow, S B A Ad...
M
Page 1 of 2
H
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1299
SBA Economic Growth Tour to Make Stop in Kansas
City Treasury Secretary Snow, S B A Administrator
Barreto to Meet with Local Business Owners
KANSAS CITY - U.S. Treasury Secretary John Snow will join Hector Barreto,
Administrator of the U.S. Small Business Administration, at the final in a series of
11 regional economic growth events on April 12th in Kansas City, Missouri. The
event will highlight the success of local entrepreneurs and will focus on the issues
of greatest importance to the continued growth of small business.
"Small businesses play a vital role in creating opportunity for millions of Americans,"
said Barreto. "It is critical that we create an environment in which entrepreneurship
can flourish by providing small businesses with the information they need to
succeed, saving taxpayer dollars by ensuring open competition to government
contracts, and tearing down regulatory barriers to job creation."
"I am looking forward to bringing our regional conference and economic growth tour
to Kansas City," Barreto added. "These conferences are allowing us to meet with
small business owners across the country, and hear firsthand what w e can do to
ensure even greater success."
The regional event, which is being cosponsored by Hewlett-Packard, will begin with
a tour of A Zahner Company (1500 E. 9th Street, Kansas City, M O ) by Snow
and Barreto. Following the tour will be a roundtable discussion on the economy and
other small business issues with several small business owners from the Region VII
area (which includes Kansas, Nebraska, Missouri and Iowa).
Following the roundtable, Secretary Snow and Administrator Barreto will speak at a
luncheon for more than 400 members of the small business community at the Hyatt
Regency Hotel (2345 McGee Street). The luncheon will provide an opportunity for
small business owners and prospective entrepreneurs to meet with local bankers,
venture capitalists, resource and trade partners and local SBA staff to learn about
programs and services available. Small business owners from across Region VII
will also be receiving awards for their outstanding achievements and contributions
to the small business community.
WHO:
John Snow, U.S. Treasury Secretary
Hector V. Barreto, Administrator, U. S. Small Business Administration
WHEN:
Monday, April 12,2004
EVENT:
9:00 a.m.- 10:00 a.m
Tour of A. Zahner Company
Architectural Metals, 1500 E. 9tn Street,
Kansas City, M O
10:30 a.m.-11:30 a.m.
^ww.treas.eov/Dress/releases/is 1299.htm
5/27/2005
S-1299: S B A Economic Growth Tour to M a k e Stop in Kansas City Treasury Secretary Snow, S B A Ad...
Page 2 of 2
Small Business Roundtable Discussion
Hyatt Regency Hotel (Crown Center)
Van Horn A & B
2345 McGee St., Kansas City, M O
Noon -1:30 p.m.
Small Business Luncheon
Hyatt Regency Hotel (Crown Center)
2345 McGee Street, Kansas City, M O
yv-treas.gov/press/releases/isl 299.htm
5/27/2005
s-1300: Secretary S n o w Praises Department of Labor For Issuing <br> Health Savings Account Guidance Page 1 of 1
PRESS ROOM
F R O M THE OFFICE O F PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 7, 2004
js-1300
Secretary Snow Praises Department of Labor For Issuing
Health Savings Account Guidance
I applaud the U.S. Department of Labor's Employee Benefits Security
Administration (EBSA) for issuing guidance that will make it easier for employers to
adopt Health Savings Accounts (HSAs). Health Savings Accounts are designed to
help individuals take more control over how their health care dollars are spent and
save for future medical and retiree health expenses on a tax-free basis.
The Treasury Department will continue to issue the guidance that the private sector
and industry needs to ensure that Health Savings Accounts will be available to all
Americans.
For more information on HSAs, be sure to check out the Health Savings Account
page on our website: www.treasury.gov. W e have also set up an e-mail address hsainfo@do.treas.gov - where you can submit questions, as well as a voice
mailbox: 202-622-4HSA.
-30REPORTS
• Field Assistance Bulletin No. 2004-01
• U.S. Department of Labor News Release
• Department of Labor Guidance and Release
3ttp://www.treas.gov/press/releases/js 1300.htm
5/27/2005
U.S. D e p a r t m e n t of L a b o r
Employee Benefits Security Administration
Washington, D.C. 20210
FIELD ASSISTANCE BULLETIN NO.
2004-01
DATE: APRIL 7,2004
MEMORANDUM FOR: VIRGINIA C. SMITH, DIRECTOR OF ENFORCEMENT
REGIONAL DIRECTORS
FROM: ROBERT J. DOYLE
DIRECTOR OF REGULATIONS A N D INTERPRETATIONS
SUBJECT: HEALTH SAVINGS ACCOUNTS
ISSUE:
Whether Health Savings Accounts established in connection with employment-based
group health plans constitute "employee welfare benefit plans" for purposes of Title I of
ERISA?
BACKGROUND:
Section 3(1) of the Employee Retirement Income Security Act of 1974 (ERISA) defines the
term "employee welfare benefit plan" in relevant part to m e a n "any plan, fund, or
program ... established or maintained by an employer ... to the extent that such plan,
fund, or program w a s established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance or otherwise, (A)
medical, surgical, or hospital care or benefits, or benefits in the event of sickness ...."
Section 1201 of the Medicare Prescription Drug, Improvement, and Modernization Act of
2003, Pub. L. N o . 108-173 (the Medicare Modernization Act), added section 223 to the
Internal Revenue Code (Code) to permit eligible individuals to establish Health Savings
Accounts (HSAs). 1 In general, H S A s are established to receive tax-favored contributions
by or on behalf of eligible individuals, and amounts in an H S A m a y be accumulated over
the years or distributed on a tax-free basis to pay or reimburse "qualified medical
1
The U.S. Department of the Treasury and the Internal Revenue Service (IRS), which have interpretive
and regulatory authority over H S A s under section 223 of the Code, issued general guidance concerning
H S A s on December 22,2003, in I.R.S. Notice 2004-2, and issued additional guidance on March 30, 2004, in
I.R.S. Notice 2004-23, I.R.S. Notice 2004-25, Revenue Ruling 2004-38, and Revenue Procedure 2004-22. The
Treasury/IRS guidance is available on the Internet at www.treas.gov/offices/public-affairs/hsa.
2
expenses." In order to establish an H S A , an eligible individual, a m o n g other conditions,
must be covered under a High Deductible Health Plan (HDHP). 2 Contributions to an
H S A established by an eligible individual w h o is an employee m a y be m a d e by the
employee, the employee's employer or both in a given year.3 Amounts in an H S A m a y
be rolled over to another HSA. 4 If an employer makes contributions to H S A s , the
employer must m a k e available a comparable contribution on behalf of all eligible
employees with comparable coverage during the same period.5 However, employers
that m a k e contributions to an employee's H S A are not responsible for determining
whether H S A s are used for qualified medical expenses or for investing or managing
amounts contributed to an employee's HSA. 6
It is our understanding that a number of employers that currently sponsor ERISAcovered group health plans m a y wish to add an H D H P option and offer programs
designed to enable employees to establish H S A s to pay for medical expenses not covered
by the H D H P . Questions have been raised about whether, and under what
circumstances, H S A s established in connection with employment-based programs would
constitute "employee welfare benefit plans" within the meaning of section 3(1) of ERISA.
ANALYSIS:
Congress, in enacting the Medicare Modernization Act, recognized that HSAs would be
established in conjunction with employment-based health plans and specifically
provided for employer contributions. However, neither the Medicare Modernization Act
nor section 223 of the Code specifically address the application of Title I of ERISA to
HSAs. Based on our review of Title I, and taking into account the provisions of the Code
as amended by the Medicare Modernization Act, w e believe that H S A s generally will not
constitute employee welfare benefit plans established or maintained by an employer
where employer involvement with the H S A is limited, whether or not the employee's
H D H P is sponsored by an employer or obtained as individual coverage.
Specifically, HSAs meeting the conditions of the safe harbor for group or group-type
insurance programs at 29 C.F.R. § 2510.3-1 (j)(l)-(4) would not be employee welfare
benefit plans within the meaning of section 3(1) of ERISA.7 Moreover, although
2
See I.R.S. Notice 2004-2, Q & A Nos. 1 and 2.
Id. Q & A No. 11.
4
Id. Q & A No. 23.
5
Id. Q & A No. 32.
6
Id. Q & A No. 30.
7
Regulation section 2510.3-l(j) excludes from Title I coverage certain group or group-type
insurance programs. In general, such programs are excluded from coverage where there are no
employer contributions, employee participation is voluntary, the employer does not endorse the
program, and the employer receives no consideration in connection with the program, other than
reasonable compensation for administrative services actually rendered in connection with payroll
deductions. See also 29 C.F.R. § 2509.99-1 relating to payroll deduction IRAs.
3
3
contributions or payment of group insurance premiums by an employer would be a
significant consideration in determining whether a group or group-type insurance
arrangement is an employee welfare benefit plan under section 3(1), such contributions
or payments are not necessarily significant in analyzing the status of H S A s under ERISA.
A s noted above, H S A s are personal health care savings vehicles rather than a form of
group health insurance. For example, funds deposited in an H S A generally m a y not be
used to pay health insurance premiums,8 and the beneficiaries of the account have sole
control and are exclusively responsible for expending the funds in compliance with the
requirements of the Code. Because of these differences, w e regard court precedent on the
significance of employer contributions to group or group-type insurance arrangements as
inapposite to HSAs. In the group health insurance context, the employer, whether by
choosing an insurance policy or creating a self-funded program, typically establishes the
type of benefits provided, the conditions for their receipt, and the manner in which
claims will be adjudicated. In the context of HSAs, however, the employer m a y be doing
little more than contributing funds to an account controlled solely by the employee.
Accordingly, we would not find that employer contributions to HSAs give rise to an
ERISA-covered plan where the establishment of the H S A s is completely voluntary on the
part of the employees and the employer does not: (i) limit the ability of eligible
individuals to m o v e their funds to another H S A beyond restrictions imposed by the
Code; (ii) impose conditions on utilization of H S A funds beyond those permitted under
the Code; (iii) m a k e or influence the investment decisions with respect to funds
contributed to an H S A ; (iv) represent that the H S A s are an employee welfare benefit plan
established or maintained by the employer; or (v) receive any payment or compensation
in connection with an H S A .
The mere fact that an employer imposes terms and conditions on contributions that
would be required to satisfy tax requirements under the Code or limits the forwarding of
contributions through its payroll system to a single H S A provider (or permits only a
limited number of H S A providers to advertise or market their H S A products in the
workplace) would not affect the above conclusions regarding H S A s funded with
employer or employee contributions, unless the employer or the H S A provider restricts
the ability of the employee to m o v e funds to another H S A beyond those restrictions
imposed by the Code.
CONCLUSION:
HSAs generally will not constitute "employee welfare benefit plans" for purposes of the
provisions of Title I of ERISA. Employer contributions to the H S A of an eligible
8
Although the Medicare Modernization Act excludes health insurance from the qualified medical expenses
that may be paid from an H S A , there are exceptions for the payment of C O B R A premiums, certain
insurance for individuals over 65, long-term care insurance premiums and health insurance during periods
of unemployment. Code section 223(d)(2).
4
individual will not result in Title I coverage where, as discussed above, employer
involvement with the H S A is limited. Finding that an H S A established by an employee
is not covered by ERISA does not, however, affect whether an H D H P sponsored by the
employer is itself a group health plan subject to Title I. In fact, unless otherwise exempt
from Title I (e.g., governmental plans, church plans) employer-sponsored H D H P s will be
employee welfare benefit plans within the meaning of ERISA section 3(1) subject to
Title I.
Questions concerning this matter may be directed to Suzanne Adelman, Division of
Coverage, Reporting and Disclosure at 202-693-8523.
Page 1 o f 3
Field Assistance Bulletin 2004-1
U.S. Department of Labor
Employee Benefits
Security Administration
www. do I. go v/ebsa
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May 27, 2005
D O L > EBSA > Compliance Assistance > Field Assistance Bulletin
About EBSA
Field Assistance Bulletin 2004-1
Laws 8t Regulations
April 7, 2004
Memorandum for: Virginia C. Smith
Director of Enforcement, Regional Directors
Proposed Ru es
On This Page
Final Rules
Issue
Comp arice ^ssista ice
From: Robert J. Doyle
Director of Regulations and Interpretations
Background
ho brrid "-m^.u ers
Analysis
r
o' Hea th ^ ans
Subject: Health Saving Accounts
For Re: remen Plans
Issue
Reporting & -i: nq
Whether Health Savings Accounts established in connection with employment-based group
health plans constitute "employee welfare benefit plans" for purposes of Title I of ERISA?
Fiduciary Education
Exemptions
Background
Interpretations
Section 3(1) of the Employee Retirement Income Security Act of 1974 (ERISA) defines theERISA Enforcement
term "employee welfare benefit plan" in relevant part to m e a n "any plan, fund, or
program . . . established or maintained by an employer ... to the extent that such plan, Nev/s oom
Speeches & Testimony
fund, or program w a s established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance or otherwise, (A)
medical, surgical, or hospital care or benefits, or benefits in the event of sickness . . . ."
Fact: Sheets
Section 1201 of the Medicare Prescription Drug, Improvement, and Modernization Act of Cons er Information
2003, Pub. L. No. 108-173 (the Medicare Modernization Act), added section 223 to the
Health Plans
Internal Revenue Code (Code) to permit eligible individuals to establish Health Savings
Pension -ans
Accounts (HSAs)/1-) In general, H S A s are established to receive tax-favored contributions
by or on behalf of eligible individuals, and amounts in an H S A m a y be accumulated over
Consumer Complaints
the years or distributed on a tax-free basis to pay or reimburse "qualified medical
expenses." In order to establish an H S A , an eligible individual, a m o n g other conditions,
H et, L. erttl wsk
must be covered under a High Deductible Health Plan (HDHP). ( 2 ) Contributions to an H S A
Questiu s»
established by an eligible individual w h o is an employee m a y be m a d e by the employee,
the employee's employer or both in a given year/ 3 ) Amounts in an H S A m a y be rolled over
iu isf K s p u i 1
to another H S A / 4 ) If an employer m a k e s contributions to HSAs, the employer must m a k e
- O I I I . S / D U L tequest>
available a comparable contribution on behalf of all eligible employees with comparable
5
coverage during the s a m e period/ ^ However, employers that m a k e contributions to an
'roqran s ( in:t ahi v >
employee's H S A are not responsible for determining whether H S A s are used for qualified
medical expenses or for investing or managing amounts contributed to an employee's
Re :ed Kesoim.cs
HSA.<6)
ft is our understanding that a number of employers that currently sponsor ERISA-covered
9roup health plans m a y wish to add an H D H P option and offer programs designed to
ht5)://www.dol.gov/ebsa/regs/fab_2004-1 .html
_ on fact Us
5/27/2005
Field Assistance Bulletin 2004-1
Page 2 of 3
enable employees to establish H S A s to pay for medical expenses not covered by the
HDHP. Questions have been raised about whether, and under what circumstances, H S A s
established in connection with employment-based programs would constitute "employee
welfare benefit plans" within the meaning of section 3(1) of ERISA.
Back To Top
Analysis
Congress, in enacting the Medicare Modernization Act, recognized that HSAs would be
established in conjunction with employment-based health plans and specifically provided
for employer contributions. However, neither the Medicare Modernization Act nor section
223 of the Code specifically address the application of Title I of ERISA to HSAs. Based on
our review of Title I, and taking into account the provisions of the Code as a m e n d e d by the
Medicare Modernization Act, w e believe that HSAs generally will not constitute employee
welfare benefit plans established or maintained by an employer where employer
involvement with the H S A is limited, whether or not the employee's H D H P is sponsored by
an employer or obtained as individual coverage.
Specifically, HSAs meeting the conditions of the safe harbor for group or group-type
insurance programs at 29 C.F.R. § 2510.3-l(j)(l)-(4) would not be employee welfare
benefit plans within the meaning of section 3(1) of E R I S A . ^ Moreover, although
contributions or payment of group insurance premiums by an employer would be a
significant consideration in determining whether a group or group-type insurance
arrangement is an employee welfare benefit plan under section 3(1), such contributions or
payments are not necessarily significant in analyzing the status of HSAs under ERISA. As
noted above, HSAs are personal health care savings vehicles rather than a form of group
health insurance. For example, funds deposited in an H S A generally m a y not be used to
pay health insurance premiums/-^ and the beneficiaries of the account have sole control
and are exclusively responsible for expending the funds in compliance with the
requirements of the Code. Because of these differences, w e regard court precedent on the
significance of employer contributions to group or group-type insurance arrangements as
inapposite to HSAs. In the group health insurance context, the employer, whether by
choosing an insurance policy or creating a self-funded program, typically establishes the
type of benefits provided, the conditions for their receipt, and the manner in which claims
will be adjudicated. In the context of HSAs, however, the employer m a y be doing little
more than contributing funds to an account controlled solely by the employee.
Accordingly, we would not find that employer contributions to HSAs give rise to an ERISAcovered plan where the establishment of the HSAs is completely voluntary on the part of
the employees and the employer does not: (i) limit the ability of eligible individuals to
move their funds to another H S A beyond restrictions imposed by the Code; (ii) impose
conditions on utilization of H S A funds beyond those permitted under the Code; (iii) m a k e
or influence the investment decisions with respect to funds contributed to an HSA; (iv)
represent that the H S A s are an employee welfare benefit plan established or maintained
by the employer; or (v) receive any payment or compensation in connection with an HSA.
The mere fact that an employer imposes terms and conditions on contributions that would
be required to satisfy tax requirements under the Code or limits the forwarding of
contributions through its payroll system to a single H S A provider (or permits only a limited
number of H S A providers to advertise or market their H S A products in the workplace)
would not affect the above conclusions regarding HSAs funded with employer or employee
contributions, unless the employer or the H S A provider restricts the ability of the employee
to move funds to another H S A beyond those restrictions imposed by the Code.
Conclusion
HSAs generally will not constitute "employee welfare benefit plans" for purposes of the
Provisions of Title I of ERISA. Employer contributions to the H S A of an eligible individual
»ttp://www.dol.gov/ebsa/regs/fab_2004-1 .html
5/27/2005
Page 3 of 3
?ield Assistance Bulletin 2004-1
will not result in Title I coverage where, as discussed above, employer involvement with
the HSA is limited. Finding that an HSA established by an employee is not covered by
ERISA does not, however, affect whether an H D H P sponsored by the employer is itself a
group health plan subject to Title I. In fact, unless otherwise exempt from Title I (e.g.,
governmental plans, church plans) employer-sponsored HDHPs will be employee welfare
benefit plans within the meaning of ERISA section 3(1) subject to Title I.
Questions concerning this matter may be directed to Suzanne Adelman, Division of
Coverage, Reporting and Disclosure at 202-693-8523.
Back To Top
Footnotes
1. The U.S. Department of the Treasury and the Internal Revenue Service (IRS),
which have interpretive and regulatory authority over HSAs under section 223 of
the Code, issued general guidance concerning HSAs on December 22, 2003, in
I.R.S. Notice 2004-2, and issued additional guidance on March 30, 2004, in
I.R.S. Notice 2004-23, I.R.S. Notice 2004-25, Revenue Ruling 2004-38, and
Revenue Procedure 2004-22. The Treasury/IRS guidance is available on the
Internet at www.treas.gov/offices/public-affairs/hsa.
2. See I.R.S. Notice 2004-2, Q&A Nos. 1 and 2.
3. Id. Q&A No. 11.
4. Id. Q&A No. 23.
5. Id. Q&A No. 32.
6. Id. Q&A No. 30.
7. Regulation section 2510.3-1Q) excludes from Title I coverage certain group or
group-type insurance programs. In general, such programs are excluded from
coverage where there are no employer contributions, employee participation is
voluntary, the employer does not endorse the program, and the employer
receives no consideration in connection with the program, other than reasonable
compensation for administrative services actually rendered in connection with
payroll deductions. See also 29 C.F.R. § 2509.99-1 relating to payroll deduction
IRAs.
8. Although the Medicare Modernization Act excludes health insurance from the
qualified medical expenses that m a y be paid from an HSA, there are exceptions
for the payment of C O B R A premiums, certain insurance for individuals over 65,
long-term care insurance premiums and health insurance during periods of
unemployment. Code section 223(d)(2).
'Ai Back to Top
www.dol.gov/ebsa
www.dol.gov
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U.S. Department of Labor 1.866.444.3272
Frances Perkins Building
200 Constitution Avenue, N W
Washington, DC 20210
ittp://www.dol.gov/ebsa/regs/fab 2004-1 .html
TTY: 1.877.889.5627
Contact Us
5/27/2005
FS-1301: Statement of Assistant Secretary for Economic Policy<BR> M a r k J. Warshawsky on Recent E... Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 8, 2004
JS-1301
Statement of Assistant Secretary for Economic Policy
Mark J. Warshawsky on Recent Economic N e w s
Due to the President's economic leadership, more Americans are going to work and
more Americans are staying on the job. A report on jobless claims out today
suggests continued positive news in the U.S. labor market. Initial claims on
unemployment insurance fell 14,000 last week to the lowest level in over three
years. The four-week moving average was down to the lowest point since
November of 2000. And continuing claims fell by a substantial 40,000 hitting a 32month low. More good news on the labor front included a report out earlier this
week that found layoffs at a four-year seasonal low. Following last week's report
that job creation in March resulted in the largest monthly increase in four years,
these are promising signs for continued strength in employment.
Additionally, a services sector index out this week surged to a new record high,
posting its twelfth straight month of expansion, and wholesale trade figures
released today show growing strength.
The results of the President's pro-growth policies are apparent in the building
strength of the U.S. economy. This Administration will continue its efforts to
encourage economic growth and create jobs.
^•//www.treas.gov/press/releases/js 1301 .htm
5/27/2005
JS-1302: Deputy Assistant Secretary for Financial Education, D a n lannicola, Jr.<br>Joins Citigroup to A... Page 1 of 2
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PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1302
Deputy Assistant Secretary for Financial Education, Dan lannicola, Jr.
Joins Citigroup to Announce the
Creation of its Office of Financial Education
Deputy Assistant Secretary for Financial Education Dan lannicola, Jr. today joined
Citigroup to announce the formation of Citigroup's Office of Financial Education,
and a 10-year, $200 million commitment to financial education. Citigroup will focus
its efforts in three areas: Personal Financial Education, Small Business Financial
Education, and Institutional Financial Education.
"A financially educated borrower is a lender's best customer. Citigroup understands
this, and that is why the company has made this strong commitment to equip our
youth with the right knowledge today so they'll make the right financial choices
tomorrow," said lannicola.
lannicola continued, "The financial services industry is uniquely positioned to help
bring financial education to those who need it most. Citigroup's announcement
today demonstrates that clearly. The Department of the Treasury shares
Citigroup's passion for a financially literate nation."
Today's event took place at the Harlem YMCA Jackie Robinson Youth Center in
N e w York City. Participants in the event included Charles Prince, Citigroup C E O ;
Marge Magner, Chairman & C E O , Global Consumer Group and Chairman,
Citigroup Foundation; Lolita Chandler, Harlem Y M C A Member, Board of Managers;
Canon Frederick B. Williams, Church of the Intercession; Dara Duguay, Citigroup's
Office of Financial Education Director; Hon. Gregory W . Meeks, U.S. House of
Representatives; John M. Reich, Vice Chairman, FDIC Board of Directors; and
Karen Johnson, Assistant Secretary for Legislation and Congressional Affairs, U.S.
Department of Education.
The Citigroup Financial Education Program is a global, company-wide effort
working jointly with the Citigroup Foundation to identify, support and implement
initiatives that help give individuals, families, and institutions the tools needed to
make sound financial decisions. Through these initiatives, Citigroup will help
people understand how to use financial education resources, teach people the
basics of financial education, identify new programs to promote financial education,
provide financial education grants from the Citigroup Foundation, and strengthen
communities in United States and around the world.
The Department of the Treasury's Office of Financial Education was established in
May 2002. The O F E focuses the Department's financial education policymaking,
and ensures coordination on financial education within the Department and all of its
bureaus. The O F E provides the Department of the Treasury with expertise on the
many complex and interdisciplinary issues involved in financial education, and taps
into the Department's wide base of expertise on finance. The O F E also supports
the efforts of the Financial Literacy and Education Commission, a group chaired by
the Secretary of Treasury and composed of representatives from 20 federal
departments, agencies, and commissions, which works to improve financial literacy
and education for people throughout the United States.
ttp.7/www.treas.gov/press/releases/js 1302.htm
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JS-1303: Remarks of Deputy Assistant Secretary for Financial Education,<BR> D a n lannicola, Jr. <BR>... Page 1 of 1
PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 7, 2004
JS-1303
Remarks of Deputy Assistant Secretary for Financial Education,
Dan lannicola, Jr.
At the Launch of Citigroup's N e w Office of Financial Education
Good morning. I want to congratulate Citigroup on this wonderful day. It is great to
be here. Secretary S n o w sends his regards.
I think the story of today can be summed up in two words: problem and
commitment.
We all know what the problem is - too many of our kids know too little about basic
financial matters. The problem is serious and poses a real threat to our kids'
futures. But there is more to this story than just the problem - there is also the
tremendous commitment of many people and organizations to solve the problem. If
you doubt the depth or breadth of that commitment you have but to look around.
Here today we have players from all different walks: we have non-profits and forprofits, w e have local government, state government and federal government; and
w e have organizations that are new to this effort and s o m e w h o have been at it a
long time. S o how do w e square the deep problem of financial illiteracy versus the
intense commitment of this group? Is our commitment bigger than the problem?
Which side will win?
Well, with strong partners like Citigroup on our side - I like our chances. Citigroup's
announcement today is important for more than just the obvious reason that it will
put needed resources in the right hands. The announcement is also important
because it reminds us that the wide availability of consumer credit is a positive force
in our economy as long as people use credit wisely. It also reminds us that one of
the best forms of consumer protection is consumer knowledge. And finally, it
reminds us that for large corporations making a profit and making a difference are
not just compatible, theyre complementary. A lender's best customers are its
best financially educated borrowers. Citigroup understands this. That is why they
m a d e this announcement today to help America's kids.
It is also why the U.S. Department of Treasury is here to commend them for it.
Together we're equipping our youth with the right knowledge today so they'll make
the right financial choices tomorrow. Best wishes to Citigroup as you move forward
with your bold plans and please know that w e at Treasury share your passion for a
financially literate nation.
Thank you.
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JS-1304: D e p Sec Photos from F L Quarter Launch
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1304
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
ttp://www.treas.gov/press/releases/jsl304.htm
5/27/2005
JS-1305: D e p Sec Photos from F L Quarter Launch
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1305
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
ittp://www.treas.gov/press/releases/js 1305 .htm
5/27/2005
JS-1306: D e p Sec Photos from F L Quarter Launch
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1306
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
|ttp://www.treas.gov/press/releases/js 1306.htm
5/27 2005
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S-1307: D e p Sec Photos from F L Quarter Launch
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1307
Dep Sec Photos from FL Quarter Launch
fcV#Ji--i
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
ittp://www.treas.gov/pr>- IVICJ-es/js 1307.htm
5/27/2005
fS-1308: D e p Sec Photos from F L Quarter Launch
isiyi&sss
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^"'•ril'c-
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1308
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
[
ttp://www.treas.gov/press/releases/js 1308.htm
5/27/2005
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js-1309: D e p Sec Photos from F L Quarter Launch
fciir-
PHLSS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
js-1309
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
^ttp://www.treas.gov/press/releases/js 1309.htm
5/27/2005
s-1310: D e p Sec Photos from F L Quarter Launch
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
js-1310
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
%://www.treas.gov/press/releases/js 1310.htm
5/27/2005
js-1311: D e p Sec Photos from F L Quarter Launch
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
js-1311
Dep Sec Photos from FL Quarter Launch
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
ltt
P-//www.treas.gov/press/releases/js 1311 .htm
5/27/2005
S-1507: Economic Growth in the Greater Middle East<br>Under Secretary John B. Taylor Remarks<br... Page 1 of 4
I
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 7, 2004
JS-1507
Economic Growth in the Greater Middle East
Under Secretary John B. Taylor Remarks
to the Middle East and North Africa (MENA) Region Conference
on the Challenges of Growth and Globalization
April 7, 2004
It is a pleasure for me to speak at this conference. I thank the IMF's Middle East
and Central Asia Department and the IMF Institute for inviting me. I have greatly
benefited and enjoyed working with dedicated professionals - like George Abed
and Mohsin Khan - at the IMF.
I wish that I could have participated in the whole conference, especially to have
been here this morning to listen to the papers by George Abed and others. That this
type of economic growth research is having a significant impact on development
policy is one of the themes of m y remarks today. And it would have been a special
pleasure to spend more time interacting with m y former Stanford colleague, Guido
Tabellini, in a rough-and-tumble seminar setting. But m y job now is much more
about applying economic research in practice than conducting such research.
Economic growth in the greater Middle East is a high priority of the Bush
administration. As President Bush made clear in his National Endowment for
Democracy speech on the greater Middle East last November, these economic
growth issues are closely linked with political and security issues, perhaps even
more so than in any other part of our foreign policy. O n e indication of the
importance of economic issues in this region for the U.S. Treasury is that I have
traveled to the Middle East or key neighboring regions a dozen times since I was
sworn in as Under Secretary in 2001.
My most recent trip was six weeks ago. I visited Baghdad, Amman, Kabul,
Jerusalem, and Ramallah. I learned a tremendous amount - I want to emphasize
this. I met with the finance ministers and other government officials in each city. I
talked about U.S. assistance packages, about fundraising, and about ways to
increase economic growth. I visited reconstruction projects and schools to see how
our assistance is being used, and I met with entrepreneurs to listen to their views
on economic reform. O n this trip, I covered almost exactly the same ground as I did
on a trip last June, when I visited the finance ministers and other officials from Iraq,
Jordan, Afghanistan, Israel, and the Palestinian Authority. The two trips were
separated in time by only eight months, yet, it was striking to m e how much had
transpired in each of these five places during that period. I would like to highlight
these changes to illustrate our approach to economic growth in the Middle East.
Let me first emphasize, as President Bush said in his speech last November, "As
w e watch and encourage reforms in the region, w e are mindful that modernization
is not the same as Westernization.... There are, however, essential principles
c o m m o n to every successful society, in every culture."
Many of those common principles are essential for raising economic growth. Again
to quote President Bush, successful societies: (1) "protect freedom and the
consistent, impartial rule of law;" (2) "invest in the health and education of their
people;" and (3) "privatize their economies and secure the rights of property."
These essential principles closely parallel the principles that underlie the new
Millennium Challenge Account, which is an important new initiative in U.S. foreign
ittp.V/www.treas.gov/press/releases/js 1507.htm
fS-1507: Economic Growth in the Greater Middle East<br>Under Secretary John B. Taylor Remarks<br... Page 2 of 4
aid. In that context, w e speak of policies of "governing justly, investing in people,
and encouraging economic freedom" as essential for economic growth.
But how do we know that these principles are essential? First of all, it is clear that
the lack of high productivity jobs is the source of poverty and low incomes in the
world, including the poorer areas of the Middle East and North Africa. If there are
only low productivity jobs - or no jobs - then incomes will be low and there will be
more poverty. It is almost a tautology.
Unfortunately, the recent trends in productivity growth in the Middle East are not
good. Guido Tabellini, in his paper for this conference, notes that productivity
actually fell in the Middle East in the last 20 years, by 0.7 percent per year. In
contrast, this is a period when productivity w a s increasing in the United States,
Europe and East Asia. This contrast is particularly strong and, I think, worrisome.
And the pressure on increasing productivity and creating jobs will not diminish in the
years ahead in the Middle East. Projections are that the working age population in
the Middle East and North Africa will increase by about 50 million in the next ten
years.
Why are so few high productivity jobs being created? According to basic economic
growth theory, productivity depends on two things: the amount of capital each
person has to work with and the level of technology. If there are no impediments to
the flow and accumulation of capital and technology, then countries or areas that
are behind in productivity should have a higher productivity growth rate. Capital will
flow to where it is in short supply relative to labor and, with more capital, higher
productivity jobs can be created. Similarly, technology can spread through
education and training. For these reasons, poor areas or countries can and should
be catching up to rich areas or countries.
There is evidence for such catch-up when there are few impediments to the use
and accumulation of capital and technology. It is unfortunate that there is little
evidence of such catch-up in the last twenty years in the greater Middle East as a
whole. W h y has there not been more catch-up? More and more evidence has
been accumulating that significant impediments to investment and the adoption of
technology are holding back countries and people.
One can group these impediments into three areas. It is not a coincidence that
these three areas correspond to the principles I listed from President Bush's recent
speech on the greater Middle East, or principles from the Millennium Challenge
Account.
First, poor governance - for example, the lack of the rule of law - creates
disincentives to invest, to start up new firms, and to expand existing firms with highproductivity jobs. This has a negative impact on capital formation and
entrepreneurial activity. In developing the Millennium Challenge Account, w e used
several indicators to measure the rule of law - s o m e developed by the World Bank
Institute and s o m e by other organizations; all are publicly available. The measures
of the rule of law for M E N A have a rating which is relatively low. For example, it is
about one-fourth that of Canada: the numbers are 0.52 for the Middle East region
and 2.11 for Canada, which in this context is representative of Europe, U.S., Japan
and other industrialized nations. Of course, there is diversity within the greater
Middle East area. The U A E measure, for instance, is much closer to Canada's
number than to the Middle East average.
Second, poor education and health impede the development of human capital.
Workers without adequate education do not have the skills to take on highproductivity jobs or to adopt new technologies which increase the productivity of the
jobs that they have already.
What do we know here? It depends on how much students are learning. As a
former professor, I know that sometimes you don't know how effective you are until
20 years later. But the measures w e have now, for example, on primary education
completion rates show that the average for M E N A is a 75 percent completion rate.
In industrialized countries, the completion rate is much higher. So, again there is a
ittp://www.treas.gov/press/releases/js 1507.htm
5/27/2005
S-1507: Economic Growth in the Greater Middle East<br>Under Secretary John B. Taylor Remarks<br... Page 3
difference in education which could explain s o m e of the differences in productivity
which I discussed earlier.
The third impediment to growth relates to economic freedom. Too many restrictions
on economic transactions prevent people from trading goods and services and from
adopting n e w technologies. Lack of openness to trade, state monopolies, and
excessive regulation are all examples of restrictions that reduce the incentives for
innovation and investment needed to boost productivity.
What do we know about this? Again, there are indicators that we have tried to use
in practice. O n e indicator of which I a m particularly fond is the length of time it takes
to start a business. The literature shows that this is a predictor of growth. In the
M E N A area, the average number of days that it takes to start a business is 43. In
Canada, the average is three days, while in s o m e countries in the M E N A , it's much
longer than 43 days.
Trade openness is another indicator that has been measured by many objective
institutions. Here, a higher number in the index means less openness. For M E N A ,
the number is 4.0, while it's 2.0 for both Canada and Australia. Of course, other
economic indicators show less difference with industrialized countries. Inflation, for
example, is one of the indices on which the M E N A region performs very well.
As a policy maker, I ask: How do we translate these very good ideas, research and
measures of performance into what w e do everyday? People like us ask these
questions and remain convinced that improvement in the policies of ruling justly,
investing in people, and encouraging economic freedom is what is needed to
increase economic growth in the Middle East. I'd like to share with you several
examples of what is actually happening on the ground, based on m y recent visits to
the Middle East region.
First, when I speak with finance ministers, central bank governors, and private
business people in the greater Middle East countries, I find no disagreement with
this way of thinking about economic growth. They tell m e what I've said here today.
Indeed, I usually hear these s a m e ideas even before I begin talking. It's no secret
that in order to raise economic growth, one has to focus on these measures.
Second, it is clear that cases within the Middle East where good progress has been
and is being made. There are many examples of market-oriented economies that
are removing barriers to economic growth. To n a m e a few:
• Bahrain is a leading financial and trading center.
• Dubai has transformed itself into an important regional economic center.
• Morocco, as part of its free trade agreement with the United States,
committed to keep its financial sector open to foreign investment. It also
agreed to m a k e its procedures for new regulation more transparent by
allowing interested parties the opportunity to comment on proposed
regulations.
Next, I'd like to share with you a few snapshots of my recent trips that illustrate how
much has improved in the last eight months:
In Afghanistan, in the last few months, a new currency has been issued, roads has
been completed and a n e w banking law has been passed which should assist in
attracting foreign capital. Now, many more boys and girls are in school; industrial
parks are being built; and customs facilities are being improved. Much work is also
being done on land titling to establish property rights.
In Iraq, within only a few months, a new currency was introduced, and a seminal
law w a s passed to m a k e the central bank independent. Recently, I met with a
group of private bankers in Baghdad w h o were forming a trade group. Foreign
bank entry is progressing, with three foreign banks being considered for banking
licenses, including the National Bank of Kuwait.
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S-1507: Economic Growth in the Greater Middle East<br>Under Secretary John B. Taylor Remarks<br... Page 4 of 4
I also recently traveled to Jordan, where the government recently passed a n e w
budget that will reduce subsidies that have been making it difficult for the economy
to adjust. Jordan has used qualified industrial zones to increase trade with great
results. Exports in Jordan grew by over 20 percent in 2001 and 2002.
For the Palestinian Authority, Finance Minister Fayyad has made remarkable
progress toward a good, transparent budget process, including a direct deposit
system under which funds are disbursed directly to employees. H e has also helped
to bring the petroleum monopoly under the control of the Finance Ministry. The
business community similarly recognizes that better regulation, better infrastructure
and, of course, peace in that region would m a k e a considerable difference in
economic growth.
In Israel, Finance Minister Netanyahu has put through a number of laudable
reforms, including tax reductions and welfare and pension system reforms. Israel is
poised to continue on this path with further privatization, improvements in the
regulatory process, and increasing competition in the financial sector.
These are some of the very encouraging, significant measures that have taken
place in a period of eight months in the greater Middle East region. I wish to leave
you with a few examples of h o w w e can continue to interact and engage one
another constructively on these issues.
Secretary Snow had a very important meeting with the Finance Ministers from
the region in Dubai last September to begin a dialogue about h o w w e can best work
together on financial sector issues. The United States is also establishing a
Partnership for Financial Excellence, which is an effort to provide technical
assistance and training in the region.
In 2002, Treasury held a very successful workshop entitled "Islamic Finance
101" to educate U.S. policymakers about developments in Islamic finance.
I was very impressed to learn about a recent European Central Bank meeting
with the governors of the central banks from the M E N A region.
Finally, I am very pleased that the IMF has proposed establishing a training
center in the region.
I look forward to continued progress on these and other important initiatives to
promote economic growth in the M E N A region. And I thank you again for giving m e
the opportunity to speak here today.
1
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1312: Statement of Treasury Secretary John W . S n o w on Senate Passage of the Pension Funding Equit... Page 1 of 1
wmmm
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 8, 2004
js-1312
Statement of Treasury Secretary John W. Snow on Senate Passage of the
Pension Funding Equity Act Of 2004
Today, Congress completed action on legislation that provides important worker
protections and prevented further systemic pension plan under funding.
This legislation includes critical administration priorities. Most significantly, in the
legislation, Congress joins President Bush's call for comprehensive pension reform
so that promises made to working Americans will be promises kept. In addition,
the legislation allows plan sponsors to more accurately calculate their
responsibilities to retirees by replacing the outdated interest rate used to discount
pension plans. And it offers targeted relief to pension plan sponsors, particularly
those w h o have made the responsible funding of their pension plans a priority,
while preserving the integrity of the defined benefit pension plan system.
We commend both the House and the Senate for their diligent work to protect the
retirement security of America's workers and retirees.
-30-
Vwww.treas.gov/press/releases/js 1312.htm
5/27/2005
S-1313: April 15th Tax D a y Reminder: Treasury and IRS W o r k T o M a k e Paying Taxes A Little Easier
Page 1 of 2
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 9, 2004
JS-1313
April 15th Tax Day Reminder: Treasury and IRS Work To Make Paying Taxes
A Little Easier
While nobody likes paying taxes, the Treasury Department and the Internal
Revenue Service have been working to make the burden of paying taxes a little
easier. E-filing and electronic services offered on IRS.gov are seeing big increases
this year. Taxpayers can use these services and follow other simple steps to help
make tax time easier:
File Returns Electronically. IRS e-file is the fastest, most accurate and a secure
way to file a tax return. If a taxpayer is due a refund, the waiting time for e-filers is
half that of paper filers. S o m e taxpayers may qualify for the Free File service
accessed through IRS.gov.
Through April 2, e-filing remains well ahead of last year's pace. It continues to show
strong growth in several areas:
• Overall e-filing reached 48.5 million, which is more than 5 million ahead of
last year's pace.
• H o m e computer filers submitted more than 11 million returns, an increase of
21.3 percent from last year.
• Tax professionals filed more than 34.2 million returns electronically, a 13.7
percent increase from last year.
Free File. Millions of taxpayers can go right now to www.IRS.gov and file and pay
their taxes electronically for free. Free File is an easy, fast and secure way for
citizens to file taxes and will also allow Americans to get refunds in half the time.
The efficiency of filing electronically saves both taxpayers and the IRS time and
money.
• Through April 2, the Free File program topped 2.7 million returns, a 23
percent increase from last year. Free File, a free e-filing service offered by
private companies, can be accessed by visiting IRS.gov.
In February 2002, President Bush proposed free online tax filing as one of his EGovernment initiatives. In 2003, the Treasury Department, Office of Management
and Budget ( O M B ) and the Internal Revenue Service (IRS) launched the new Free
File W e b site featuring private-sector partners that allow most taxpayers to prepare
and file their taxes online for free. Treasury, O M B and IRS made this possible
through a public-private partnership with a consortium of tax software companies,
the Free File Alliance, LLC
Proposal to Extend Filing Deadline. To encourage taxpayers to file their returns
electronically, the President's FY 05 Budget includes a proposal to extend the filing
deadline by 15 days for all taxpayers who file electronically, including those eligible
for Free File. The proposal is pending in Congress.
Visit the IRS Online. The IRS Web site, IRS.gov, had more than 4.5 billion hits in
2003. Anyone with Internet access can download tax forms, instructions and
publications as well as tax law information and answers to frequently-asked tax
yww.treas.gov/press/releases/jsl313 .htm
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3-1313: April 15th Tax D a y Reminder: Treasury and IRS W o r k T o M a k e Paying Taxes A Little Easier
Page 2 of 2
questions. 1040 Central, a special section of IRS.gov created this year, offers
information specifically tailored to individual filers.
Use Where's My Refund? If a taxpayer wants to know whether his or her refund
has been processed or when the refund will be mailed or directly deposited,
"Where's M y Refund?" has the answers. So far this filing season, taxpayers have
used this free service more than 16.8 million times through early April. "Where's M y
Refund?" is available on IRS.gov.
Check the Child Tax Credit. Taxpayers who claim the Child Tax Credit this year
must remember to reduce it by the amount of the advance Child Tax Credit
payment received in 2003. Through early April, taxpayers have m a d e 9.6 million
visits to IRS.gov to double-check the advance payment amounts they received last
year.
Corporations can File Returns Electronically. The Treasury Department
introduced software in the first quarter of 2004 that enables corporations to file their
tax returns electronically. This modernized platform will improve the IRS' customer
service and save significant corporate resources, allowing businesses to allocate
more resources for investment to create jobs and boost the economy. This program
builds on the highly successful Free File program, in which over 2.7 million
individual tax filers took advantage in 2003.
Apply for an "Employer Identification Number" Online. Small businesses can
now apply online for their "Employer Identification Number," which they need to file
their returns or open bank accounts. It used to take weeks for businesses to get
these numbers, now they can get them in real-time over internet, saving valuable
time and helping new businesses focus on creating business value instead of
paperwork.
-30America has a choice: It can continue to grow the economy and create new
jobs as the President's policies are doing; or it can raise taxes on American
families and small businesses, hurting economic recovery and future job
creation.
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•1314: April 15th Tax D a y Reminder: Treasury & IRS Continue T o Crackdown O n Abusive Tax Shelt... Page 1 of 16
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 9, 2004
js-1314
April 15th Tax Day Reminder: Treasury & IRS Continue To Crackdown On
Abusive Tax Shelters
As part of a comprehensive strategy to ensure all taxpayers pay their fair share, the
Treasury Department and the IRS are moving aggressively to combat abusive tax
avoidance transactions. Abusive transactions are being addressed effectively
through increased disclosure by taxpayers and promoters, timely response by
the Treasury Department and the IRS to transactions that are identified, and, where
necessary, targeted legislative changes to the substantive tax laws. The
Administration's actions to carry out each of these principles have been focused,
significant, and effective:
• The Administration is taking vigorous enforcement action against
abusive tax shelters.
• The Administration has increased the disclosure of abusive tax
shelters.
• The Administration is using its regulatory authority to shut down
abusive tax shelters.
• The Administration's legislative proposals will:
o Shut down specific abusive tax shelters.
o Give the IRS important new tools and enhance its ability to
combat abusive tax shelters.
o Enhance the IRS' effectiveness without compromising taxpayer
protections.
• The Administration is reining in international tax abuses.
• The Administration is committed to exploring ways in which the IRS
can work more effectively without compromising taxpayer
protections.
So-called "technical tax shelters" proliferated in the 1990s because taxpayers and
promoters believed that taxpayers could enter into aggressive transactions with little
risk of detection and with little risk of owing anything more than the tax due and
interest even if caught. The Administration's approach to tax shelters is changing
completely the risk-reward calculus for taxpayers considering an abusive
transaction. The IRS' audits of the promoters of these tax shelters over the past
three years have been unprecedented. Taxpayers and promoters no longer will be
able to avoid detection. The Treasury Department and the IRS will take the steps
necessary to shut down tax shelters - including appropriate enforcement action
against taxpayers and promoters - as they are identified.
Beginning back in early 2002, the Administration proposed significant legislation to
end the "hide-and-seek" tactics of promoters and taxpayers involved in these
abusive transactions. In addition, the Administration is committed to providing the
IRS with the resources and support needed to ensure that all taxpayers pay their
fair share. The Administration's FY 2005 Budget includes an additional $300
million for IRS efforts to ensure compliance with the tax laws, and increases
the total IRS budget by 4.8 percent to $10,674 billion - significantly above the
average for non-defense, non-homeland security discretionary spending. The
budget continues a three year trend of increasing resources for the IRS to improve
taxpayer compliance and to target abusive transactions, while maintaining customer
service to taxpayers. The IRS budget in F Y 2002 (enacted) was 9.474 billion, in F Y
2003 (enacted) it was 9.834 billion, and in FY 2004 (proposed) it was 10.184
w.treas.gov/press/releases/js 1314.htm
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s-1314: April 15th Tax D a y Reminder: Treasury & IRS Continue T o Crackdown O n Abusive Tax Shelt... Page 2 of 16
billion.
The specific steps taken by the Administration to address tax shelters are detailed
below.
The Administration Is Taking Vigorous Enforcement Action Against Abusive
Tax Shelters
Effective action against tax shelters requires effective tax administration. Over the
past three years, the Treasury Department and the IRS have been working closely
together to implement an effective strategy for dealing with abusive transactions.
Although the actions described below relate to so-called "technical" tax shelters, the
IRS also has an extensive program in place to address promoters of schemes and
scams marketed primarily to individuals and small businesses, as well as the
taxpayers w h o enter into those schemes and scams.
The IRS has been working closely with the Department of Justice in criminal and
civil cases against taxpayers w h o participate in tax scams and the individuals and
firms promoting these scams. These actions are detailed in the section below
entitled "Department of Justice and IRS Efforts to Identify, Investigate and Punish
Tax Cheats"
The IRS Is Implementing a Coordinated Strategy for Tax Shelters Commissioner Mark Everson is focused on organizing and maximizing the
effectiveness of the IRS' efforts to combat tax shelters. John Klotsche, a former
chairman of a major international law firm, has joined the IRS as a Senior Advisor to
the Commissioner and has responsibility over the coordination of the IRS' efforts to
combat tax shelters. The Commissioner and Senior Advisor Klotsche are working
to coordinate efforts within the agency, with the Treasury Department, and with the
Department of Justice.
The Treasury Department and the IRS Have Issued Proposed Ethical
Rules and Opinion Standards for Tax Practitioners - Many promoters claim that
they can provide taxpayers with opinions that will protect against penalties even if a
tax shelter is successfully challenged by the IRS. In December 2003, the Treasury
Department and the IRS issued new proposed regulations that set out best
practices for tax practitioners and provide minimum standards for tax opinions used
to support tax shelters. Finalizing these rules is a high priority for the Treasury
Department and the IRS.
The IRS Has Established Coordinated, Transaction-Specific Task Forces
to Address Identified Tax Shelters - Beginning in 2002, the IRS began using
transaction-specific task forces to coordinate activities to shut down tax shelters.
These task forces consist of attorneys from the IRS Operating Divisions, the IRS
Office of Chief Counsel, the IRS' Office of Tax Shelter Analysis (OTSA), and the
Treasury Department. These task forces allow the IRS to quickly develop and
coordinate the legal response to a tax shelter.
The IRS Has Expanded Its Partnership with States to Combat Tax
Shelters - In 2003, the IRS entered into a nationwide partnership agreement with
tax authorities in 40 states and the District of Columbia to share data and
coordinate examination efforts to combat tax shelters. This agreement recently was
expanded to now cover 45 states, the District of Columbia and New York City, and
the IRS has started sharing leads on more than 20,000 taxpayers.
The IRS Has Initiated Over 130 Promoter Audits - Since the beginning of
2001, the IRS has initiated over 130 promoter audits, including audits of accounting
firms,' law firms, insurance companies, brokerage companies, banks, and other
boutique and mid-size promoters. These promoter audits will help ensure
compliance with the promoter disclosure rules and will examine whether promoter
penalties should be asserted against particular promoters.
The IRS Has Served Over 350 Administrative Summonses on Tax Shelter
r
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Promoters - Since the beginning of 2002, the IRS has served over 350
administrative summonses to tax shelter promoters and has referred over 120
summonses to the Department of Justice for enforcement. The Department of
Justice has commenced enforcement actions in court with respect to 67 of these
summonses. Administrative summonses have been, and will continue to be, an
important source of information for the IRS regarding promoter activities and
compliance.
The IRS Has Sought Court Permission to Serve John Doe Summonses
in Five Promoter Cases - Since the beginning of 2002, the IRS has sought, as
required by statute, court permission to serve "John Doe" summonses in 5 promoter
cases. John Doe summonses are an important tool for identifying taxpayers who
may have entered into potential tax shelters.
The IRS Has Encouraged Voluntary Disclosure - In December 2001, the
IRS began a disclosure initiative (Announcement 2002-2) to give taxpayers an
incentive to disclose questionable transactions and other items that m a y have
resulted in an underpayment of tax. In order to obtain penalty relief under the
initiative, a taxpayer was required to disclose all relevant information about the
transaction, including the identity of any promoter. The IRS has been using the
information from the 1,689 disclosures received to identify new promoters and
potential tax shelters for investigation and appropriate enforcement action.
The IRS Is Using a Mandatory IDR to Identify Listed Transactions for
LMSB Cases - Since April 2002, the IRS' Large and Midsize Business Division
(LMSB) has been using a uniform information document request (IDR) in all of its
audits. This mandatory IDR requests information regarding all "listed" transactions
(i.e.,. specifically identified in published guidance as a tax avoidance transaction)
reported by the taxpayer on its returns. The mandatory IDR will ensure that all
LMSB taxpayers under audit disclose listed transactions.
The IRS Has Developed Mandatory Penalty Guidelines for Listed
Transactions - The IRS issued penalty guidelines in December 2001 requiring the
development of accuracy-related penalties for listed transactions. These guidelines
will help ensure that appropriate penalties are applied with respect to listed
transactions.
The IRS Has Conducted Three Settlement Initiatives - In November 2002,
the IRS announced three settlement initiatives to resolve, on a basis that is fair,
cases involving three widely-marketed tax shelters: the Section 302/318 "basis
shift" transaction, the Section 351 contingent liability transaction, and the highlyleveraged corporate-owned life insurance (COLI) transaction. These initiatives
have allowed the IRS to resolve a significant number of cases on a basis that is fair
to the government and taxpayers. These initiatives permit the IRS to focus its
resources on other tax shelters.
The IRS Has Revised Its Tax Accrual Workpaper Policy to Request
These Documents From Taxpayers Who Engage in Listed Transactions - Tax
accrual workpapers normally are prepared by taxpayers and their independent
auditors to evaluate the taxpayer's tax reserves for financial accounting purposes.
Starting in 2002, the IRS changed its policy so that it now may request these
workpapers from taxpayers who have engaged in listed transactions. This change
in policy is a significant disincentive for taxpayers considering entering into a listed
transaction.
The IRS Has Entered into an Agreement with a Major Professional Firm
to Ensure Compliance with the Disclosure Rules - As a result of the IRS' audits
of promoters of technical tax shelters, one large professional firm has agreed to
work with the IRS to ensure ongoing compliance with the registration and list
maintenance provisions of the Internal Revenue Code and regulations. The IRS'
agreement with this firm will ensure the highest standards of practice and future
compliance with the law and regulations. The IRS expects to use this agreement
as a model for agreements with other practitioners.
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The Administration Has Increased Disclosure Of Abusive Tax Shelters
Taxpayers will be far less willing to engage in tax shelters if they believe that their
transactions will be identified and that they will have to defend their transactions to
the IRS and in the courts. The early disclosure of tax shelters also will allow the
Treasury Department and the IRS to respond to abusive transactions before they
spread throughout the market. Over the past two years the Administration has
significantly overhauled rules requiring disclosure of abusive transactions by
taxpayers and promoters. In addition, the Administration has proposed statutory
changes that will further expand and strengthen the disclosure system. The
Treasury Department originally announced these proposed statutory changes in
March 2002, and the Administration remains committed to working with Congress to
ensure that these important proposals are enacted into law.
Expanded and Simplified the Taxpayer Return Disclosure Regulations Temporary regulations issued in February 2000 required the disclosure of
potentially questionable transactions. These rules, however, were limited to
corporate taxpayers and were complex and subjective. The Treasury Department
and the IRS finalized new disclosure regulations in February 2003 to increase
disclosure and make the regulations easier to apply and administer. These new
regulations contain straightforward, objective rules with no subjective exceptions.
They apply to all taxpayers, including individuals, trusts, and partnerships.
Expanded and Simplified the Promoter List-Maintenance Regulations Temporary regulations issued in February 2000 required promoters to maintain lists
of taxpayers w h o participated in potentially questionable transactions. These rules
were complex and subjective. The Treasury Department and the IRS finalized new
list-maintenance regulations in February 2003 to broaden the list-maintenance
requirements. These new regulations contain straightforward, objective rules that
work with the new disclosure regulations to give the IRS multiple sources of
information on a potential tax shelter. Coordinated rules for taxpayers and
promoters will end the "conspiracy of silence" that made it more difficult for the IRS
to identify and take action against tax shelters.
Issued Final Regulations for Promoter Registration of Certain Tax
Shelters - Temporary regulations issued in February 2000 required promoters to
register certain tax shelters with the IRS. The Treasury Department and the IRS
finalized the registration regulations in February 2003. When the Administration's
proposal to amend the underlying statute is enacted into law, the Treasury
Department and the IRS will issue new registration regulations to fully coordinate
the three sets of disclosure rules: taxpayer return disclosure, promoter registration,
and promoter list-maintenance.
Issued Final Penalty Regulations to Address Taxpayers Who Fail to
Disclose Potential Tax Shelters - In the absence of a specific penalty for the
failure to disclosure a transaction on a return, s o m e taxpayers were choosing to not
disclose the transaction and to rely on an opinion to avoid any penalties if the
transaction is successfully challenged by the IRS. In December 2003, the Treasury
Department and the IRS issued final penalty regulations limiting the penalty
defenses for taxpayers who fail to disclose potential tax shelters or positions based
on advice that a regulation is invalid.
Proposed a New Schedule M-3 to Prioritize Book-Tax Differences - The
Schedule M-1 that is part of the corporate income tax return requires taxpayers to
identify differences between their taxable income and their financial, or book,
income. The rules for disclosing these book-tax differences are unclear. The
Treasury Department and the IRS recently proposed a new corporate income tax
form and accompanying instructions to make book-tax differences more
transparent. The new Schedule M-3 will allow the IRS to more quickly identify
differences that may have resulted from an aggressive tax position or a potential tax
shelter. Better disclosure of book-tax differences will allow the IRS to focus its
resources more efficiently on potentially significant, emerging issues.
Proposed Legislation to Fully Coordinate the Disclosure Rules Disclosure works best when the IRS has multiple sources of information about a tax
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shelter that form a complete w e b of disclosure. Existing statutes do not permit
uniform and consistent rules. The Administration's FY 2005 Budget again proposes
to change the promoter registration and list-maintenance statutes to permit uniform
and consistent taxpayer and promoter disclosure rules.
Proposed Legislation to Impose Meaningful Penalties on Taxpayers who
Fail to Disclose - A taxpayer currently faces no penalty for the failure to disclose a
potentially abusive transaction on a return. Only Congress m a y provide for a
nondisclosure penalty. The Administration's FY 2005 Budget again proposes
penalties of up to $200,000 for taxpayers who fail to disclose potential tax shelters.
In addition, public companies would be required to disclose in their SEC filings any
penalties for failing to disclose a transaction that the Treasury Department and the
IRS have identified as a "tax avoidance" (or "listed") transaction.
Proposed Legislation to Increase Penalties on Promoters who Fail to
Register a Transaction - The Administration's FY 2005 Budget again proposes to
increase the existing penalties for a promoter's failure to register a transaction with
the IRS. Along with the Administration's proposal to broaden the reach of the
promoter registration statute, this proposal will impose meaningful penalties on
promoters who fail to register a potential tax shelter.
Proposed Legislation to Increase Penalties on Promoters who Fail to
Maintain Lists of Taxpayers who Have Engaged in Potential Tax Shelters Existing penalties on promoters w h o fail to maintain lists of participating taxpayers
are insufficient. The Administration's FY 2005 Budget again proposes significant
penalties of $10,000 per day on promoters for the failure to provide the IRS with
lists of taxpayers who have engaged in potential tax shelters.
The Administration Is Using Its Regulatory Authority To Shut Down Abusive
Tax Shelters
The Treasury Department and the IRS have used the authority under section 6011
to identify in published guidance (or "list") specific "tax avoidance" transactions.
The recently revised disclosure and list-maintenance rules impose stringent
disclosure requirements on taxpayers and promoters for listed transactions. These
listing notices also m a k e clear to taxpayers and promoters that the Treasury
Department and the IRS are aware of these abusive transactions and that the IRS
is committed to taking appropriate enforcement action against participating
taxpayers and promoters. Listing notices have been one of the most effective
actions taken over the past three years to stop tax shelters. Over the past three
years, the Administration has listed the following transactions:
Abusive Partnership Intercompany Financing Arrangements - These
arrangements involve a corporation's use of a partnership to obtain inappropriate
interest deductions for payments to related entities. The Treasury Department and
the IRS issued Notice 2004-31 to shut down these abusive arrangements.
Abusive S Corporation Income Shifting Arrangements - These
arrangements are structured to eliminate tax on S corporation shareholders by
inappropriately shifting income to a tax-exempt organization through the use of
nonvoting stock. The Treasury Department and the IRS issued Notice 2004-30 to
shut down these abusive arrangements. The Treasury Department and the IRS
also, for the first time, designated any tax-exempt party to these arrangements as a
"participant" in a tax avoidance transaction under the tax shelter regulations and will
require the disclosure of the names of tax-exempt parties facilitating these
arrangements.
Abusive Foreign Tax Credit Transactions - These transactions involve a
domestic corporation's transitory ownership of a foreign target corporation when,
pursuant to a prearranged plan, the domestic corporation acquires the stock of the
target corporation and then all or substantially all of the target corporation's assets
are sold in a transaction that gives rise to foreign tax without a corresponding
inclusion of income for U.S. tax purposes. The Treasury Department and the IRS
issued Notice 2004-20 to shut down these transactions. The Treasury Department
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and the IRS at the same time also issued Notice 2004-19, which details the
legislative and regulatory approaches that the Treasury Department and the IRS
are using to address other abusive foreign tax credit transactions.
Abusive Excess Life Insurance in Defined Benefit Pension Plans - These
arrangements involve specially designed life insurance policies intended primarily to
benefit highly-compensated employees through a retirement plan. The Treasury
Department and the IRS issued Rev. Rul. 2004-20 to shut down abusive excess life
insurance arrangements.
Abusive S Corporation ESOP Arrangements - These arrangements are
intended to assist companies in avoiding tax rules designed to protect rank-and file
participants in employee stock ownership plans ("ESOPs"). The Treasury
Department and the IRS issued Rev. Rul. 2003-6 and Rev. Rul. 2004-4 to stop
these abuses and protect rank-and-file participants in S corporation ESOPs.
Abusive Roth IRA Transactions - These arrangements involve the
contribution of property to an IRA through a transaction that disguises the value of
the contribution to circumvent Roth IRA contribution limits. The Treasury
Department and the IRS issued Notice 2004-8 to stop abusive structures designed
to avoid the contribution limits that apply to Roth IRAs.
Abusive Offsetting Foreign Currency Option Contract Transactions These transactions involve two pairs of offsetting foreign currency options. T w o of
the offsetting options are assigned to a charity, and the taxpayer claims an
immediate loss on one option without recognizing the offsetting gain on the other.
The Treasury Department and the IRS issued Notice 2003-81 to shut down these
transactions.
Abusive Contested Liability Transactions - These transactions involve the
purported establishment of trusts to accelerate deductions for liabilities that a
taxpayer is contesting under section 461(f). The trusts, however, do not comply
with the requirements of that section because the taxpayer either retains control
over the trust assets or transferred its own stock or the stock or note of a related
party. The Treasury Department and the IRS issued Notice 2003-77 to prevent the
use of trusts to accelerate deductions.
Abusive Stripping Transactions - These transactions improperly separate
income from related deductions. S o m e of these transactions, for example, are
structured to have a tax-indifferent party realize the taxable income while the
taxpayer claims deductions related to that income, such as depreciation or rental
expenses. The Treasury Department and the IRS issued Notice 2003-55 to shut
down these transactions.
Abusive Option Sales to Family Limited Partnerships - These
arrangements involve the purported sale of compensatory stock options to a limited
partnership owned by the taxpayer's family members to avoid income and
employment taxes on the exercise of the options. The Treasury Department and
the IRS issued Notice 2003-47 to shut down these transactions.
Abusive Welfare Benefit Funds - These transactions are designed to avoid
the applicable deduction limits on contributions to welfare benefit funds. Taxpayers
claim that the benefits are being provided under a collective bargaining agreement.
The Treasury Department and the IRS issued Notice 2003-24 stop these abuses
and further addressed these transactions in final regulations issued July 2003.
Abusive Offshore Deferred Compensation Arrangements - These
transactions are designed to avoid income and employment taxes by utilizing a
purported lease of the right to a taxpayer's services in the United States through a
foreign leasing company. The proceeds of the leasing arrangement are transferred
to an offshore trust maintained on behalf of the taxpayer. The Treasury Department
and the IRS issued Notice 2003-22 to shut down these abusive offshore employee
leasing arrangements.
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Abusive Producer Owned Reinsurance Company
("PORC")
Arrangements - These insurance arrangements involve a foreign corporation
established to reinsure the policies sold by a taxpayer in connection with the sale of
products or services. The taxpayers utilize various exemptions of income for
insurance companies to divert portions of the premiums paid to the P O R C and pay
little or no tax on the diverted funds. The Treasury Department and the IRS issued
Notice 2002-70 to shut down these arrangements.
Abusive Lease-In/Lease-Out ("LILO") Transactions - LILOs involve a
lease of property from a tax-indifferent party (e.g., a foreign party or a tax-exempt
party), and a simultaneous lease of the s a m e property back to the tax-indifferent
party to generate substantial deductions of the lease payments. The Treasury
Department and IRS issued Rev. Rul. 2002-69 to supersede earlier guidance
issued to shut down these transactions.
Abusive Partnership Straddle Tax ("Eliminator") Transactions - These
transactions involve the use of a straddle, a tiered partnership structure, a transitory
partner, and the partnership allocation rules to generate purported permanent noneconomic tax losses for the taxpayer. The Treasury Department and the IRS issued
Notice 2002-50 to shut down these transactions.
Abusive Passthrough Entity Straddle Transactions - These transactions
involve the use of a straddle, one or more transitory S corporation shareholders,
and the rules of subchapter S to allow a taxpayer to claim an immediate loss while
deferring an offsetting gain. The Treasury Department and the IRS issued Notice
2002-65 to shut down these transactions.
Abusive Common Trust Fund Straddle Transactions - These transactions
involve the use of a c o m m o n trust fund that invests in economically offsetting gain
and loss positions in foreign currencies and allocates the gain to one or more taxindifferent parties and the losses to the taxpayer. The Treasury Department and
the IRS issued Notice 2003-54 to shut down these transactions.
Abusive 401(k) Accelerated Deductions - These transactions involve
claims by employers of accelerated deductions for contributions to retirement plans
on compensation expected to be earned by participants in future years. The
Treasury Department and the IRS issued Rev. Rul. 2002-46 to expand earlier
guidance identifying these listed transactions.
Abusive Notional Principal Contracts or Contingent Swaps - These
transactions involve the use of a notional principal contract to claim current
deductions for periodic payments m a d e by a taxpayer while disregarding the
accrual of a right to receive offsetting payments in the future. The Treasury
Department and the IRS issued Notice 2002-35 to stop these abuses.
Abusive Inflated Basis ("CARDS") Transactions - These transactions
involve the use of a loan assumption agreement to claim an inflated basis in
assets. The assets are sold for fair market value and the taxpayer claims a
significant loss, arguing that the entire principal amount of the loan is included in
taxpayer's basis. The Treasury Department and the IRS issued Notice 2002-21 to
shut down these transactions.
Abusive Section 302/318 "Basis Shift" Transactions - These transactions
involve an abuse of the attribution rules to increase the basis of the stock held by
the taxpayer through a redemption of stock held by a tax-indifferent party (typically,
a foreign entity). The taxpayer claims a loss on the sale of its stock based on its
position that the basis of the redeemed stock is added to the basis of stock the
taxpayer sold. The Treasury Department and the IRS issued Notice 2001-45 to
shut down these transactions.
Promoters of tax shelters often attempt to take advantage of highly technical tax
rules to obtain tax benefits not intended by Congress. The Administration is using
its regulatory authority whenever appropriate to stop abusive transactions and
eliminate potential opportunities for abuse. Administrative actions taken over the
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past three years include:
Issued Final Regulations to Stop Abusive Split-Dollar Life Insurance
Arrangements - "Split-dollar life insurance arrangements" have been used to
provide some corporate executives with tax-free compensation and to make taxfree gifts among family members. In September 2003, the Treasury Department
and the IRS issued final regulations that shut down the use of these arrangements.
Issued Notice to Stop Abusive "Reverse Split-Dollar Life Insurance
Arrangements"- "Reverse split-dollar life insurance arrangements" were being
marketed as a means to avoid gift and estate taxes on wealth transfers to family
members. The Treasury Department and the IRS issued Notice 2002-59 to shut
down these arrangements.
Issued Final Regulations to Stop Abusive Hedged Deferred
Compensation Liability Arrangements - These transactions were being used to
claim favorable hedging income tax treatment with regard to certain deferred
compensation arrangements. In March 2002, the Treasury Department and the
IRS issued final regulations to prevent these claimed tax benefits.
Issued Revenue Rulings to Stop "Double-dip" Health Benefit Deduction
Schemes - Promoters had been marketing schemes that purport to exclude health
insurance premiums from an employee's income twice - i.e., once when paid by a
reduction in salary and a second time when the amount of the salary reduction was
reimbursed. The Treasury Department and the IRS issued Rev. Rul. 2002-3 and
Rev. Rul. 2002-80 to shut down these arrangements, which often were not
disclosed to the employees.
Issued Final Regulations to Stop Abusive Deferred Compensation
Schemes for Nonprofit Executives - S o m e nonprofit organizations offered
steeply discounted "options" to executives to purchase mutual funds. These
arrangements effectively gave the executives cash compensation that could be
claimed at any time, even though the compensation was purported to be not
taxable until claimed. In July 2003, the Treasury and IRS issued final regulations
that made these options and similar arrangements currently taxable.
Issued Revenue Ruling to Stop Potential Abuses Involving Donations of
Patents - S o m e taxpayers had claimed deductions for contributions of patents that
far exceed the actual value of the patent to the recipient public charity. The
Treasury Department and the IRS issued Rev. Rul. 2003-28 to clarify that certain
transfers of rights in a patent do not give rise to a charitable contribution deduction.
The Administration's FY 2005 Budget also proposes to limit further a taxpayer's
ability to claim a deduction for the contribution of a patent or other intellectual
property.
Issued Revenue Ruling on Purported Insurance Companies Used to
Reduce Tax on Investment Income - S o m e taxpayers had created purported
insurance companies in foreign jurisdictions to shield investment income from U.S.
tax. The Treasury Department and the IRS issued Rev. Rul. 2003-34 to notify
taxpayers that the IRS will challenge certain off-shore insurance company
arrangements used to reduce tax on investment income. The Administration's FY
2005 Budget proposes to curtail the abuse of these insurance company
arrangements.
Issued Temporary Regulations to Stop "Son of BOSS" Transactions Notice 2000-44 identified the so-called "Son of B O S S " transaction as a listed
transaction. S o m e promoters continued to market this tax shelter, and s o m e
taxpayers were still entering into these transactions. In June 2003, the Treasury
Department and the IRS issued temporary regulations under section 358(h) to stop
these "Son of BOSS" transactions.
Issued Revenue Ruling to Stop Tax Shelters Involving Variable Life
Insurance and Annuity Contracts - S o m e taxpayers had entered into variable life
insurance or annuity contract arrangements to avoid current tax on income and gain
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from the underlying assets even though the taxpayers retained effective ownership
over these assets. The Treasury Department and the IRS issued Rev. Rul. 200392 to stop these arrangements.
Issued Notice to Stop the Use of Stapled Stock Structures to Artificially
Increase Foreign Tax Credits - Congress enacted section 269B in 1984 to
address the potential for tax avoidance in certain structured transactions involving
stock of two corporations (one foreign and one domestic) that cannot be transferred
separately due to contractual restrictions. Since then, however, taxpayers had
sought to use the rules of section 269B to their advantage by creating stapled stock
structures to artificially increase their foreign tax credits by manipulating the
allocation and apportionment of expenses such as interest. The Treasury
Department and the IRS issued Notice 2003-50 to halt these transactions by
announcing an immediately effective, targeted change to the rules of section 269B,
and by reminding taxpayers of the potential applicability of existing principles of law,
such as the substance-over-form doctrine, to these transactions.
Proposed New Information Reporting Requirements on U.S. Persons
that Own Certain Foreign Entities - The Treasury Department and the IRS
issued Announcement 2004-4 to propose new Form 8858. This form will require
information reporting by U.S. persons that own foreign disregarded entities. This
information reporting requirement will provide a means for the IRS to identify
potential compliance issues efficiently in an area in which there currently is
inadequate information reporting and will allow the IRS to better focus its audit
resources.
Issued Temporary Regulations to Require Information Reporting to
Shareholders on Corporate Inversion Transactions - Corporate inversion
transactions generally result in the shareholders of the inverting company
recognizing gain on their stock as a result of the transaction. The Treasury
Department and the IRS issued regulations in 2002 that require inverting
corporations to provide information reporting on these transactions to ensure that
the shareholders accurately report the gain recognized as a result of an inversion.
Issued Final Regulations to Eliminate Inappropriate Benefits from
Domestic Reverse Hybrids - The Treasury Department and the IRS issued final
regulations in 2002 to eliminate the benefits of a structure involving a hybrid entity
established in the United States that makes payments to a parent company
established in a country with w h o m the U.S. has a tax treaty that w a s designed to
give rise to a deduction in the United States and exemption from tax in both the
United States and the treaty country.
Issued Regulations to Clarify the Treatment of Stock-Based
Compensation in Cost Sharing Arrangements - The Treasury Department and
the IRS issued regulations in 2003 on the tax treatment of stock-based
compensation under the related party transfer pricing rules governing qualified cost
sharing arrangements. These regulations are aimed at ensuring that the rules
governing qualified cost sharing arrangements for the joint development of
intangible assets cannot be used to facilitate the migration of intangibles outside the
United States for less than arm's length compensation.
The Administration's Legislative Proposals Will Shut Down Specific Abusive
Tax Shelters
The Administration's FY 2005 Budget builds on earlier Administration legislative
proposals to strengthen the disclosure rules and on the information gathered
through IRS compliance programs. The new legislative proposals close loopholes
and target identified tax shelters and abusive practices. As other abusive
transactions are identified, the IRS will challenge the transactions in audits, and the
Treasury Department and the IRS will work with Congress to enact any legislation
necessary to address the transactions.
Proposed Legislation to Stop Abusive Leasing Transactions with TaxIndifferent Parties - Taxpayers increasingly have used purported leasing
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transactions, often referred to as SILO transactions, to "acquire" significant tax
benefits from a tax-indifferent party, such as a municipal transit authority or foreign
government, in exchange for a modest fee. These transactions do not involve any
useful economic activity, such as the acquisition or financing of business assets.
The Administration's FY 2005 Budget proposes to sharply limit the tax benefits that
a taxpayer can claim in these transactions.
Proposed Legislation to Eliminate Abusive Transactions Involving
Foreign Tax Credits - Current law provides taxpayers with a credit for certain
foreign taxes in order to eliminate the double taxation of foreign income (i.e.,
taxation by both the United States and the country where the income is earned).
Taxpayers have structured transactions in an attempt to use foreign tax credits not
to eliminate double taxation, but inappropriately to reduce their U.S. tax liability on
unrelated foreign income. The Administration's FY 2005 Budget proposes to deny
foreign tax credits for foreign withholding taxes imposed on income if the underlying
property generating the income was not held for a specified minimum period of
time. In addition, the Administration's proposals would provide the Treasury
Department with regulatory authority to prevent transactions that inappropriately
separate foreign taxes from the related foreign income to take advantage of the
foreign tax credit rules where there is no real risk of double taxation.
Proposed Legislation to Stop Abusive Income-Separation Transactions
- S o m e taxpayers continue to engage in transactions that separate the periodic
income steam from an underlying income-producing asset in order to generate an
immediate tax loss for one taxpayer and the conversion of current taxable income
into deferred capital gain for another. Although the Tax Code prohibits these
transactions for bonds and preferred stock, taxpayers have been engaging in
essentially identical transactions using similar assets, such as shares in a moneymarket mutual fund. The Administration's FY 2005 Budget again proposes to treat
an income-separation transaction as a secured borrowing, not a separation of
ownership. Debt characterization will ensure that the tax treatment of the
transaction clearly reflects income.
Proposed Legislation to Prevent the Misuse of Tax-Exempt Casualty
Insurance Companies - Certain small casualty insurance companies are not
subject to federal income tax. S o m e taxpayers are abusing this rule by creating
insurance companies, claiming tax-exempt status, and improperly accumulating
investment income tax-free. The Administration's FY 2005 Budget proposes to
prevent taxpayers from using this targeted exemption to inappropriately avoid tax
on investment income.
Proposed Legislation to Tighten the Deduction Limitation for Interest
Paid to Related Parties - Current law denies a deduction for certain interest paid
by a corporation to a related party to the extent the corporation's net interest
expenses exceed 50 percent of its taxable income (computed with certain
adjustments). This limitation only applies if the corporation's debt-equity ratio
exceeds 1.5 to 1.0. In order to address the opportunities available under current
law to inappropriately reduce taxes on U.S. operations through the use of foreign
related party debt, the Administration's FY 2005 Budget proposes to tighten the
limitation for related party interest expense.
Proposed Legislation to Prevent Avoidance of U.S. Tax on Foreign
Earnings Invested in U.S. Property - Under current law, U.S. shareholders of a
controlled foreign corporation must include in income their pro rata share of
earnings of the corporation that are invested in certain U.S. property. Deposits with
banks are excluded from the definition of U.S. property subject to this rule,
however, so that taxpayers operating through foreign subsidiaries are not
discouraged from using the U.S. banking system. This exception has been
interpreted in a manner inconsistent with the underlying policy. For example,
certificates of deposit have been issued by a U.S. affiliate in a transaction
structured to take advantage of the bank exception. Under the proposal contained
in the Administration's FY 2005 Budget, the exception for deposits with persons
carrying on the banking business would be modified to eliminate this potential for
abuse.
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Proposed Legislation to Modify Tax Rules for Individuals Who Give Up
U.S. Citizenship or Green Card Status - If an individual gives up U.S. citizenship,
or terminates long-term U.S. residency, with a principal purpose of avoiding U.S.
tax, the individual is subject to an alternative tax regime for 10 years. The
Administration's FY 2005 Budget proposes changes designed to improve
compliance with the expatriation rules.
Proposed Legislation to Stop Abuses by Requiring Charitable
Deductions to Reflect Accurately the Value of the Donation - S o m e taxpayers
are abusing the laws designed to support charities by claiming deductions for
contributions of certain property (e.g., patents, intellectual property, and motor
vehicles) that far exceed the value of the property donated. The Administration's
FY 2005 Budget proposes to impose additional appraisal requirements and, in the
case of patents and certain other intellectual property, limit the amount that can be
deducted to match the value of the donation.
Proposed Legislation to Stop Abuses of Section 529 College Savings
Plans - Section 529 college savings plans involve a number of issues that are not
clearly answered by current law. A s a result, these savings plans could be abused
to avoid transfer taxes. The Administration's FY 2005 Budget proposes to clarify
the rules to prevent abuse and to make the applicable rules more equitable. The
Administration's proposal would further encourage savings for college expenses
through these increasingly popular plans.
The Administration's Legislative Proposals Will Give the IRS Important Tools
and Enhance Its Ability T o C o m b a t Abusive Tax Shelters
The Administration's FY 2005 Budget contains a number of important legislative
proposals that will allow the IRS to deal more effectively with abusive tax shelters.
Many of these proposals are designed to end practices used by s o m e taxpayers
and promoters to impede or delay examination. Taxpayers w h o are willing to enter
into abusive transactions and promoters w h o are willing to recommend abusive
transactions should be willing to disclose these transactions and subject them to
IRS scrutiny.
Proposed Legislation to Permit Injunction Actions against Promoters S o m e promoters repeatedly disregard their legal obligations, including the
registration and list-maintenance requirements. The Administration's FY 2005
Budget again proposes to confirm the Government's authority to enjoin the most
egregious promoters of tax shelters, as it is doing currently with promoters of tax
scams directed primarily at individuals and small businesses.
Proposed Legislation to Impose a New Penalty for the Failure to Report
an Interest in a Foreign Financial Account- Individual taxpayers are required to
disclose on their tax returns interests in a foreign financial account, such as a bank
account. The Administration's FY 2005 Budget again proposes a new civil penalty
for the failure to disclose foreign financial accounts, which often are used in tax
avoidance transactions.
Proposed Legislation to Stop Taxpayers and Promoters from Using the
Federal Practitioner Privilege to Delay Disclosing Potential Tax Shelters S o m e practitioners and non-corporate taxpayers are claiming the statutory
practitioner-client privilege in order to delay the IRS' efforts to identify and examine
potential tax shelters. The Administration's FY 2005 Budget again proposes to
eliminate the privilege with respect to tax shelters and proposes to confirm that the
identity of any person that a promoter is required to identify to the IRS is not
privileged.
Proposed Legislation to Eliminate the Incentive for Taxpayers and
Promoters to Delay Disclosing Potential Tax Shelters - S o m e taxpayers and
practitioners are delaying the IRS' efforts to identify and examine potential tax
shelters in order to run out the statute of limitations. The Administration's FY 2005
Budget proposes to extend the statute of limitations for potential tax shelters that a
taxpayer fails to disclose until the transaction is disclosed to the IRS by either the
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taxpayer or the promoter. The IRS, with the assistance of the Department of
Justice, is challenging inappropriate claims of privilege in the courts where
necessary.
Proposed Legislation to Increase the Penalties for False or Fraudulent
Statements Made to Promote Abusive Tax Avoidance Transactions - Existing
penalties are insufficient to deter s o m e promoters from making false or fraudulent
statements regarding the claimed benefits of a potential tax shelters. The
Administration's FY 2005 Budget proposes to increase significantly the penalty for
making false or fraudulent statements to up to 50 percent of the fees earned.
The Administration's Legislative Proposals Will Enhance The IRS'
Effectiveness Without Compromising Taxpayer Protections
The Administration is committed to exploring ways in which the IRS can work more
effectively without compromising taxpayer protections. By working more effectively,
the IRS can devote more resources to a range of priorities, including abusive
transactions. Americans must be confident that the IRS is taking all appropriate
actions to ensure that all taxpayers are paying their fair share.
Proposed Legislation to Expand the Use of Electronic Filing - The IRS
has taken a number of steps to expand the availability and increase the use of
electronic filing, which reduces costs and speeds processing for both taxpayers and
the Government. The Administration's FY 2005 Budget again proposes to extend
the April 15 filing date to April 30 for returns that are filed electronically, provided
that any tax due also is paid electronically. This proposal would encourage more
taxpayers to file electronically and allow the IRS to process more returns and
payments efficiently.
Proposed Legislation to Permit Private Collection Agencies to Support
the IRS' Collection Efforts - The IRS' resource and collection priorities do not
permit the IRS to continually pursue all outstanding tax liabilities. Many taxpayers
are aware of their outstanding tax liabilities but have failed to pay them, and the IRS
cannot continuously pursue each taxpayer with an outstanding liability. The
Administration's FY 2005 Budget again proposes to allow private collection
agencies, or PC As, to support the IRS' collection efforts in specific, limited ways.
The proposal would enable the government to reach these taxpayers to obtain
payment while allowing the IRS to focus its own enforcement resources on more
complex cases and issues. PCAs would not have any enforcement power and
would be carefully monitored to ensure that taxpayer rights are carefully protected.
Proposed Legislation to Curb Frivolous Returns and Submissions S o m e taxpayers are abusing taxpayer protections, such as the collection due
process procedures, by making frivolous arguments to in order to delay or impede
tax administration. The Administration's FY 2005 Budget again proposes to
increase the penalty for frivolous returns and allow the penalty to be applied to
frivolous submissions that are not withdrawn after IRS request. The IRS would be
permitted to disregard non-return frivolous submissions that are not withdrawn.
Proposed Legislation to Terminate Installment Agreements if Taxpayers
Fail to File Returns or Make Tax Deposits - The IRS cannot terminate an
installment agreement even if a taxpayer fails to file required returns or fails to
m a k e required federal tax deposits. The Administration's FY 2005 Budget again
proposes to permit the IRS to terminate an installment agreement in these
situations.
Proposed Legislation to Streamline the Handling of Collection Due
Process Cases - The rules regarding the proper court to review a collection due
process case are unnecessarily complicated and have been used by s o m e
taxpayers to delay tax administration. The Administration's FY 2005 Budget again
proposes to consolidate jurisdiction over collection due process cases in the Tax
Court.
Proposed Legislation to Improve Procedures for Taxpayers Seeking to
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Resolve Their Tax Liabilities - The IRS must be able to work quickly with
taxpayers w h o are seeking to resolve their tax liabilities in good faith. The
Administration's FY 2005 Budget again proposes to permit the IRS to enter into
installment agreements that do not guarantee full payment of a liability over the life
of the agreement. This will permit the IRS to work with a broader range of taxpayers
who desire to resolve their tax liabilities. The Administration's FY 2005 Budget also
again proposes to expedite the review process for accepted offers-in-compromise.
The Administration Is Reining In International Tax Abuses
International tax abuses are particularly difficult to address, and the Administration
is using all available tools to curtail abusive transactions and practices in this area.
Significantly Expanded Network of Bilateral Tax Information Exchange
Relationships - In the last two years, the United States has negotiated and
concluded important n e w tax information exchange agreements with nine significant
offshore financial centers, including The Bahamas, the British Virgin Islands, and
the C a y m a n Islands. Each of these agreements reflects the international standards
for tax information exchange that the United States has been a leader in
establishing, and in each case the agreement is the first such agreement entered
into by the offshore financial center with any country.
Prevented Tax Avoidance on Lump Sum Pension Distributions - The
new 2003 income tax treaty with the United Kingdom eliminated an abuse under
which a person would establish transitory residence in the United Kingdom prior to
receiving from a U.S. pension fund a lump sum distribution that otherwise would be
taxable in the United States in order to claim tax exemption on the distribution in
both the United States and the United Kingdom.
Department of Justice And IRS Efforts to Identify, Investigate and Punish Tax
Cheats
The Department of Justice, working closely with the IRS, has stepped up efforts to
identify, investigate and punish tax cheats. Of particular note are the Government's
efforts to enhance criminal enforcement, use civil injunctions to stop abusive tax
schemes, and investigate promoters and users of tax shelters.
Criminal Prosecutions of Tax Violations
The Justice Department's Tax Division referred 1,129 defendants to U.S. Attorneys
for criminal tax prosecution in 2003, an increase of 35 percent over the year 2000.
Criminal tax charges were filed in 2003 against 1,036 defendants investigated by
the IRS Criminal Investigation Division. The Tax Division's criminal enforcement
priorities include investigating and prosecuting schemes that involve:
Using bogus trusts to conceal control over income and assets
Shifting assets and income to hidden offshore accounts
Claiming fictitious deductions
Using frivolous justifications for not filing truthful tax returns
Failing to withhold, report and pay payroll and income taxes
Failing to report income
Failing to file tax returns
Civil Injunctions against the Promotion of Illegal Tax Schemes
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The Tax Division also is using its civil power to stop illegal tax schemes by seeking
and obtaining injunctions in federal court. Injunctions prohibit promoters from
selling illegal tax schemes on the internet, at seminars or through other means. In
2003, the government filed lawsuits to shut down 35 promoters of abusive tax
schemes, and federal judges enjoined 28 promoters. In 2000, no such lawsuits
were filed. Injunction cases include the following schemes:
Using an employee-leasing company to evade employment taxes
Using a "warehouse bank" to commingle and conceal assets
Establishing a "corporation sole" whereby customers "donate" assets and
income to a sham corporation, then fraudulently claim charitable donations
Using abusive trusts to shift assets out of a taxpayer's name but retain control
Claiming personal housing and living expenses as business expenses
Claiming non-existent tax credits, such as reparations
Failing to withhold, report and pay payroll and income taxes
Filing tax returns reporting "zero income"
Claiming that only income from foreign sources is taxable
The Department of Justice also has obtained injunctions against employers who fail
to withhold, account for and pay over employment and withholding taxes. O n e
federal court recently ordered the imprisonment of an employer for failing to comply
with the court's order.
Enforcement of Summonses for Records of Tax Shelter Promoters
The Department also enforced IRS summonses to promoters of alleged tax shelters
for information about the shelters, including the identities of their clients.
Examples of Completed Criminal Prosecutions
The following are a few of the tax criminals who were sentenced in the past year:
Bradford G. Brown, an Athens, Georgia physician, was sentenced to serve 41
months in prison and ordered to pay a $40,000 fine. At trial, the evidence proved
that Dr. Brown had failed to report more than $1.5 million in income, which monies
he used to purchase a luxury car, a radio station, real estate and other personal
assets.
William Bernard Oertwig, Jr., a former Miami-Dade Police Department police
officer, w a s sentenced to 41 months in prison after his conviction on six counts of
tax evasion for reporting no taxable income from 1996 through 2001. Oertwig w a s
taken into custody immediately after the jury returned its verdict.
Thomas G. Shopped, a North Dakota attorney, was sentenced to serve 24
months in prison. H e had evaded more than $500,000 in taxes over a 15-year
period, by paying himself in cash and using credit cards in the n a m e of another
person to purchase luxury items.
Theodore McAnlis, a Florida golf course designer, was sentenced to serve
more than 10 years in prison, followed by three years of supervised release and
ordered to pay $17,000 in costs of prosecution. H e had not filed income tax returns
since 1977 and, during that 25 year period, had evaded more than $5,000,000 in
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income taxes, interest and penalties.
Allen Estes, an Indiana accountant, was sentenced to serve three years in
prison. H e had prepared numerous false income tax returns reporting fictitious
business losses to offset income and illegally reduce taxes.
Ralph N. Whistler, a former Arizona CPA, was sentenced to serve 39 months
in prison for aiding in the preparation of false income tax returns. Whistler directed
his clients to transfer their income through bank accounts titled in the n a m e s of
trusts, then prepared false tax returns for the clients.
Edward J. Lashlee, a California promoter of tax fraud schemes, was
sentenced to serve 3 years in prison. H e had created thousands of abusive trusts
for clients to help them hide a large part of their income and their ownership of
major assets. H e also provided clients with offshore bank accounts and Visa debit
cards issued by Swiss American National Bank of Antigua to further help his clients
hide their assets offshore.
Paul E. Palmer, an Illinois promoter of tax fraud schemes, was sentenced to 9
years in prison and a $150,000 fine, and ordered to pay restitution to the IRS
totaling $1,369,662. Mr. Palmer had promoted and sold bogus trust packages and
moved funds between the purchaser's business bank accounts and the trust
accounts to hide the purchaser's income and assets.
Mark May, an Ohio financial planner, was sentenced to six years in prison and
ordered to pay $728,090 in restitution to the IRS. H e had evaded his income taxes
and failed to pay employment taxes in his business. H e also had closed his
business repeatedly, reopened it under n e w names and used nominees to thwart
tax collection efforts by the IRS.
Jeffrey A. Sherman, a Beverly Hills tax lawyer who helped clients evade the
payment of more than $12 million in income taxes, w a s sentenced to serve 32
months in prison and pay $598,381 restitution for conspiring to commit bankruptcy
fraud and aiding and abetting tax evasion. The charges arose from Sherman's
participation in a scheme in which he and another lawyer helped clients discharge
the taxes they owed to the IRS and the state of California in fraudulent bankruptcies
by concealing their wealth through nominee companies and numerous bank
accounts in the C a y m a n Islands and Switzerland.
Ken Appel, owner of a college bookstore in California, was sentenced to serve
12 months and one day in custody for.willfully filing a false income tax return. Appel
admitted that he skimmed cash from the business for personal use and understated
his income from 1996 through 2000, resulting in an underpayment of more than
$324,000 in federal income taxes.
Dr. Jon C. Pensyl, a former Worthington, Ohio dentist, was sentenced to
serve 30 months in prison and pay $300,000 in restitution to the IRS for his
conviction on three counts of tax evasion. Evidence introduced at trial showed from
1995 through 1997, Dr. Pensyl evaded taxation on more than $750,000 in income
derived from his dental practice, rental properties and other investments by
concealing his assets and income through the use of trusts and by failing to file tax
returns.
Examples of Civil Injunction Cases
Recent civil injunction cases include the following:
Eduardo Rivera, a California lawyer, was permanently barred by a federal
court from promoting several allegedly abusive tax schemes. The court also
ordered Rivera to tell the government the names of his customers and to notify the
customers about the court order. The court found that Rivera sold "opinion letters"
containing frivolous arguments, including "that the federal income tax is voluntary,
that Americans employed in the private sector are exempt from federal income tax
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and do not need to file federal returns, and that the IRS has no authority to assess
or collect taxes."
Randall Jarvis, of Missouri, was barred from organizing or selling allegedly
abusive tax schemes, making false statements, and instructing taxpayers to
understate their federal income tax liabilities. The court ordered Jarvis to give a
copy of the order to each of his customers and to provide the government with a list
of those customers. The court found that Jarvis had set up sham trusts and limited
liability companies for his clients and then instructed the clients to use the entities to
conceal income and assets from the IRS. The IRS identified about 250 clients,
against w h o m it has assessed more than $2 million in back taxes. The court
ordered that Jarvis be imprisoned for failing to obey the injunction order.
Roderick Prescott and his business, Trust Educational Services, of California,
were barred from allegedly selling trust schemes falsely claiming that personal
expenses incurred by customers can be paid through a trust in order to obtain tax
benefits not available to individuals. The court found that Prescott had sold
hundreds of trust documents, s o m e for as much as $15,500. Through the bogus
trusts, Prescott told purchasers to underreport their income and claim improper
deductions on their tax returns, resulting in an estimated loss of $135 million in tax
revenue.
Eddie Kahn and Kathleen Kahn and their businesses American Rights
Litigators, Guiding Light of God Ministries, and Eddie Kahn and Associates;
attorney Milton Baxley II; David Lokietz; and Texas certified public accountant
Bryan Malatesta are subject to a preliminary injunction in Florida barring them from
promoting allegedly abusive tax schemes and practices, including selling counterfeit
checks for clients to send to the government in payment of tax liabilities and falsely
advising customers that their income will become tax-exempt and their assets
i m m u n e from collection if they use a "corporation sole," claim to be a ministry and
take a vow of poverty.
Morris James Sr. and his company, the National Resource Information
Center, Inc., were enjoined in Georgia from promoting a nationwide reparations tax
scam and from acting as income-tax return preparers. The court found that J a m e s
falsely claimed that taxpayers could claim a tax credit as a reparation for slavery
and that he prepared federal income tax returns for more than 6,300 customers
seeking refunds of $43,000 each. The IRS prevented more than $900 million in
losses to the U.S. Treasury by identifying and disallowing the fraudulent claims.
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PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 9, 2004
js-1315
April 15th Tax Day Reminder: Millions of Individuals and Families are
Benefiting from Tax Relief Plan
As a result of the President's Economic Growth and Tax Relief Reconciliation Act of
2001 and Jobs & Growth Tax Relief Reconciliation Act of 2003 millions of
Americans will see higher refunds or lower tax bills this year.
Treasury's data shows that American families are seeing a significant reduction in
their tax burden because of the tax relief packages that the President has signed
since taking office. The President's 2001 and 2003 tax relief plans mean that in
2004, every American who would have paid income taxes before the tax relief was
enacted in 2001 will receive a tax cut in 2004.
The President's Tax Cuts Mean Significant Tax Relief for Working American
Families
• Expanding the 10% bracket and doubling the child tax credit will benefit low
income Americans
• Nearly 5 million taxpayers, including 4 million taxpayers with children, will
have their income tax liability completely eliminated in 2004.
• Low-income families will also benefit from provisions that make the child
credit refundable for more families and reduce marriage penalties caused by
the EITC.
•
•
•
•
•
111 million individuals and families will receive an average tax cut of $1,586
in 2004 because of the tax cutes of 2001 and 2003.
49 million married couples will have an average tax cut of $2,602.
43 million families with children will receive an average tax cut of $2,090.
14 million elderly individuals will see their taxes fall, on average, by $1,883.
25 million small business owners will receive an average tax cut of $3,001.
If Congress Does Not Act, Americans Will Pay Higher Taxes in 2005
• If the tax cuts that expire after 2004 are not extended for 2005, taxes will
increase for taxpayers who otherwise would benefit from these provisions.
• In 2005, the increased child credit, additional marriage penalty relief, and
expanded 10 percent bracket will sunset, increasing the tax burden on a
family of four earning $40,000 by $915.
• Taxpayers will face a tax increase of $6.1 billion if the expanded 10 percent
rate is not extended.
• Taxpayers will face a tax increase of $9.1 billion in higher marriage penalty
taxes.
• Families with children will face a tax increase of $13.4 billion if the child tax
credit is not extended.
94 million taxpayers would pay, on average, a tax increase of $538.
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• 70 million women would see their taxes increase, on average, by $662.
• 46 million married couples would pay, on average, an additional $906 in
taxes.
• 38 million families with children would incur an average tax increase of
$902.
• 8 million single w o m e n with children would see their taxes increase, on
average, by $368.
• 11 million elderly taxpayers would pay, on average, an additional $383 in
taxes.
• 23 million small business owners would incur tax increases averaging $784.
• Nearly 2 million individuals and families who currently have no income tax
liability would become subject to the income tax.
• President Bush's budget extends A M T relief through 2005. Without these
changes, these taxpayers would pay an additional $17.6 billion in tax as a
result of the A M T
In the past three years, President Bush has proposed and signed into law
three bills reducing the tax burden on American families and small
businesses to spur savings, investment, and job creation.
I. ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT
(Signed into law on June 7, 2001)
• Reduced tax rates, including a new 10 percent tax bracket, for every
American who pays income taxes
• Increased the child tax credit to $1,000 by 2010
• Reduced the marriage penalty beginning in 2005
• Phased out the death tax
• Increased education tax benefits
• Expanded pension and saving opportunities
II.
J O B C R E A T I O N A N D W O R K E R A S S I S T A N C E A C T (Signed into law on
March 9, 2002)
• Provided 30-percent bonus depreciation for business investment in new
equipment
• Provided emergency tax relief to N e w York and other areas affected by the
terrorist attacks of September 11, 2001
III.
J O B S A N D G R O W T H T A X RELIEF RECONCILIATION A C T (Signed into
law on May 28, 2003)
Accelerated income tax rate reductions effective January 1, 2003
Expanded the10 percent bracket effective January 1, 2003
Increased the child credit to $1,000 effective January 1, 2003
Reduced the marriage penalty effective January 1, 2003
Quadrupled small business expensing from $25,000 to $100,000
Increased bonus depreciation for businesses to 50 percent through 2004
Reduced the top tax rate on dividends and capital gains to 15 percent
Repealing these laws would result in an immediate tax increase on American
families and businesses. For example, if none of the President's tax relief
had been enacted, in 2004:
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•
•
•
•
•
•
•
•
111 million Americans would pay, on average, $1,586 more in taxes;
81 million w o m e n would pay, on average, $1,878 more in taxes;
49 million married couples would pay, on average, $2,602 more in taxes;
43 million families with children would pay, on average, $2,090 more in
taxes;
11 million single w o m e n with children would pay, on average, $921 more in
taxes;
14 million elderly individuals would pay, on average, $1,883 more in taxes;
25 million small business owners would pay, on average, $3,001, more in
taxes; and
Nearly 5 million individuals and families w h o currently have no income tax
liability would become subject to the income tax.
The cumulative benefit of these three laws for family budgets and business
investment is significant. Under these laws, last year:
• A family of four earning $40,000 saw tax relief of $1,933;
• 25 million small business owners saved an average of $2,853; and
• 26 million investors saved an average of $798 from lower rates on dividends
and capital gains, including 7 million seniors w h o will save an average of
$1,088.
The cumulative effect on the economy is just as strong, laying the
groundwork for increased economic growth and job creation. According to
the Department of the Treasury, by the last quarter of 2003, the tax relief
signed by President Bush had:
• Reduced the unemployment rate by nearly 1 percentage point below where
it would have been otherwise;
• Increased the jobs available to Americans by as many as 2 million; and
• Increased real G D P by as much as 3 percent.
President Bush has called on Congress to act now to prevent tax increases.
Failure to permanently extend these tax cuts would raise taxes on American
taxpayers in future years:
• In 2005, the increased child credit, additional marriage penalty relief, and
expanded 10-percent bracket will sunset, increasing the tax burden on a
family of four earning $40,000 by $915;
• In 2006, allowable small business expensing will shrink from $100,000 to
just $25,000, increasing the cost of capital investments for America's small
businesses;
• In 2009, the top tax rate on dividends will increase from 15 to 35 percent,
while the tax on capital gains will climb from 15 to 20 percent, raising the tax
burden on retirees and families investing for their future; and
• In 2011, the rate relief, new 10-percent tax bracket, death tax repeal,
marriage penalty relief, and all the remaining tax relief enacted over the past
th r e e years will sunset, resulting in tax increase for every American m a n or
w o m a n w h o pays income taxes.
EXAMPLES:
If the Economic Growth and Tax Relief Reconciliation Act of 2001 ( E G T R R A ) and
the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) were
repealed, taxes would be raised on millions of hardworking American families.
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Example 1:
If EGTRRA & JGTRRA were repealed, a married couple with one child and income
of $40,000 will see their taxes increase by $1,448 (from $1,435 to $2,883), an
increase of 101 percent.
Example 2:
If EGTRRA & JGTRRA were repealed, a married couple with two children and
income of $40,000 will see their taxes increase by $1,948 (from a payment from of
the government of $30 to liability of $1,918), an increase of 6393 percent.
Example 3:
If EGTRRA & JGTRRA were repealed, a married couple with two children and
income of $60,000 will see their taxes increase by $1,715 (from $2,805 to $4,520),
an increase of 61 percent.
Example 4:
If EGTRRA & JGTRRA were repealed, a married couple with two children and
income of $80,000 will see their taxes increase by $2,326 (from $5,265 to $7,591),
an increase of 44 percent.
Example 5:
If EGTRRA & JGTRRA were repealed, a married couple, both aged 65, with income
of $40,000 (of which $2,000 is dividends and $15,000 is Social Security benefits)
will see their taxes increase by $705 (from $645 to $1,350), an increase of 109
percent.
Example 6:
If EGTRRA & JGTRRA were repealed, a married couple, both aged 65, with income
of $80,000 (of which $4,500 is dividends and $20,000 is Social Security benefits)
will see their taxes increase by $2,262 (from $7,376 to $9,638), an increase of 31
percent.
Attached are detailed charts that show the tax benefits Americans received
from the EGTRRA & JGTRRA.
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America has a choice: It can continue to grow the economy and create new
jobs as the President's policies are doing; or it can raise taxes on American
families and small businesses, hurting economic recovery and future job
creation.
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I
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 9, 2004
JS-1316
April 15th Tax Day Reminder: The 2001 & 2003 Tax Relief Plans Will Impact
Income Tax Returns Filed
The President's Economic Growth and Tax Relief Reconciliation Act of 2001 and
Jobs & Growth Tax Relief Reconciliation Act of 2003, made a number of changes in
the tax laws that affect individual income tax returns filed for 2003. As a result of
the 2001 and 2003 tax cuts, millions of Americans will see higher refunds or lower
tax bills this year. As the April 15th filing deadline quickly approaches, below is a
list of the tax law changes from the 2001 and 2003 tax cuts that affect individual
income tax returns filed for 2003:
• Tax rates were reduced from 2 7 % , 3 0 % , 3 5 % , and 38.6% to 2 5 % , 2 8 % ,
3 3 % , and 3 5 % , respectively, helping millions of small business owners and
entrepreneurs.
• The 10-percent bracket applies to first $7,000 of taxable income for single
filers (up from $6,000 in 2002) and $14,000 (up from $12,000 in 2002) for
married taxpayers, meaning more of a family's income is taxed at the much
lower 1 0 % rate.
• The 15-percent tax bracket was widened for married taxpayers to twice the
width for single taxpayers, making it end at $56,800 of taxable income (up
from $46,700 in 2002), reducing the marriage penalty.
• The standard deduction for married taxpayers was increased to twice the
amount allowed for single taxpayers, making it $9,500 (up from $7,850 in
2002), providing marriage penalty relief.
• Other tax brackets, standard deduction amounts, and the amount of
personal exemptions were indexed for the effects of inflation.
• The child tax credit was increased by $400 to $1,000 per qualifying child
(up from $600 in 2002), helping families meet expenses such as clothing,
education, and health care.
• Dividends generally were made eligible for a special tax rate of 1 5 % ( 5 %
for taxpayers in the 1 0 % or 1 5 % tax brackets), down from 38.6%, greatly
reducing the double taxation of dividends, especially for those who depend
on dividend income in retirement.
• The tax rate on long term capital gains was reduced to 1 5 % ( 5 % for
taxpayers otherwise in the 1 0 % or 1 5 % tax brackets) down from 2 0 % ,
encouraging investment.
• Alternative minimum tax (AMT) exemptions were increased to $58,000 (up
from $49,000 in 2002) for married couples and to $40,250 (up from $35,750
in 2002) for unmarried taxpayers, preserving promised tax relief for
taxpayers.
• The maximum amount of expenses eligible for the child and dependent
care credit was increased to $3,000 (up from $2,400 in 2002) for one child
and to $6,000 (up from $4,800 in 2002) for two or more children. Also, the
credit was increased and expanded for lower income taxpayers.
• The maximum amount of the lifetime learning education credit was doubled
to $2,000, making it easier for workers to improve their skills.
• The deduction for self-employed health insurance expenditures increased to
1 0 0 % (up from 7 0 % in 2002), making health insurance more affordable.
• The income limits for IRA deductions were increased helping Americans
save for retirement.
tp://www.treas.gov/press/releases/js 1316.htm
5/27/2005
S-1316: April 15th Tax Day Reminder: The 2001 & 2003 Tax Relief Plans Will Impact Income Tax Re... Page 2 of 2
-30-
America has a choice: It can continue to grow the economy and create new
jobs as the President's policies are doing; or it can raise taxes on American
families and small businesses, hurting economic recovery and future job
creation.
t
P-//www.treas.gov/press/releases/js 1316.htm
5/27/2005
1317: April 15th Tax D a y Reminder: Tax Relief Reinvigorated The U.S. E c o n o m y A n d Is Driving Jo...
Page 1 of 2
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 9, 2004
js-1317
April 15th Tax Day Reminder: Tax Relief Reinvigorated The U.S. Economy
And Is Driving Job Creation
President Bush's jobs and growth tax relief plan has helped millions of American
families and businesses, has reinvigorated the U.S. economy, and is driving job
creation.
America's economy is strong and getting stronger.
• Without the President's needed tax relief plan, by the end of this year real
G D P would be about 3.5 to 4 percent lower.
• Instead, in the last half of 2003 w e witnessed the strongest economic
growth in nearly 20 years.
• The strength of the economy's underlying fundamentals indicates economic
activity will continue above the historical average.
More Americans are going to work and more Americans are staying on the
job.
• If not for the President's timely economic growth measures, by the end of
this year the unemployment rate would be as much as 1.6 percentage
points higher and as many as 3 million fewer Americans would be working.
• But because of the President's commitment to strengthen the environment
for job creation, and the positive impact of his tax relief measures, over
three-quarters of a million new jobs were created over the past seven
months, 308,000 in March alone.
• At 5.7 percent, the unemployment rate remains lower than the average of
the 1970s, 1980s and 1990s, and far below its peak of 6.3 percent in June
of 2003.
• Over the past year the unemployment rate has fallen in 45 of the 50 states.
• Weekly first-time claims for unemployment insurance have dropped to the
lowest point in over three years and continuing jobless claims are at a 32month low. [Chart attached]
• According to one private sector measure, layoffs in the first three months of
this year were the lowest in four years, suggesting continued improvement
in the job market.
Americans are keeping more of their hard-earned money.
• Real after-tax incomes are up 10 percent since December of 2000 and are
substantially above levels following the last recession.
• Buoyed by the return of the stock market and strong h o m e values,
household wealth is at a record high. After five consecutive quarterly
increases, household net worth is up by almost $6 trillion, reaching over $44
trillion at the end of last year.
The housing market is showing broad-based strength.
• Despite predictions by some that the tax relief plan would cause interest
rates to rise, interest rates are near a 40-year low.
Avww.treas.gov/press/releases/is 1317.htm
5/27/2005
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Page 2 of 2
• Homeownership is at an all-time high - 68.6 percent - with substantial gains
among minority homeowners.
• After posting record breaking numbers last year, new and used h o m e sales
continue at high levels.
• N e w h o m e construction remains strong after hitting its highest level in 25
years in 2003.
• More Americans have refinanced in the past three years than in the entire
1990s combined, allowing millions of U.S. families to reduce their monthly
mortgage payments.
• Additionally, the amount of cash Americans are getting out of their homes
has set a record high the past three years, averaging over $100 billion a
year since 2001 - compared to an annual average of $23 billion through
much of the 1990s.
America has a choice: It can continue to grow the economy and create new
jobs as the President's policies are doing; or it can raise taxes on American
families and small businesses, hurting economic recovery and future job
creation.
REPORTS
• Initial Claims for Unemployment Graph
Ww.treas.eov/press/releases/is 1317.htm
5/27/2005
Page 1 of 1
450
450
425
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400
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- 375
350
325
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • i 325
May June July
Aug Sep Oct
Nov Dec Jan
Feb Mar Apr
'V/www.treas.gov/press/releases/reports/jsn 17graph.jpg
5/27/2005
i-1318: Jose Fourquet, United States Executive Director, Resignation Announcement
Page 1 of 2
PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
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April 12,2004
js-1318
Jose Fourquet, United States Executive Director, Resignation Announcement
Treasury Secretary Snow Praises Jose A. Fourquet, U.S. Executive Director of the
Inter-American Development Bank, for Leadership and Accomplishments While
Serving in Bush Administration
Treasury Secretary John W. Snow today praised the leadership and
accomplishments of Jose A. Fourquet, U.S. Executive Director of the InterAmerican Development Bank, for his service to the Bush Administration. President
George W . Bush nominated Mr. Jose A. Fourquet and the U.S. Senate
unanimously confirmed him as the 12th United States Executive Director of the
Inter-American Development Bank (IDB). A native of Puerto Rico, Mr. Fourquet
assumed his duties on December 14th, 2001, becoming the youngest person ever
to hold this position. Today he submitted his resignation to the President, effective
May 3, 2004. (See attached letter.)
"We will miss Jose Fourquet's insight and leadership at the Inter-American
Development Bank," said Treasury Secretary John Snow. "Jose worked every day
with great skill and diplomacy to advance President Bush's mission to improve
living standards for people throughout the Americas. The IDB is a stronger, more
effective institution today because of Jose's contributions. I couldn't be more proud
of the work he did and I a m thankful for his advice and counsel. I wish the best for
Jose and his family as they move on to new challenges."
At the IDB, Mr. Fourquet's work was particularly notable for focusing attention on
improving the process for measuring success in IDB operations and for seeking
ways to increase private sector investment in the region.
Prior to joining the Bush Administration, Mr. Fourquet was a Vice-President in the
Fixed Income, Currency & Commodities Division of Goldman, Sachs & Co. in N e w
York. For the majority of his time at Goldman Sachs, Mr. Fourquet worked as an
institutional salesperson in the Emerging Debt Markets Group. It w a s in that role
that Mr. Fourquet developed significant expertise in the emerging capital markets,
especially those in Latin America.
Mr. Fourquet previously worked for six years as an Operations Officer with the
Central Intelligence Agency. In that capacity, Mr. Fourquet w a s posted abroad in
Latin America and the Caribbean where he collected, evaluated and reported highpriority intelligence of interest to U.S. policy makers.
A member of the Council on Foreign Relations, Mr. Fourquet has received
numerous awards for his community involvement. Hispanic Business Magazine has
recognized Mr. Fourquet as one of America's "100 Most Influential Hispanics" in
2001 and 2002. The Switzerland-based World Economic Forum has also selected
Mr. Fourquet as one of the 100 "Global Leaders for Tomorrow" for the year 2003.
Mr. Fourquet graduated from Georgetown University with a BA in Government and
a School of Foreign Service Special Certificate in Latin American Studies. H e also
obtained an M B A in Finance from Columbia Business School where he w a s
)://www.treas.eov/press/releases/is 1318.htm
5/27/2005
;-1318: Jose Fourquet, United States Executive Director, Resignation Announcement
Page 2 of 2
inducted into the Beta Gamma Sigma honor society.
-30-
REPORTS
• Resignation Letter of Jose A. Fourquet
)://www.treas.gov/press/releases/js 1318.htm
5/27/2005
April 12, 2004
President George W . Bush
The White House
Washington, D.C. 20500
Dear Mr. President:
I am writing to submit my resignation as United States Executive Director of the Inter-American
Development Bank (IDB) effective M a y 3, 2004.
It has been a unique privilege to serve our Nation as a senior member of your Administration. It
was m y honor to support the policies you have set forth to protect the homeland, to revive the
U.S. economy, and to bring prosperity to our neighbors in the aftermath of the September 11 th
attacks.
At the IDB, we have worked hard to find better ways to measure success in our operations, to
increase private sector investment in the region, and to strengthen the Bank's o w n policies and
risk controls. During m y tenure, the I D B also supported m a n y leaders of the region that faced
economic and political distress as a result of their efforts to promote the right policies for their
people. Despite the m a n y challenges, I a m happy to report that w e are leaving the I D B stronger
and more relevant than w e found it.
That said, I realize that much remains to be done in our fight to eliminate poverty and injustice in
this hemisphere. However, I a m confident that your Administration will continue to provide the
kind of quiet yet effective leadership that I witnessed during these challenging times for Latin
America and the Caribbean.
Lastly, I want to thank you for being the first U.S. president in history to visit us at the IDB. In
m y opinion, your Millennium Challenge Account speech will forever be remembered as one of
our government's key pronouncements on global development. I appreciate the honor of hosting
you on that important day.
Mr. President, thank you for giving me the honor to serve our country once again. Karen and I
n o w m o v e on to pursue n e w opportunities in the private sector, but w e do so with lasting
gratitude for the privilege to have served in your Administration.
Sincerely,
Jose A. Fourquet
United States Executive Director
s-1319: The Honorable John W . S n o w Prepared Remarks:<br> Small Business Administration's Econo...
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 12,2004
js-1319
The Honorable John W. Snow Prepared Remarks:
Small Business Administration's Economic Growth Tour Kansas City,
Missouri
April 12,2004
Thank you so much for having me here today. Hector, it's great to be with you in
your hometown.
Working with Hector is truly one of the highlights of my job. The President certainly
found the right person to represent America's small-business owners. There is no
better spokesperson than someone who really knows small business on a personal
level, and that's Hector Barreto. And it speaks to the President's dedication to small
business that he appointed Hector.
Many of you already know Hector's story of growing up in a small business, a
restaurant here in Kansas City. Because of his job, that's part of his official "bio."
But maybe small-business experience should be part of the "bio" of every
government official - because I think exposure to the small business life makes a
difference in how w e approach decisions in government.
I was also raised in a small-business environment. My father was self-employed, a
CPA, and through his business w e were exposed to hundreds of the small-business
owners in our community.
I bet you can guess why... especially this week, with tax day on Thursday. Yes, I
remember well the stacks and stacks of 1040 forms that m y father had in his office,
preparing them for all of his small-business customers.
Looking back, I guess I learned something very early on that many people don't
know or appreciate - and that's the fact that most small businesses file their taxes
with 1040s, with the individual forms.
But there is someone else in Washington, DC right now who knows that, and
appreciates it... and that's President Bush. That's why his tax cuts really focused on
helping out businesses like yours through lowering marginal income tax rates, as
well as increasing business expensing and trying to bury the death tax.
The President understands that your business income is filed on individual forms,
so a reduction in the marginal rates helps your business.
He understands, and I understand, that letting you keep more of your company's
income means that you will be able to invest in your business - by buying new
equipment, expanding operations, increasing salaries, offering health care, or hiring
new employees.
And we also understand that you are where the new jobs come from. In fact, on
behalf of the President, I want to thank each and every one of you for being part of
the small-business engine of economic growth.
)://www.treas.gov/press/releases/js 1319.htm
Page 1 of 5
js-1319: The Honorable John W . S n o w Prepared Remarks:<br> Small Business Administration's Econo...
Page 2 of 5
W e want to thank you for the sacrifices you've made:
• The weeks, or months, when you went without a paycheck so that your
employees could still get paid.
• The credit card debt and the debt to family members that you incurred to
m a k e your business dream a reality.
• The struggle to afford health insurance for yourselves, your children, your
employees and their families.
We want you to know that we think it's unfair that a single abusive, baseless lawsuit
could put your business at risk, and how the aggregate of abusive lawsuits in this
country have increased the cost of and necessity for your liability insurance!
And we want you to know that we think it's wrong that the death tax threatens your
ability to leave the family business, your legacy, to your children.
The President knows all of that. And he's looking out for your interests in every
economic decision he makes.
Which brings me back to the 1040 form, and the fact that business owners like you
often use the 1040 to file your business income.
The fact that you do so means that reductions in the top marginal income tax rate
impact you directly. That's why the president accelerated the lowering of that rate.
And you m a y have heard - two-thirds of the benefits of the reduction in that top rate
went to folks like you, the owners of flow-through entities, in 2003.
The other major element in the President's tax relief that was designed with you in
mind w a s the increase in the amount of investment that you can deduct. W e
quadrupled the allowable deduction for business expenses, from $25,000 to
$100,000. I hope that you were able to take advantage of that this past year,
perhaps buying computers or another piece of equipment vital to the viability and
productivity of your business.
We estimate that about 440,000 business taxpayers like you, here in Missouri,
benefited from those tax cuts.
So this Thursday shouldn't be as bad a day as I know it has been in the past for
you. I hope we've m a d e it less painful.
Small business has been a priority every time the President proposes tax cuts for
very simple, common-sense, but also very powerful reasons: You are the backbone
and the engine of our economy. You create the jobs. You are the most innovative,
creating new products and services. You are the essence of the American Dream
and the American free market.
And government doesn't remember to give you a break, to just get off your backs,
nearly often enough.
I often tell people that the economic impact of tax cuts is simple: tax cuts work.
They spur economic growth.
Just look at our current economic picture to see the proof: The economy added
308,000 jobs in March, the biggest monthly increase in four years, bringing total job
growth since August to 759,000. Strength is apparent across the board, including
strong job growth in construction, retail and business services. And economic
growth is likely to continue at a robust rate. The manufacturing sector has continued
to improve, homeownership levels are at an all-time high, and American families
are keeping more of their hard-earned money in after-tax income.
Nowhere is there better proof of the efficacy of tax cuts than in small business. No
other sector puts that saved money to work like you do.
://www.treas.gov/press/releases/j s 1319.htm
5/27/2005
s-1319: The Honorable John W . S n o w Prepared Remarks:<br> Small Business Administration's Econo...
Page 3 of 5
Tax cuts benefit you more... but unfortunately the drags on our economy can have
a disproportionate impact on you as well, and I want to talk about a few of those
things that slow you down.
You can probably guess what words I'm going to say next: health care. Everywhere
I go, every small-business owner I speak to, I hear the s a m e question: "what can
you do to help us afford health insurance?" I heard it at our roundtable this morning.
While you work and sweat to run your business, create jobs and give our economy
such a solid underpinning, our health-care marketplace leaves you in the cold.
Premiums are going through the roof, you don't enjoy economies of scale or large
risk pools that insurers prefer... and in many states you only have one or two
companies that even offer small group plans.
Your lack of ability to offer affordable health coverage to your employees reduces
your ability to be competitive. And that's bad for our economy.
It's not right, it's not fair... and President Bush is dedicated to changing it.
We started with the creation of Health Savings Accounts (HSAs).
HSAs will allow you and your employees to save tax-free dollars for your medical
expenses, much like an IRA helps you save for retirement.
The ability for both individuals and employers to contribute to the accounts provides
a lot of options, a lot of flexibility for a small group struggling to keep costs
reasonable for both parties.
Employer contributions to employee HSAs are not subject to FICA taxes, and
individual contributions can be deducted on their taxes.
It's an important tool that this administration wanted you to have in your health care
toolbox. Another one is Association Health Plans (AHPs). A H P s would allow you to
purchase health insurance through your trade association - something like NFIB or
the Chamber of C o m m e r c e - bringing you economies of scale, larger risk pools and
exemption from expensive state mandates. In other words, lowering your health
insurance costs significantly.
We need Congress to pass AHP legislation - so don't let your representatives on
the Hill off the hook on this one. Remind them how important it is to you, to your
family, and to your employees.
Reducing the amount and the cost of abusive, frivolous lawsuits would help your
ability to afford health insurance as well.
Talk about a drag on our economy - the lawsuit system is costing a lot of money.
The costs amount to a "tort tax," paid in the form of lower wages, higher product
prices, and reduced investments, of $809 for every individual and more than $3,200
for a family of four.
It has put your businesses, and our health care system, at particular risk. As of
2002, 58 percent of physicians reported that they had been the target of a lawsuit,
and their malpractice insurance typically rose between 30 and 75 percent over
three years, from 2000 to 2002.
Many doctors I know have thrown in the towel. Retired early. Taken their life-saving
abilities out of the medical system, because the risks of staying in are just too high,
and because they've had enough.
Does anyone really believe that 58 percent of doctors are negligent? Of course not.
S o m e m e m b e r s of any profession are going to turn out to be bad apples... but
'ww.treas.gov/press/releases/js 1319.htm
5/27/2005
is-1319: T h e Honorable John W . S n o w Prepared Remarks:<br> Small Business Administration's Econo...
Page 4 of 5
when 58 percent of them are being sued... well, that explains why the term
"ambulance chaser" is part of our national vocabulary.
That increases the cost of your health care, which is hard enough to afford.
The threat of frivolous suits is also a drag on your innovation and your willingness to
hire new employees. You are least able to bear the cost of the tort tax, yet you are
an easy target.
Lawsuit abuse is bad for you, and it's bad for the American economy.
That's why the President is dedicated to reducing the number of frivolous suits. For
example, he wants to protect restaurants from being sued over the ridiculous claim
that they are responsible for obesity. He's called on the Senate to pass class action
reform and he supports immediate medical malpractice reform as well.
Because it's time we took serious steps to make civil justice about justice again not about making personal injury lawyers rich.
The last thing I want to mention today is the drag on your businesses, and our
economy, that is caused by the impending threat of the death tax.
The President's tax reform got us a reprieve from that terrible tax, but because of a
legislative technicality it is scheduled to return in 2010.
It's a tax that is an affront to family businesses, and it's got to be buried
permanently.
Some would argue that your taxes should be raised, that making the death tax and
other tax cuts permanent is the wrong course for our economy.
I strongly disagree with those claims.
We have choices to make in this country regarding our economy. And I believe that
w e must choose a path that w e know will lead to growth.
We have to choose between higher taxes and lower taxes. We have to choose
between economic isolationism or embracing the opportunity of the world's
markets. And w e must choose between our historic national attitude of "can do" and
the attitude that personal injury lawyers have encouraged, and that is: "can sue."
The choice is between continuing to grow the economy and create new jobs as the
President's polices are doing; or raising taxes on American families and small
businesses, hurting economic recovery and future job creation.
These are the choices that most impact the decisions you make in your businesses,
and the choices that ultimately most impact the future of our economy.
President Bush and I are proud to choose the path that is good for your businesses.
Before I leave here today, I want to let you know that the Treasury Department will
be back in Kansas City in the next few weeks. W e will be gathering with experts
and law enforcement people to conduct a workshop on something that is important
to business owners, and all Americans: identity theft, and how w e can use recent
legislation to combat it. A s w e all have seen, identity theft is a growing problem. An
estimated 10 million Americans were victims last year. The workshop will highlight
leadership in the fight against identity theft by the President, the Congress, financial
institutions, technology companies, and law enforcement. It will be full of practical
information about how w e can work together to reduce the cost and incidence of
identity theft.
^w.treas.gov/press/releases/is 1319.htm
5/27/2005
js-1319: The Honorable John W . S n o w Prepared Remarks:<br> Small Business Administration's Econo...
Page 5 of 5
Thank you so much for having me here today.
-30-
P^/www.treas.gov/press/releases/js 1319.htm
5/27/2005
js-1320: Treasury and IRS Issue N e w Pension Interest Rate For Defined Benefit Plans
Page 1 of 1
PRESS ROOM
F R O M THE OFFICE O F PUBLIC AFFAIRS
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April 12,2004
js-1320
Treasury and IRS Issue New Pension Interest Rate For Defined Benefit Plans
Today, the Treasury Department and the IRS issued a new interest rate for pension
plan funding. The new rate implements the Pension Funding Equity Act of 2004,
which President Bush signed into law on April 10, 2004.
Under prior law, the pension funding interest rate was based on the 30-year
Treasury bond. The Pension Funding Equity Act replaces the 30-year Treasury
bond rate with a new rate based on high-quality, long-term corporate bonds, as
specified by the Secretary. Treasury and the IRS are publishing the new rate, and
the method used to determine the new rate, in Notice 2004-34.
"We are pleased to publish this rate immediately after enactment," said Acting
Assistant Secretary for Tax Policy Greg Jenner. "The new interest rate provides a
more appropriate measurement of pension liabilities, and we recognize that
companies need the new rate to determine their quarterly plan contributions due on
April 15. Still, w e must continue to work toward comprehensive pension funding
reform."
The Pension Funding Equity Act also allows certain plan sponsors (including
airlines and steel companies) to elect relief from a portion of their required pension
plan contributions. Treasury and the IRS issued Announcement 2004-38 today,
providing guidance on how to make and file the election with the IRS.
-30REPORTS
• Announcement 2004-38
• Notice 2004-34
y.treas.gov/press/releases/js 1320.htm
5/27/2005
Part IV.— Items of General Interest
Election of Alternative Deficit Reduction Contribution
Announcement 2004-38
This announcement sets forth the procedures for electing an alternative deficit
reduction contribution under § 412(l)(12) of the Internal Revenue C o d e (the Code) as
added by section 102 of the Pension Funding Equity Act of 2004, Pub. L. 108- .
I. Background
Section 102 of the Pension Funding Equity Act of 2004 added § 412(l)(12) to the
C o d e and section 302(d)(12) to the Employee Retirement Income Security Act of 1974
(ERISA). Section 412(l)(12) of the Code permits certain employers w h o are required to
m a k e additional contributions under § 412(1) to elect a reduced amount of those
contributions ("alternative deficit reduction contributions") for certain plan years. A n
employer is eligible to m a k e such an election if it is (1) a commercial passenger airline,
(2) primarily engaged in the production or manufacture of a steel mill product or the
processing of iron ore pellets, or (3) an organization described in § 501(c)(5) and which
established a plan on June 30, 1955, to which § 412 n o w applies. Section 302(d)(12) of
ERISA permits an identical election and provides identical requirements with respect to
the minimum funding standard of section 302.
The election can be made for any plan year beginning after December 27, 2003,
and before December 28, 2005. A n election for a plan of an eligible employer must be
m a d e annually and cannot be m a d e for more than two plan years for each plan. A n
election of an alternative deficit reduction contribution m a y only be m a d e with respect to
a plan for which the additional contributions under § 412(1) of the C o d e and section
302(d) of ERISA for the plan year beginning in 2000 did not apply (determined without
regard to the special rule for small plans under § 412(l)(6) of the C o d e and section
302(d)(6) of ERISA). Section 412(I)(12)(B) of the Code and section 302(d)(12)(B) of
ERISA contain restrictions on the plan amendments that m a y be m a d e during a year for
which an alternative deficit reduction contribution is elected.
Section II of this announcement sets forth the information that must be contained
in the election and the address to which the election must be sent. If an employer elects
an alternative deficit reduction contribution for any plan year, the employer must provide
written notice of the election to the plan's participants and beneficiaries and to the
Pension Benefit Guaranty Corporation within 30 days of filing the election.
II. Election of Alternative Deficit Reduction Contribution
A. As an officer of the employer maintaining the plan, I hereby elect an alternative deficit
reduction contribution under § 412(l)(12) of the Code and section 302(d)(12) of ERISA
and include the following information:
1. The employer is:
(a) a commercial passenger airline,
(b) primarily engaged in the production or manufacture of a steel mill
product or the processing of iron ore pellets, or
(c) an organization described in § 501(c)(5) of the Code and which
established a plan on June 30, 1955, to which § 412 n o w applies.
2. The name and EIN of the employer:
3. The name and plan number of the plan:
4. The plan year to which the election relates:
5. Specify the plan year beginning in 2000 for which the additional contributions
under §412(1) did not apply:
6. If any of the information in items 2 or 3 was different from the name of the
employer or the plan, etc., than in the plan year for which the election is being
made, enter the plan name, plan number, and n a m e and EIN of the employer
for the 2000 plan year:
7. Signature of employer
Date
The election must be signed by an officer of the employer maintaining the
plan. A n authorized representative of the employer, plan administrator, or
enrolled actuary m a y not sign this election on behalf of the employer.
B. This election must be filed at the following address:
Internal Revenue Service
Commissioner, Tax Exempt and Government Entities Division
Attention: SE:T:EP:RA:T
Alternative D R C Election
P.O. Box 27063
McPherson Station
Washington, D.C. 20224
III. Paperwork Reduction Act
The collection of information contained in this announcement has been reviewed
and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1883.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid control
number.
The collection of information in this announcement is in section II. This
information is required to enable the Commissioner, Tax Exempt and Government
Entities Division of the Internal Revenue Service to monitor and m a k e valid
determinations with respect to employers that elect an alternative deficit reduction
contribution for certain plans. As a result of such elections, an employer's deficit
reduction contribution for certain plans will be based on amounts specified under §
412(l)(12) of the Code. Such an election m a y cause the excise tax for failure to meet the
minimum funding standards not to be incurred. The likely respondents are businesses
or other for-profit institutions, nonprofit institutions, and small businesses or
organizations.
The estimated total annual reporting and/or recordkeeping burden is 800 hours.
The estimated annual burden per respondent/recordkeeper varies from 3 to 5
hours, depending on individual circumstances, with an estimated average of 4 hours.
The estimated number of respondents and/or recordkeepers is 200.
The estimated frequency of responses is occasional.
Books or records relating to a collection of information must be retained as long
as their contents m a y become material in the administration of any internal revenue law.
Generally tax returns and tax return information are confidential, as required by 26
U.S.C. § 6 1 0 3 .
Part III — Administrative, Miscellaneous, a n d Procedural
Weighted Average Interest Rate Modification
Notice 2004-34
This notice provides guidance as to the determination of the weighted average interest
rate and the resulting permissible range of interest rates used to calculate current liability for the
purpose of the additional funding requirements under § 412(1) of the Internal Revenue C o d e and
the minimum full funding limitation of § 412(c)(7)(E) of the Code, the corresponding
requirements and limitation under §§ 302(c)(7)(E) and 302(d) of the Employee Retirement
Income Security Act of 1974 (ERISA). In addition, this notice sets forth the interest rate under §
4006(a)(3)(E)(iii)(V) of ERISA, which is needed in the determination of unfunded vested benefits
for purposes of determining premiums payable to the Pension Benefit Guaranty Corporation
(PBGC). This notice implements changes to the rules regarding those interest rates that were
enacted in section 101 of the Pension Funding Equity Act of 2004, P.L. 108- .
BACKGROUND AND PRIOR LAW
Under § 412(b)(5)(A) of the Code, the funding standard account (and items therein)
must be charged or credited with interest at the appropriate rate consistent with the rate or rates
of interest used under the plan to determine costs.
Section 412(b)(5)(B) provides special rules for the interest rate that is used to determine
a plan's current liability for purposes of § 412(1) and for purposes of the minimum full funding
limitation under § 412(c)(7)(E). In general, that interest rate must fall within a specified corridor
based on the weighted average of the rates of interest on 30-year Treasury constant maturities
during the 4-year period ending on the last day before the beginning of the plan year, as
published monthly in the Internal Revenue Bulletin. See Notice 88-73 (1988-2 C.B. 383).
Under Notice 2002-26 (2002-1 C.B. 743), the interest rate used in determining the weighted
average interest rate currently is based on the yield on the 30-year Treasury bonds maturing in
February 2031.
In general, § 412(l)(7)(C)(i)(ll) specifies that, for years after 1998, the interest rate used
to determine the deficit reduction contribution must be not more than 1 0 5 % of the weighted
average interest rate. A special rule for 2002 and 2003 w a s enacted in the Job Creation and
Worker Assistance Act of 2002 (Pub. L. No. 107-147, 116 Stat. 21) to provide for the deficit
reduction contribution under § 412(1) to be calculated using a corridor capped at 1 2 0 % of the
weighted average interest rate rather than 1 0 5 % of the weighted average interest rate.
PENSION FUNDING EQUITY ACT OF 2004
The Pension Funding Equity Act was enacted on April 10, 2004. Section
412(b)(5)(B)(ii)(lll) of the Code, which w a s added by section 101 of the Pension Funding Equity
Act, provides that, for plan years beginning in 2004 and 2005, the interest rate used to
determine current liability must not be above and must not be more than 10 percent below the
weighted average of the rates of interest on amounts invested conservatively in long-term
investment-grade corporate bonds during the 4-year period ending on the last day before the
beginning of the plan year. Under § 412(b)(5)(B)(ii)(lll), the Treasury Department must
prescribe a method for periodically determining the rates. These rates must be based on the
use of two or more indices that are in the top three quality levels available. T h e Treasury
Department must m a k e the permissible range, and the indices and methodology used to
determine the average rate, publicly available.
Section 412(l)(7)(C)(i)(IV), which was also added by the Pension Funding Equity Act,
provides that, for plan years beginning in 2004 and 2005, the interest rate used to determine
current liability for purposes of determining the deficit reduction contribution must be the s a m e
as the rate used under § 412(b)(5).
INTERIM GUIDANCE
This notice provides interim guidance on the determination of the weighted average
interest rate under § 412(b)(5)(B)(ii)(lll) of the C o d e and § 302(b)(5)(B)(ii)(lll) of ERISA. In
addition, this notice provides interim guidance as to the interest rate under § 4006(a)(3)(E)(iii)(V)
of ERISA, which is needed in the determination of unfunded vested benefits for purposes of
determining premiums payable to the P B G C . Taxpayers can rely on this interim guidance until
the publication of further guidance. Any further guidance will not apply to plan years beginning
before the publication of further guidance. The determination of the weighted average involves:
a specification of the indices; the determination of the rate of interest on amounts invested
conservatively in investment-grade corporate bonds (the "composite corporate bond rate"); and
the determination of a 4-year weighted moving average of the composite corporate bond rate
(the "corporate weighted average interest rate").
Specification of Indices
The following indices are designated for use in determining composite corporate bond
rates beginning with January 1997 and ending August 2000.
1. Citigroup High Grade Corporate Index (AAA/AA, 10+ Years)
2. Merrill Lynch U S Corporates A A - A A A Rated 10+ Years
3. Merrill Lynch U S Corporates A Rated 15+ Years
The following indices are designated for use in determining the composite corporate
bond rates beginning with September 2000 and continuing until further guidance is issued:
1. Citigroup High Grade Credit Index1 (AAA/AA, 10+ Years)
2. Merrill Lynch U S Corporates A A - A A A Rated 10+ Years
3. Lehman Brothers U S A Long Credit
All of these indices reflect interest rates on long-term corporate bonds that are in the top three
quality levels.
Composite Corporate Bond Rate
The composite corporate bond rate for a month is determined using the indices
1
The name of the Citigroup High Grade Corporate Index was changed to the Citigroup High Grade Credit
Index in April 2001, when a new Citigroup High Grade Corporate Index was created.
designated in this notice. For each index designated for inclusion in determining the composite
corporate bond rate for a month, a monthly rate is determined based on the average of the daily
values for the yield to maturity for the bonds that are included in the index,.as determined by the
financial service firm maintaining the index. The composite corporate bond rate for the month is
determined by computing the average of these monthly rates. Table 1 lists the composite
corporate bond rates for the months January 2000 through March 2004.
Corporate Weighted Average Interest Rate and Section 412(b)(5)(B)(ii)(lll) Permissible Range
The corporate weighted average interest rate under § 412(b)(5)(B)(ii)(lll) for a month is
determined by applying the weighting methodology set forth in Notice 88-73 to the composite
corporate bond rates for the 48 months preceding that month. Thus, in determining the 48month weighted average of the composite corporate bond rate, the composite corporate bond
rate for each of the months within the immediately preceding 12 months receives a weight of 4,
those that are 13-24 months in the past receive a weight of 3, those that are 25-36 months in
the past receive a weight of 2 and those that are 37 or more months before the determination
receive a weight of 1. The § 412(b)(5)(B)(ii)(lll) permissible range is 9 0 % to 1 0 0 % of the
corporate weighted average interest rate. Table 2 lists the corporate weighted average interest
rates and the permissible range for plan years beginning in the months January 2001 through
April 2004.
Lookback Rules
Under section 101(d)(2) of the Pension Funding Equity Act of 2004, for purposes of
applying section 412(l)(9)(B)(ii) and section 412(m)(1) of the C o d e (and section 302(d)(9)(B)(ii)
and section 302(m)(1) of ERISA) to plan years beginning after December 31, 2003, the
amendments m a d e by section 101 of the Pension Funding Equity Act of 2004 m a y be applied
as if such amendments have been in effect for all prior years. Thus, for example, for the plan
year beginning January 1, 2004, in determining whether the plan's funded current liability
percentage w a s at least 90 percent for two consecutive years of the previous three years under
section 412(l)(9)(B)(ii), the funded current liability percentage m a y be recalculated using the
corporate weighted average interest rate applicable for plan years beginning in January 2001,
2002, and 2003. Similarly, in determining whether a plan is subject to quarterly contributions
under section 412(m)(1) for the plan year beginning January 1, 2004, the funded current liability
percentage for 2003 m a y be recalculated using the corporate weighted average interest rate.
However, for purposes of computing the required installment under section 412(m)(4) for
plan years beginning in 2004, the required amount for plan years beginning in 2003 m a y not be
recalculated using the corporate weighted average interest rate. Instead, the required amount
for 2003 will continue to be determined based upon an interest rate which is within the range of
90 to 120 percent of the weighted average of the rate of interest on 30-year Treasury securities.
Monthly Publication of Rates
The IRS will publish by notice each month the composite corporate bond rate, the
corporate weighted average interest rate, and the § 412(b)(5)(B)(ii)(lll) permissible range. The
s a m e notice will specify a change in the group of indices that are taken into account in
determining the component corporate bond rate, and the manner they are taken into account, if
any such change takes place.
Request for C o m m e n t s
C o m m e n t s are requested regarding the determination of the composite corporate bond
rate set forth in this notice. Specifically, comments are requested regarding the appropriateness
of the indices that are used in the determination of this rate, whether other indices would be
more appropriate for this purpose, and the appropriateness of the weight given to each index.
Comments should be submitted by August 2, 2004, to CC:PA:LPD:RU (Notice 2004-34),
R o o m 5203, Internal Revenue Service, P O B 7604 Ben Franklin Station, Washington, D.C.
20044. C o m m e n t s m a y be hand delivered between the hours of 8 a.m. and 5 p.m., Monday
through Friday to CC:PA:LPD:RU (Notice 2004-34), Courier's Desk, Internal Revenue Service,
1111 Constitution Ave. N W , Washington D.C. Alternatively, comments m a y be submitted
electronically via e-mail to the following address: Notice.Comments@irscounsel.treas.gov, with
"Notice 2004-34" in the subject line. All comments will be available for public inspection.
Drafting Information
The principal author of this notice is Tony Montanaro of the Employee Plans, Tax
Exempt and Government Entities Division. For further information regarding this notice, please
contact the Employee Plans' taxpayer assistance telephone service at 1-877-829-5500 (a tollfree number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through
Friday. Mr. Montanaro m a y be reached at 1-202-283-9714 (not a toll-free number).
Table 1
Composite Corporate Bond Rates
C o m p o s i t e Rates for:
2000
2001
2002
2003
2004
January
February
March
7.94
7.84
7.87
7.34
7.21
7.08
6.92
6.86
7.10
6.07
5.90
5.89
5.68
5.63
5.44
April
June
7.84
8.27
8.05
7.28
7.28
7.17
7.03
6.99
6.76
5.91
5.42
5.24
July
August
September
7.93
7.82
7.87
7.13
6.95
7.05
6.74
6.57
6.27
5.77
6.19
5.95
October
November
December
7.85
7.82
6.91
6.82
7.07
6.47
6.30
6.18
5.91
5.86
5.81
Month
May
7.51
Table 2
Corporate Bond Weighted Average Interest Rates
Corporate
For Plan Years
Bond
Beginning in:
Weighted
Average
Year Month
Permissible Range
100%
90%
2001
2001
2001
2001
2001
2001
January
February
March
April
May
June
7.44
7.44
7.44
7.43
7.42
7.42
6.69
6.69
6.69
6.68
6.68
6.68
7.44
7.44
7.44
7.43
7.42
7.42
2001
2001
2001
2001
2001
2001
July
August
September
October
November
December
7.41
7.40
7.39
7.37
7.36
7.34
6.67
6.66
6.65
6.64
6.62
6.61
7.41
7.40
7.39
7.37
7.36
7.34
2002
2002
2002
2002
2002
2002
January
February
March
April
May
June
7.34
7.33
7.32
7.32
7.31
7.30
6.60
6.60
6.59
6.58
6.58
6.57
7.34
7.33
7.32
7.32
7.31
7.30
2002
2002
2002
2002
2002
2002
July
August
September
October
November
December
7.28
7.26
7.23
7.20
7.17
7.14
6.55
6.53
6.51
6.48
6.46
6.43
7.28
7.26
7.23
7.20
7.17
7.14
2003
2003
2003
2003
2003
January
February
March
April
May
7.11
7.07
7.03
6.98
6.94
6.40
6.36
6.33
6.29
6.25
7.11
7.07
7.03
6.98
6.94
2003 June
6.87
6.19
6.87
2003
2003
2003
2003
2003
2003
July
August
September
October
November
December
6.80
6.75
6.72
6.68
6.63
6.59
6.12
6.08
6.05
6.01
5.97
5.93
6.80
6.75
6.72
6.68
6.63
6.59
2004
2004
2004
2004
January
February
March
April
6.55
6.50
6.45
6.40
5.89
5.85
5.81
5.76
6.55
6.50
6.45
6.40
js-1321: Treasury Department N a m e s James William Carroll, Jr. as Deputy General Counsel
Page
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 12,2004
js-1321
Treasury Department Names James William Carroll, Jr. as Deputy General
Counsel
The Treasury Department today announced that James Carroll, Jr. has been
appointed as its Deputy General Counsel. He begins his new post today, and brings
extensive legal experience to the position. As the Deputy General Counsel, Mr.
Carroll will serve as the principal assistant to the General Counsel who is the chief
law officer of the Department. Mr. Carroll will advise senior Treasury officials and
oversee the activities of the 1,800-lawyer Department Legal Division. He will also
serve as the Department's Designated Agency Ethics Official.
Mr. Carroll was most recently Special Assistant and Associate Counsel to the
President for Clearance at the White House, where he has worked since January of
2002. In that position, Mr. Carroll was responsible for vetting all individuals under
consideration for appointment by the President including Cabinet members and
other senior officials of the Administration.
Previously, Mr. Carroll served as Legal Counsel in the Department of Justice Office
of Legal Policy (2001-2002), Assistant Ethics Advisor in the White House Office of
Counsel to the President (2001), Attorney Advisor in the Department of Justice
Executive Office for United States Attorneys (2000-2001), Assistant Bar Counsel of
the Virginia State Bar (1995-1999), Assistant Commonwealth's Attorney in the
Commonwealth Attorney's Office for Fairfax, Virginia (1990-1995), and Judicial Law
Clerk in the Circuit Court for Alexandria, Virginia (1988-1990).
Mr. Carroll received in Bachelor of Arts from the University of Virginia and his Juris
Doctor from the George Mason University School of Law.
w.treas.gov/press/releases/js 1321 .htm
5/27/2005
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April 12,2004
js-1322
John B. Taylor Under Secretary of the Treasury for International Affairs At the
Conference "Models and Monetary Policy: Research in the Tradition of Dale
Henderson, Richard Porter, and Peter Tinsley"
Federal Reserve Board March 27, 2004
It is a pleasure for me to participate in this conference honoring Dale Henderson,
Richard Porter, and Peter Tinsley, three trail blazers in the field economic modeling
and its application to economic policy. I thank Jon Faust, Athansios Orphanides,
and David Reisfschneider for organizing the conference and for inviting me.
Monetary Policy Modeling: Where Are We?
Today, stochastic simulation of econometric models and dynamic optimization with
such models as a way to deal with real world uncertainty is a commonplace part of
policy analysis. It is hard to imagine, now, what it was like formulating monetary
policy without such models. Yet, back in the days before Peter Tinsley was
directing the Fed's "Special Studies" section, or before Dick Porter was directing
the "Econometrics and Computer Applications" section, or before Dale Henderson
was advising and leading countless young researchers in the Division of
International Finance, that was what it was like. Then it was only a dream that new
quantitative methods could be applied in practice to improve monetary policy
decisions. Today it is a reality—a dream come true—thanks to the leadership of
Dale, Dick, and Peter and to the many others they worked with inside and outside
of the Fed.
I believe the application of these methods in the area of monetary policy has made
a real positive difference. It is a fact, of course, that macroeconomic performance
has improved: the variability of real output is substantially lower, as are fluctuations
of inflation, and inflation itself. There is a raging debate about the reasons for this
improvement, but a more dynamic, quantitative, and systematic approach to
monetary policy decisions in an explicitly uncertain environment must be given
substantial credit.[1] Interest rate decisions by the Fed and other central banks
around the world have become more systematic, explicit, and responsive. This has
been instrumental in helping push the world economy from the bad old days of high
inflation and output instability.
The published research record of Dale, Dick, and Peter is substantial. It
demonstrates their originality and technical firepower, but it understates the role
they played in pioneering the use of quantitative models in policy analysis.
Applying economic models in policy is not easy. It requires much more than
mathematical and statistical knowledge and experience with how the models work,
though these of course are prerequisites. It requires knowledge of the policy
making process, including the politics and the personalities. It requires good
judgment, for example, about when model complexity or elegance must be
sacrificed to create a more practical and constructive policy framework. It requires
leadership and management skills to get the best team; this includes recruiting,
retaining, and motivating.
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I have been fascinated and have written about this nexus between basic research
and its application to policy, using the word "translational economics" which I
borrowed from the work on "translational biology," the study of the interface
between biological research and its application to the medical fields. A s I have said,
"There are plenty of good economic ideas 'out there on the shelf that do not affect
practical decision making. S o m e direct action, perhaps by those working in the
policy arena or perhaps by people close to policy making, are needed to take the
academic research and to mold it into something useful to policy makers." [2] Dale,
Dick, and Peter are masters of translational economics as well as basic economic
research.
And Where Should We Be Going?
I think it would be most constructive if I approached this question by focusing on
how w e are using, and are planning to use, quantitative modeling to improve policy
decisions in the areas of international monetary and financial policy at the U.S.
Treasury. In fact, there are many c o m m o n issues that arise both when applying
quantitative methods to monetary policy and when applying quantitative methods to
other areas of economic policy.
First, let me note that, in order to place greater emphasis on quantitative
modeling—and here I include basic empirical work and the development of dynamic
models dealing with uncertainty—three years ago w e created a n e w section in
International Affairs at Treasury. It is called Quantitative Policy Analysis. Like so
m a n y things in government it is now referred to by its acronym, Q P A . It is a "cross
cutting" section, interacting with the country desks and international financial
institution offices of Treasury.
Second, I am grateful that we at Treasury have been able benefit from the
quantitative modeling capability at the Fed. For example, w e have benefited from
work on the Federal Reserve Board staffs n e w computable general equilibrium
model (SIGMA) to backup our discussions of the current account and supply side
policies in recent meetings of Working Party Three of the O E C D . N e w models like
this one have the potential to be the workhorses of the new "Agenda for Growth" in
which structural or supply-side policies are the main focus, much as earlier models
have been the workhorses of policy in the monetary field. They are examples, in m y
view, of where w e should be going.
Let me now briefly describe three specific policy applications that have developed
as part of the work of the Office of Quantitative Policy Analysis. They are also
examples of where w e should be going.
Millennium Challenge Account: Quantitative Indicators of Pro-Growth Policies
It is a basic principle of economics that reducing poverty in poor countries requires
much higher economic growth. Countries are poor because productivity is low. To
reduce poverty, poor countries must have much higher productivity growth rates.
The academic, empirical growth literature (and much experience) has shown that
good economic policy has much to do with increasing economic growth. In order to
raise economic growth in poor countries, therefore, President Bush proposed a n e w
Millennium Challenge Account (MCA), which encourages pro-growth policies in
poor countries by allocating more aid to countries that are actually following good
pro-growth policies.
Making the MCA operational has required a quantitative approach. In order to
determine which countries would qualify for assistance, w e had to find objective
indicators of pro-growth policies. The methodology evaluates three broad
categories of policy performance 1) governing justly, 2) investing in people, and 3)
encouraging economic freedom. W e then selected 16 quantitative indicators in
these categories based on their relationship to economic growth. W e tried to keep
the number of indicators small and m a k e sure they were available for a large
number of countries. W e consulted with many people both inside and outside
government in deciding on the indicators W e developed a robust procedure for
combining the 16 indicators: put simply, a particular candidate country must perform
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above the median on at least half of the indicators in each of the three policy
categories.
Ultimately, a board consisting of the Secretary of State, the Secretary of the
Treasury, and others will determine funding allocations for the poor countries. They
will use their judgment, but their decisions will be based heavily on these
quantitative factors. I think it is clear that this application of quantitative methods to
policy decision has important similarities to the w a y that quantitative decisionmaking has been adopted in other areas of policy, including monetary policy.
The Quantitative Impact of Changes in Fundamentals on Interest Rate
Spreads
Crisis prevention in emerging markets represents another area where quantitative
modeling plays an integral role in policy formulation. In the last few years, the
Treasury has developed a policy indicator model, called the "Blue Chip," to help
analyze developments in various emerging economies. The model represents a
management tool to systematically evaluate the risk of crisis. The Blue Chip scores
serve as a rule to evaluate vulnerabilities by providing empirical signals of the level
of relative risks, as well as shifts in those risks. O n e policy response could be
engagement with countries to encourage better policies and address potential
vulnerabilities.
The Blue Chip index is constructed from five separate risk assessments from five
different institutions. The index considers much of the recent research on early
warning systems, as well as the research on sovereign crises developed over the
last twenty-years. The Blue Chip index incorporates key variables such as the real
exchange rate, domestic credit growth, M2/reserves, gross external financing
requirements, global liquidity, as well as other measures. W e use percentile
rankings to standardize scores across the five separate risk assessments and
create a unified score for individual countries and emerging markets overall. A s
with all quantitative indicators, discretion plays an essential role in the interpretation
of the scores. The Blue Chip scores are evaluated by those Treasury staff w h o are
most familiar with the countries and with various nuances influencing
vulnerabilities.
Figure 1 shows the time-series pattern of this Blue Chip indicator during the past
two years. Note that the Blue Chip has tracked the broad movements in the
emerging market spread fairly well. (The EMBI spread is shown in the figure in
standard deviation units.) Granger-causality tests suggest that the Blue Chip has
use as a leading indicator.
To the extent that the indicator is based on policy fundamentals, it gives an
estimate of the amount by which the large recent decline in emerging market
spreads is due fundamentals. M a n y analysts have been concerned in recent
months that there has been overshooting of the spreads. Figure 1 does indicate
s o m e overshooting, but it is small relative to the decline in fundamentals as
measure by the Blue Chip indicator.
Changes in Emerging Market Contagion
A third example relates to the problem of contagion in emerging markets, in which a
financial crisis in one part of the world could spread to other parts of the world.
Because contagion w a s such a large factor in the official sector policy responses to
the financial crises in the 1990s, w e have paid particular attention to it. W e have
applied existing empirical work and have performed additional work when needed.
Our research reviews and work showed that much contagion was due to the
interconnections between counties, and would not be automatic when countries are
not substantially interconnected. Moreover, if policy changes could be better
anticipated and policies in different countries could be differentiated, the amount of
contagion would decline. In fact w e detected a decline in contagion starting in 2001
period, even before the crisis in Argentina.
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For this reason w e began to speak out about the decline in contagion in the spring
and s u m m e r of 2001. W e also tried to communicate better about our views on
contagion and give the markets a clearer sense of our policy intentions, trying to
minimize the surprise element as much as possible.
Figure 2 gives a simple graphic representation of the way in which contagion was
so different following the Argentine default in 2001 compared with the Russian
default in 1998. A s our empirical work began demonstrating in early 2001 and as
our policy approach began reflecting this, there was a marked decline in contagion.
The impact of Russian default in other parts of the world was far worse than the
impact of Argentina in other parts of the world.
Conclusion
The success of quantitative modeling in the field of monetary policy is clear, and
this is due in large part to the "translational economic" work by Dale Henderson,
Richard Porter, and Peter Tinsley. And, as the examples I have given here
indicate, there is much potential in the further application of quantitative methods to
policy. I could only touch on a small number of issues w e are working on at
Treasury. I would like to talk more about other applications, such as debt
sustainability models or the development of a monetary framework for Iraq. It is
clear that much remains to be accomplished in the area of applying economic
models to practical policy problems. I thank the organizers of this conference for
promoting the discussion.
[1] Bernanke, Ben S. (2004). "The Great Moderation," at the meetings of the
Eastern Economic Association, Washington, D.C, February 20.
[2] Taylor, John B. (1998). "Applying Academic Research on Monetary Policy
Rules: An Exercise in Translational Economics," Harry G. Johnson lecture, The
Manchester School, Vol. 66, Supplement 1, pp. 1-16.
REPORTS
• Figure 1
• Figure 2
ww.treas.gov/press/releases/isl322.htm
5/27/2005
Figure 1: Blue Chip Index vs. E M B I
1.5
=
o 0.5
Q
0
i-
cs
=
-0.5
-1
-1.5
-2
Source: J.P. Morgan and U.S. Treasury Department
Note: The EMBI represents a synthetic re-profiling of the J.P. Morgan EMBI to match countries in the Treasury Blue Chip Index.
Figure 2: Sovereign Risk Spreads After the Russian and Argentine Defaults
Asia EMBI+(1998-1999)
,
0
Jan-98
Apr-98
Jul-98
Oct-98
Jan-99
Asia EMBI+(2001-2002)
r
Apr-99
May-01
Africa EMBI+(1998-1999)
Jan-98
Apr-98
Jul-98
Oct-98
Jan-99
Aug-01
Nov-01
Feb-02
May-02
Aug-02
Africa EMBI+(2001-2002)
Apr-99
Latin America E M B I + (1998-1999)
May-01
Aug-01
Nov-01
Feb-02
May-02
Aug-02
Europe EMBI+ (2001-2002)
1500 -,
1200
Jan-98
Russian Default
(August 1998)
Apr-98
Jul-98
Oct-98
Jan-99
Apr-99
May-01
Aug-01
Nov-01
Feb-02
May-02
Aug-02
s-1323: Treasury D A S Juan Zarate's Prepared Remarks at the Islamic Society of North America's Fifth ... Page 1 of 3
PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 13,2004
js-1323
Treasury DAS Juan Zarate's Prepared Remarks at the Islamic Society of North
America's Fifth Annual Education Event
Assalamualaikum. I would like to thank the Islamic Society of North America for
inviting m e to be part of their Fifth Annual Education Event. I have been fortunate
enough to speak and work with ISNA in the past, and value our developing
relationship. This weekend, you have welcomed m e yet again, and I continue to be
grateful for your outreach and hospitality.
Our ongoing cooperation bears testimony to our sustained efforts and shared
commitment to overcome a challenge of tremendous importance to all of us. Our
challenge, simply put, is to protect the sanctity of charitable giving indeed, to
encourage people to give to those in need in a vulnerable global environment.
The act of charity is sacred in Islam, and it is sacred in American culture. We
Americans, like m a n y of our global neighbors, embrace the ideal of helping those
w h o are unable to help themselves.
The act of charity is also essential to millions of impoverished and needy people
around the world. The immediate survival and future hope of those afflicted by
natural and m a n m a d e disasters often hinge on the responsiveness of the global
charitable community. This generosity of strangers and friends alike in times of
need often traverses borders, languages and beliefs.
Tragically, our world also encompasses some who have chosen to inflict violence
and hate. These terrorists, preying on the kindness of strangers and the
philanthropic spirit, have infiltrated the charitable sector.
Terrorists groups, desperate to promote their agendas, continue to seize on
charities as a m e a n s of raising and moving funds and logistical support. The
infrastructure of charitable organizations and their geographic scope have enabled
terrorist groups to shift funds, supporters and operatives around the world quietly
through charities.
This terrorist abuse of charities has created two problems of enormous concern to
all of us. First, it has introduced an immediate and significant threat to our national
and international security. Second, it threatens to chill the sacred and essential role
that charitable giving represents in our global society.
Overcoming these problems requires leadership and sustained cooperation by and
between the global charitable community and governments around the world. W e
can and must work together to defeat these problems.
This is an opportunity to show the world that the partnership between government
and charity is more powerful than the prevarication of charity by terrorists. W e must
seize this opportunity together.
Our partnership must begin with the recognition that protecting our security and
advancing charitable giving are not mutually exclusive interests. O n the contrary,
advancing charitable giving can promote our national and international security and
w.treas.gov/press/releases/isl323.htm
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js-1323: Treasury D A S Juan Zarate's Prepared Remarks at the Islamic Society of North America's Fifth ... Page 2 of 3
interests. W e do not have to look very hard to see this relationship in practice:
• Under President Bush's initiative, the United States Government established
the Afghan Children's Relief Program. This Program successfully joined the
resources of our Government and the American donor community to provide
direct and immediate assistance to the most vulnerable victims of
Afghanistan's decade of repression and stagnation under the Taliban
regime. Such assistance is crucial to promote a stable future for
Afghanistan, a development which serves both charitable and international
security interests.
• Under the authority of the United States Treasury Department, w e issued a
general license to provide urgent relief to the victims of the B a m earthquake
in Iran. O n c e again, this critical effort could not have succeeded without the
partnership and team work of our Government and donor community.
In addition to specific relief efforts such as these, our Government has worked
closely with others around the world to promote transparency and accountability in
the charitable sector. Independently, bilaterally and through various international
organizations, governments all over the world are reforming their charitable sectors
to restore the confidence of donors in the integrity of charitable giving.
These efforts demonstrate that our partnership and collective action can enact
powerful and positive changes that advance the interests of charitable giving and
national security.
Unfortunately, however, these efforts are not enough. Terrorist abuse of charities
has created an urgent need to identify and shut down charities that purport to serve
legitimate charitable interests, but in fact funnel funds to terrorist activities and
organizations. Governments around the world have designated a number of these
professed charities to cut off sources and m e a n s of terrorist financing and support.
These critical actions protect international security by attacking the resources that
terrorists require to act.
Beyond our immediate national and international security interests, these
designations restore confidence in the charitable sector. The donor community has
a right to know that funds given with the noble intent of advancing charitable causes
actually reach the intended beneficiaries. The donor community also has a
compelling interest in knowing when this legitimate and worthy expectation is not
met. Even more importantly, the donor community has an urgent interest in knowing
w h e n honorable charitable intent is twisted to advance the interests of terrorism.
Our designations of charities corrupted by terrorists advance these interests by
serving notice to the donor community of those organizations that terrorists have
abused to prey on donor goodwill. I cannot overstate the importance of our
designations in this regard.
But our designation actions alone are not enough. Designations, by themselves, do
not represent a satisfactory solution to the threat of terrorist financing in the
charitable sector. W e must work together to prevent terrorists from infiltrating
charities in the first place. This is a difficult challenge, and our success depends on
the ability of our Government and the charitable community to work together.
Terrorists' abuse of charities has prompted a global review and sustained public
dialogue of the workings and efforts of the charitable sector. By studying the ways
terrorists have abused charities in the past, w e are better able to educate charities
and donors about h o w they can protect themselves against this threat moving
forward.
Our Government is working intensely with other governments around the world to
develop case studies and typologies of terrorist abuse of charities. Through the
Financial Action Task Force, w e have disseminated and published s o m e of these
case studies and typologies - available on the FATF's website
(http://www1.oecd.org/fatf/). In addition, w e have developed measures and
safeguards that donor communities and non-profit organizations can adopt to
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js-1323: Treasury D A S Juan Zarate's Prepared Remarks at the Islamic Society of North America's Fifth ...
Page 3 of 3
protect themselves against abuse. The F A T F has issued and published
international best practices to advance these interests, also available on the F A T F
website. W e will continue to work with the international community to develop and
share this information as w e learn more about the challenges w e face.
The Treasury Department has also acted independently to promote awareness of
steps that U.S.-based charities can take to protect themselves against terrorist
abuse. In November 2002, w e released the Anti-Terrorist Financing Guidelines:
Voluntary Best Practices for U.S.-based Charities. W e produced this document in
response to concerns by the Muslim-American community that terrorist infiltration of
charities could have a chilling effect on charitable giving. It is important to
understand that these Guidelines are, as advertised, both voluntary and best
practices. That being said, the guidelines provide important signposts and practices
for the charitable sector and donor community in this n e w era of terrorism.
We recognize that many of the steps promoted in the Guidelines may not always be
feasible or cost-effective, especially for smaller charities with limited operations. But
it is equally important to recognize that the problem w e face is difficult. W e all have
responsibilities to ensure the safety and sanctity of charitable giving is preserved.
Defeating this problem will require our sustained commitment and mutual
assistance to further develop and improve upon the efforts that I have discussed.
Despite the difficulties we face, I am confident that we can defeat terrorist financing
in the charitable sector by working together. The American donor community, along
with the United States Government, has a unique opportunity to advance the
standards and effectiveness of charitable giving throughout the world. N o other
country has a donor community or a government that can match our resources or
potential. Let us not forget the power that w e have to demand and enact positive
change if w e are unified and informed. It is this community you - that has the
ability to change the business practices of the international charitable sector.
Perhaps more importantly, you are the ones that can help affects the hearts and
minds of Muslims around the world. Ultimately, w e can only succeed in security
charitable giving and ensuring that terrorists are not abusing our good will by
working together.
As we do this, we must remember the importance and compatibility of our collective
interests. By creating a strong partnership between the Government and the
charitable community, w e can promote responsible charitable giving and protect our
national and international security.
The importance of these interests demands the very best of our cooperative efforts.
Therefore, the time that w e spend together is wisely invested. I a m pleased to
announce that the Treasury Department has invited the Islamic Society of North
America to participate in an outreach event at Treasury later this month to continue
our dialogue with the charitable sector. I look forward to discussing and advancing
these issues with you, not only this weekend, but also as w e m o v e forward to
combat terrorist financing together.
Thank you.
-30-
••//www.treas.gov/press/releases/js 1323 .htm
5/27/2005
3RESS R O O M
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 13,2004
2004-4-13-14-29-14-18673
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $84,345 million as of the end of that week, compared to $85,051 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
*pril 2, 200<\
April 9, 2004
85,051
84,345
i
TOTAL
1
1. Foreign Currency Reserves
Euro
Yen
TOTAL
Euro
Yen
TOTAL
a. Securities
9,115
15,045
24,160
9,315
14,776
24,091
Of which, issuer headquartered in the U.S.
0
0
b. Total deposits with:
b.i. Other central banks and BIS
12,393
3,023
15,416
12,191
2,969
15,160
b.ii. Banks headquartered in the U.S.
0
0
b.ii. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the U.S.
0
0
b.iii. Of which, banks located in the U.S.
0
0
21,703
21,463
12,727
12,586
11,045
11,045
0
0
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
2
3
5. Other Reserve Assets
II. Predetermined Short-Term Drains on Foreign Currency Assets
April 2, 2004
Euro
1. Foreign currency loans and securities
Yen
April 9. 2004
TOTAL
Euro
0
Yen
TOTAL
0
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
2.a. Short positions
2.b. Long positions
3. Other
0
0
0
0
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
April 2, 2004
Euro
Yen
April 9. 2004
TOTAL
1. Contingent liabilities in foreign currency
Euro
Yen
TOTAL
0
0
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
0
0
3. Undrawn, unconditional credit lines
0
0
0
0
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U.S.
3.c. With banks and other financial institutions
Headquartered outside the U.S.
4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
4. a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
JS-1324: Statement of Deputy Secretary S a m B o d m a n on March Retail Sales Data
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 13,2004
JS-1324
Statement of Deputy Secretary Sam Bodman on March Retail Sales Data
Today's release of retail sales data for March provides us with more evidence that
President Bush's pro-growth economic policies are working. The 1.8 percent
increase in retail sales is significant, the biggest monthly increase in a year and
more than double the consensus forecast. Today's release, along with the March
employment report, confirm that the President's policies - especially his decisive
action to lower the tax burden on American consumers and businesses - are
having a real and positive impact on our economy. W e must continue down this
path of economic growth, job creation, and prosperity.
-30-
>://www.treas.gov/press/releases/js 1324.htm
5/27/2005
fS-1325: Secretary S n o w Appoints Ambassador Paul Speltz <br>as Economic and Financial Emissary to... Page 1 of 2
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 14,2004
JS-1325
Secretary Snow Appoints Ambassador Paul Speltz
as Economic and Financial Emissary to China
Treasury Secretary John Snow today announced that, effective immediately,
Ambassador Paul Speltz will serve as his economic and financial emissary to
China. Ambassador Speltz will be responsible for leading the Treasury's ongoing
program to strengthen its economic and financial engagement with China.
"I'm honored that Ambassador Speltz has agreed to take on this work," said Snow.
"Our economic and financial relationship with China is important to the U.S.
economy and globally. It's important that as China is emerging as a more
significant member of the international trading system, that the best infrastructure
and policies are in place."
"Ambassador Speltz has three decades of experience in China in working both in
leading the efforts of a small American business operation in helping U.S. firms
export U.S. manufactured goods to Asia and as an executive in a major
International banking group," Snow continued. "He has firsthand experience in
understanding how China's W T O compliance, market access, and currency policy
does and can impact America's small businesses."
While serving in this role, Ambassador Speltz also will remain in his current position
as the U.S. Executive Director to the Asian Development Bank, splitting time
between Beijing and in ADB's headquarters based in Manila, Philippines, where he
will continue to reside.
"I'm looking forward to taking on this added responsibility," said Speltz. "China
already is a large and growing trading partner of the United States. It is essential
for both nations that w e can have an appropriate understanding of how our financial
systems should interact, adapt, and compete. China's exchange rate policy will be
an important part of our relationship."
In this new capacity, Ambassador Speltz will serve as a technical expert in Chinese
financial and economic affairs. The primary mission is to provide expert and
authoritative advice on Chinese developments to senior Treasury officials,
formulate and conduct expert reviews of macroeconomic and financial conditions
and policy in China, and engage Chinese officials in matters of interest. A focus will
be on financial infrastructure and policy, including: capital transfers; financial
services; regulation and oversight; and foreign exchange.
John Taylor, Treasury Under Secretary for International Affairs, highlighted
Ambassador Speltz's long experience in Asia and work at A D B as assets:
"Ambassador Speltz has proved to be a strong, effective advocate for our policy in
the Asian Development Bank. As our Executive Director, he is in an excellent
position to be Secretary Snow's emissary to China. At A D B he is initiating
important work on private sector development, remittances, financial good
governance procedures, and in assistance to Afghanistan. His new responsibilities
complement his current duties and underscore our attention to this region."
The position will include oversight of the Technical Cooperation Program on
financial issues initiated by Treasury and China earlier this year. The discussions
ww.treas.gov/press/releases/is 1325 .htm
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fS-1325: Secretary S n o w Appoints Ambassador Paul Speltz <br>as Economic and Financial Emissary to... Page
include regulation and supervision of foreign exchange risk in the banking sector,
and the development of foreign exchange derivatives. Particular interests in
technical cooperation are financial regulatory issues that would facilitate a m o v e to
a more market-based exchange rate regime.
Ambassador Speltz will represent Treasury in interactions with the Chinese
government and with the U.S. Embassy in Beijing. H e will also consult with
representatives of the business and financial community, government officials and
private sector analysts.
The Bush Administration has emphasized that the international trading system
works best with free trade, the free flow of capital and with market-based exchange
rates. A n efficient system of trade and finance, with fair and enforced rules, is
essential for the United States and all nations to maximize the benefits of trade and
generate the highest levels of economic growth. While the choice of an exchange
rate regime is up to each country, w e have been encouraging countries to use
flexible exchange rates. Flexible exchange rates ease the adjustment to changing
economic conditions in the international financial system. The Bush Administration
is aggressively encouraging our major trading partners to adopt policies that
promote flexible market-based exchange rates.
REPORTS
• Speltz Bio
ww.treas. eov/nress/rel eases/i s 1325 .htm
5/27/2005
Page 1 of 1
\mbassador Paul W
Ambassador Paul W . Speltz
U.S. Executive Director, Asian Development B a n k ( A D B )
n June 2002, President Bush nominated Paul W. Speltz to serve as U.S. Executive Director to the Asian Devel
Sank (ADB). The A D B is a multilateral development finance institution with 63 nation members working to increase
iconomic growth and reduce poverty throughout all of the Asian, Pacific and Subcontinent countries through public
nd private sector lending. Ambassador Speltz represents the United States, as one of the two largest shareholders, as a
oting member on the A D B Board of Directors.
lefore being selected by the President, Paul had over 25 years experience as a prominent member and mentor
iternational business community. Paul was a Senior Level corporate and entrepreneurial international manger with a
uccessful record in Asian business development, market strategy, and implementation. Prior to joining the Bush
Ldministration, he had focused on building out Bluestone Capital Asia Pacific Group in launching the investment
ank's successful online Wealth Management System with customers including Standard Chartered Bank. A s a result
fthat success, he was also named Co-Executive Managing Director of Global Operations in November 2000. From
ite 1998-1999, he was a Senior Director and Advisor on Asian geopolitical activities for United Technologies
!orporation, a Fortune "50" Multinational Leader in high technology. In 1981, Mr. Speltz was a founder of A T C
iternational, an Asia-based marketing and consulting company, with emphasis on China, Japan, and other select Asian
Duntries in representing m a n y well k n o w n North American and European clients. H e directed this company as
hairman and C E O for 17 years, inclusive of managing the operations when it was sold and was a subsidiary of
iticorp during the late 80's. While living in China for m a n y years, in 1986 he co-founded the International Chamber
f Commerce in Beijing, China, where he served as president until 1989.
dor to earning his BSBA from the University of Connecticut in 1969, Mr. Speltz founded the university's cha
e National Business Fraternity, Delta Sigma Pi. While working for a Japanese trading and consulting firm, he
mtinued his education at Connecticut and graduated in 1971 with an M B A in International Business. Ambassador
)eltz, as an alumni, has been on the Board of Directors for the university's School of Business since 1998 and also
rves as an advisor on Asian affairs.
IUI and his wife currently reside in the Philippines and have three grown children.
)://www.treas.gov/press/releases/reports/speltz.bio.htm
5/27/2005
s-1326: The United States-Russia Banking Dialogue: T w o Years Later<br>John B. Taylor <br>Under S... Page 1 of 5
BreafSJ* B 8
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 15,2004
js-1326
The United States-Russia Banking Dialogue: Two Years Later
John B. Taylor
Under Secretary of International Affairs
United States Treasury
Remarks at the Conference on Investment Opportunities in Russian Banking
Waldorf-Astoria Hotel, N e w York City
I thank the Financial Services Volunteer Corps (FSVC), Rusratings, and the
Regional Association of Russian Banks for putting together this excellent
conference and for inviting m e to participate. I would like to focus m y remarks on
the success of the United States-Russia Banking Dialogue and on ways in which
the United States can continue to support reform and thereby encourage
investment in the Russian banking sector. The Banking Dialogue is part of new
economic relationship between the United States and Russia, and I would like to
begin by putting the Banking Dialogue in the context of that new relationship.
The Changed Economic Relationship Between The United States and Russia
Two years ago this week, I traveled to Moscow to meet with the leaders of the
United States-Russia Banking Dialogue as they were deciding on what reforms
they would recommend to Presidents Putin and Bush at the upcoming May 2002
Summit. The Banking Dialogue had been established just a few months earlier by
the two presidents at a meeting in Crawford, Texas in November 2001. They had
requested that the private sector-led group develop specific, concrete
recommendations for banking reform in time for the May 2002 Summit.
It is important to emphasize that the creation of the Banking Dialogue was part of a
larger effort to broaden and change the economic relationship between the United
States and Russia. In the 1990s that economic relationship was defined for the
most part by large-scale borrowing from the West. The International Monetary
Fund alone lent Russia over $20 billion. But that relationship was changing in
2001.
As the year progressed, Russian financial officials were emphasizing more and
more in fora like the G-8 that they would pay government debts in full and on time,
and Russia was actually prepaying the IMF. This was in sharp contrast to the
large-scale borrowing, default, and periodic threats of nonpayment in 1990s.
Our economic engagement with Russia in 2001 both encouraged and reflected this
new reality. There were frequent trips to Russia by the U.S. Treasury and
Commerce Departments. In fact, m y trip two years ago was m y third trip to Russia
in less than a year and our Treasury attache was working overtime. Our objective
was to find new ways for Russia and the United States to interact cooperatively on
economic issues. W e placed a great deal of emphasis on the private sector. The
U.S. - Russia Banking Dialogue was a result of these efforts. It was not the only
result, of course. Dialogues on Russia's accession to the World Trade
Organization, on our energy relationship, and on combating terrorist financing—
another high priority Treasury issue—were also parts of the new economic
relationship. That Russia was now taking steps in the debt area to be a serious
player in the world economy helped move the relationship in a very positive
direction.
p://www.treas.gov/press/releases/is 1326.htm
s-1326: The United States-Russia Banking Dialogue: T w o Years Later<br>John B. Taylor <br>Under S... Page 2 of 5
The Success of the Banking Dialogue and Banking Reform Efforts
From our perspective, the Banking Dialogue has been a great success. As you
know the recommendations were delivered to Presidents Bush and Putin in
M o s c o w in M a y 2002 as requested, thanks to the hard work of m a n y people. They
were good recommendations—they were specific and they were concrete. The
recommendations focused on four general areas: 1) increasing trust and reducing
risk in the financial system; 2) creating a competitive banking system; 3) increasing
the economy's access to credit, especially long-term; and 4) small and medium
sized enterprise issues.
The Banking Dialogue was fortunate to benefit from participation of Andrey Kozlov,
w h o w a s working for F S V C at the time on programs which helped to bring U.S.
banking experts to Russia. Of course, the Banking Dialogue would not have been
possible without the voluntary participation of various Russian, U.S., and other
foreign bankers, s o m e of w h o m are with us here today.
The timing of the Banking Dialogue was also quite good. In March 2002 President
Putin nominated and the D u m a approved a new reform-minded team at the Central
Bank of Russia, led by Sergei Ignatiev and including Andrey Kozlov. As a result of
their efforts progress has been m a d e in some key areas, even in face of continued
opposition to reform.
Let me first comment on some of the achievements.
Deposit Insurance.
The recent passage of deposit insurance legislation is a major accomplishment and
essential first step to modernizing Russian banking sector. It is also at the heart of
the first goal of the Banking Dialogue recommendations: increasing trust and
reducing risk.
We agree with Deputy Governor Kozlov when he said bringing deposit insurance
law to life is the key to strengthening the banking system. Enhancing depositor
confidence will help bring "mattress" savings -which could be as much as $50
billion -- into the formal financial sector, money that can be used for new lending
and increasing economic growth. To ensure safe operations of the deposit
insurance fund, it will be critical to permit coverage only to banks meeting a fit and
proper test. Russian banks need to recognize benefits of deposit insurance and
support the implementation of robust criteria for entry into the system. The U.S.
Treasury has a resident advisor in Moscow helping set up the deposit insurance
agency.
New Approach to Supervision.
Just as important is the Central Bank of Russia's broader, more fundamental shift in
supervisory philosophy. It aims to establish modern, forward-looking banking
supervision in line with international best practices. Examples of this new approach
include the development of regulations through greater consultation with
commercial banks, increased transparency, the introduction of a CAMEL-like
system for rating banks, and the use of qualitative judgments on risk and bank
soundness. Again this is very much in the spirit of the Banking Dialogue
recommendations. This shift does not grab headlines like passage of key
legislation, but in concert with implementation of other reforms, it will exert a
fundamental and positive impact on fostering a healthy and vibrant banking system.
These are significant achievements, but at the same time, there are items on the list
of the Banking Dialogue recommendations that still need to be addressed.
Accounting reform.
One area of concern is the postponement of the introduction of modern accounting
standards. The movement of banks and their clients to International Financial
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js-1326: The United States-Russia Banking Dialogue: T w o Years Later<br>John B. Taylor <br>Under S... Page 3 of 5
Reporting Standards (IFRS) is important for improving governance, and
transparency. For Russian banks, it will provide greater confidence to potential
foreign partners and give Russian bank managers an additional tool for
understanding their operations and making strategic decisions. W e recognize the
transition takes time. However, the Russian authorities need to avoid further delays
and stick to an agreed timetable.
Privatization.
Another area of concern is the lack of progress on state bank privatization. Russia
needs a strong, private commercial banking system. State banks do not by and
large m a k e lending decisions on market terms and they keep the playing field
uneven for private banks. Until Russia makes basic decisions to shrink the
dominant role of the state banks in the system, Russia will not have an efficient,
growth-promoting mechanism for intermediating the country's savings.
Unfortunately, the government has not followed through on its privatization
commitments in the joint banking reform strategy.
With respect to the privatization of Vneshtorgbank, the decision to sell stakes in the
bank to the E B R D and IFC is the right one. The E B R D and IFC can help ensure
that a follow sale to a strategic private investor meets international standards.
In the case of Sberbank, the decision to limit the state guarantee and to bring the
bank into deposit insurance system by end-2005 is a step in the right direction.
With Sberbank's market share of retail deposits at 6 5 % and falling, the timing
seems appropriate. The next step is for the government to develop a more detailed
strategy and timeframe on the bank's privatization.
Banking Opportunities.
If reform is accelerated, it should help create an environment in which Russian
banks can take advantage of opportunities presented by Russia's rapidly growing
economy. Thus far, foreign banks have limited their exposure to the Russian
market and m a n y Russian banks have missed the recent boom entirely. Larger
corporations are now going abroad for financing. The loan to G D P ratio is less than
20 percent, well below those of more advanced transition economies and other
major emerging markets. Loans to G D P in more advanced Central European
economies average roughly 35 percent. In the United States, the level is roughly
75 percent. In Germany, it is 130 percent.
Over the last two years, there has been an explosion of new banking services
including consumer lending and mortgages.. Foreign and Russian banks are
moving forward and could do even more with the proper policy framework in place.
N e w opportunities for Russian, U.S. and other foreign banks are opening up with
clients outside the natural resource sector that do not have access to international
capital markets or pocket banks. Further development of the banking system
infrastructure such as an interbank market and local syndication market will allow
banks to better pursue these opportunities. This will require banks themselves to
adopt corporate governance and transparency standards which meet international
best practices.
U.S. Policy Priorities and Support
The United States is continuing to support reform and development of the banking
sector in a variety of ways:
First, the United States is pushing for level-playing field and equal access for U.S.
and other foreign banks to Russian market as part of W T O negotiations. It is only
through competition with foreign banks—which bring best practices and
technology—that Russian banks can reach their potential. Russia could use the
W T O accession negotiations to send an important signal to foreign investors and
bolster competition by committing to allow foreign banks to branch into Russia and
to permit foreign banks established in Russia to compete on an equal footing with
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s-1326: The United States-Russia Banking Dialogue: T w o Years Later<br>John B. Taylor <br>Under S... Page 4 of 5
Russian-owned banks. This, in the minimum, requires that Russia place no limits
on foreign equity participation in the sector.
Second, the United States supports the development of new financial markets and
products. The recent data on the growth of retail and mortgage lending and leasing
are encouraging. W e believe the U.S.-Russia Investment Fund's mortgage
subsidiary, Delta Capital, has played a leading role in the Russian mortgage market
by providing over $100 million in loans both directly and through partner banks.
Undoubtedly, this success has encouraged other Russian competitors. The United
States is also a strong proponent of IFC and E B R D projects, which promote
competition by lending and making equity investments in Russian regional banks
that are well-placed to provide new financial services to underserved regions and
business sectors.
Third, we continue to focus on increasing credit to small business and programs
that help banks to lend to this market. The United States government has
contributed $40 million to the EBRD's Russia Small Business Fund, which has built
one major small business bank -- K M B Bank - and is partnering with other banks to
build their small business portfolios. Finance Minster Kudrin has said that "EBRD's
Russia Small Business Fund has been successful in increasing the capacity of
banks to lend to small and micro businesses, which is critical to the growth of the
S M E sector." The program as a whole has provided over 180,000 loans worth over
$1.6 billion to small businesses in 128 cities throughout Russia.
Next Steps for U.S. Engagement
The United States hopes to do more. Continuing our direct engagements with our
government counterparts in Russia, and supplementing these with private sector
expertise through organizations such as the F S V C , will continue to be an important
part of our approach. Following on our support for mortgage lending, w e are
interested in working with the Russia to develop a mortgage-backed security
market. This is an area where the United States can be helpful and representatives
from the Departments of Housing and Urban Development, Treasury and State are
engaged in active discussions with the key Russian officials - the state housing
agency, the finance ministry, the central bank and the securities commission.
In addition, the U.S.-Russia Banking Dialogue is working to implement one of its
own recommendations, which called for more direct interaction between the
Russian and international financial communities. More specifically, the United
States is interested in promoting greater exchanges between our two financial
communities by supporting the FSVC's internship program through its
arrangements with the U.S. Agency for International Development and, potentially,
the C o m m e r c e Department's SABIT program. The next round of F S V C internships
start this s u m m e r and w e are proud to be a part of that.
Conclusion
The path of banking sector reform will be a key test of the Russian government's
commitment to spreading the benefits of growth more broadly a m o n g the Russian
people.
The beginning of President Putin's second term may well mark a fundamental
turning point in Russia's economic path. Whether the new direction will be toward
more economic diversification, competition, and free markets is still not clear,
though President Putin's emphasis on lowering tax rates and a stable investment
climate set a very promising tone.
Diversification—in which new businesses in new sectors grow up around the old
Soviet industrial base and the new energy conglomerates—is the only realistic path
for achieving President Putin's ambitious goal of doubling Russia's G D P in ten
years. Any state-directed attempt to achieve goal of economic diversification will
ultimately be less effective, insufficient and ultimately unsustainable.
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s-1326: T h e United States-Russia Banking Dialogue: T w o Years Later<br>John B. Taylor <br>Under S... Page 5 of 5
Thus, the development of a vibrant, internationally competitive, private banking
sector is essential for overall reform progress. Our continuing engagement with
Russia on banking reform is testament to the strength of this conviction.
S)://www.treas.gov/press/releases/js 1326.htm
5/27/2005
S-1327: Treasury International Capital (TIC) Data for February
Page 1 o f 2
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Readei®.
April 15,2004
JS-1327
Treasury International Capital (TIC) Data for February
Treasury International Capital (TIC) data for February are released today and
posted on the U.S. Treasury web site (www.treas.gov/tic). The next release date,
which will report on data for March is scheduled for May 17, 2004.
Domestic Securities
Gross purchases of domestic securities by foreigners were $1,439.4 billion in
February, exceeding gross sales of domestic securities by foreigners of $1,354.4
billion during the same month.
Foreign purchases of domestic securities reached $85.0 billion on a net basis in
February, relative to $100.3 billion during the previous month. Private net flows
reached $62.7 billion in February. Net private purchases of Treasury Bonds and
Notes increased to $20.9 billion from $20.0 billion the preceding month. Net private
purchases of Government Agency Bonds declined to $18.4 billion from $23.4 billion
the previous month. Net private purchases of Corporate Bonds rose to $21.1 billion
from $12.5 billion the previous month. Net private purchases of Equities declined to
$2.3 billion from $13.4 billion.
Official net purchases of U.S. securities were $22.3 billion in February, relative to
$31.0 billion in January. Official net purchases of Treasury Bonds and Notes of
$16.1 billion accounted for the bulk of official inflows in February, down from $26.9
billion the previous month.
Foreign Securities
Gross purchases of foreign securities owned by U.S. residents were $401.9 billion
in February, relative to gross sales of foreign securities to U.S. residents of $403.5
billion during the same month.
Gross sales of foreign securities to U.S. residents exceeded purchases by $1.6
billion, highlighting a net U.S. acquisition of $2.3 billion in Foreign Equities and net
U.S. sales of $0.7 billion in Foreign Bonds.
Net Long-Term Securities Flows
Net foreign purchases of long-term securities from U.S. residents were $83.4 billion
in February compared with $92.0 billion in January. Net foreign purchases of longterm securities were $818.5 billion in the 12-months through February 2004 as
compared to $592.8 billion during the twelve months through February 2003.
The full February data set, including adjustments for repayments of principal on
asset-backed securities, as well as historical series, can be found on the TIC web
site, http://www.treas.gov/tic/.
tp://www.treas.gov/press/releases/is 1327.htm
5/27/2005
S-1327: Treasury International Capital (TIC) Data for February
Page 2 of 2
REPORTS
Table 1. Foreigners' Transactions in Long-Term Securities with U.S.
Residents
ww.treas.gov/press/releases/is 1327.htm
5/27/2005
T a b l e 1. Foreigners' Transactions in L o n g - T e r m Securities with U . S . Residents
(Billions o f dollars, not seasonally adjusted)
2003
12 Months Through
Feb-03
Feb-04
Nov-03
Dec-03
Jan-04
Feb-04
13,022.9 15,726.4
12,475.4 14,981.4
547.6
745.0
13,157.7 16,546.7
12,585.8 15,682.1
572.0
864.6
1,171.1
1,088.7
82.4
1,198.8
1,118.0
80.8
1,385.6
1,285.3
100.3
1,439.4
1,354.4
85.0
2002
1
2
3
Gross Purchases of Domestic Securities
Gross Sales of Domestic Securities
Domestic Securities Purchased, net (line 1 less line 2) /l
4
5
6
7
8
Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
508.3
112.8
166.6
176.7
52.2
605.6
163.7
137.9
266.1
37.9
507.9
103.8
177.1
191.2
35.9
690.1
211.2
157.4
263.1
58.5
61.5
14.6
9.3
28.7
8.9
64.5
18.4
12.9
19.7
13.5
69.4
20.0
23.4
12.5
13.4
62.7
20.9
18.4
21.1
2.3
9
10
11
12
13
Official, net
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net
39.3
7.1
28.6
5.6
-2.0
139.4
109.3
24.9
5.5
-0.4
64.0
23.1
36.7
5.6
-1.4
174.5
145.3
24.7
5.5
-0.9
20.9
18.9
1.3
0.9
-0.2
16.3
11.3
4.4
0.7
-0.1
31.0
26.9
4.2
0.5
-0.6
22.3
16.1
5.9
0.2
0.1
Gross Purchases of Foreign Securities
2,640.0
Gross Sales of Foreign Securities
2,613.0
Foreign Securities Purchased, net (line 14 less line 15) /3
27.0
3,532.9
3,577.3
-44.4
2,691.2
2,670.4
20.8
3,890.4
3,936.4
-46.1
315.3
319.8
-4.5
310.4
315.3
-4.9
390.7
399.0
-8.3
401.9
403.5
-1.6
28.5
-1.5
26.6
-71.0
34.7
-13.9
29.0
-75.1
-3.6
-0.9
0.1
-5.0
4.7
-13.0
0.7
-2.3
574.6
700.6
592.8
818.5
77.9
75.9
92.0
83.4
14
15
16
17
18
Foreign Bonds Purchased, net
Foreign Equities Purchased, net
19
Net Long-Term Flows (line 3 plus line 16)
/l
12
/3
Net foreign purchases of U.S. securities (+)
Includes International and Regional Organizations
Net U.S. acquisitions of foreign securities (-)
Source: U.S. Department of the Treasury.
IS-1328: Treasury Secretary John W . Snow<br>Prepared Remarks<br>Philadelphia Chamber of Comm... Page 1 of 4
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 15,2004
JS-1328
Treasury Secretary John W. Snow
Prepared Remarks
Philadelphia Chamber of C o m m e r c e
Philadelphia, Pennsylvania
April 15,2004
Thank you so much for having me here today.
We've gathered on a day that is infamous in America. It's a day that is dreaded,
joked about, and even feared.
As a country, we have a healthy, historic distaste for April 15th. But tax day is
actually hurting less this year, for every single American who pays income taxes.
Working families are getting essential relief from cuts in every tax bracket.
The marriage penalty has been reduced; married couples benefited from an
increased standard deduction, making it, sensibly, twice the amount allowed for
single taxpayers.
Parents received an increased child tax credit - now $1,000 per child, up from $600
- and an increase in the amount of expenses eligible for deduction for child and
dependent care.
Americans saving for retirement benefited from expanded limits for IRA deductions.
Retirement savings were also encouraged and assisted through raising the
maximum contribution that an individual can contribute to a 401 (k), 403(b) or 457
plan to $13,000 in 2004 and $15,000 in 2006. Individuals over the age of 50 can
now make catch-up contributions of $3,000 - going up to $5,000 starting in 2006.
American seniors are seeing the benefits specific to the President's proposal to
reduce the over-taxation of dividends.
According to a shareholders association, the President's tax relief has resulted in a
significant positive impact on dividend payments. In the time since the President
proposed to reduce the over-taxation of dividends, the number of S & P 500
companies opting to pay out dividends to investors was up 43 percent in 2003 over
2002. Analysts expect dividends paid by S & P 500 firms to rise by over 10 percent in
2004, the biggest increase since 1989.
Investors were given an incentive to keep our markets healthy by the creation of a
special tax rate for dividends and a reduction of the rate on long-term capital gains.
More good news: Nearly 5 million taxpayers, 4 million of them with children, will
have their income tax liability completely eliminated in 2004.
Altogether, 111 million individuals and families will receive an average tax cut of
$1,586 in 2004 because of the tax relief enacted in 2001 and 2003.
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fS-1328: Treasury Secretary John W . Snow<br>Prepared Remarks<br>Philadelphia C h a m b e r of Comm...
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America's job creators, small-business owners, including those of you here in this
room today - also got significant relief. A n average of $3,001 apiece through rate
reductions and an increased ability to expense the cost of business investments like
new equipment.
All of this means that April 15th isn't as gloomy as it has been in years past. But
even more importantly, the tax relief has led to an expanding, growing economy.
The good economic news is certainly welcome and widespread. Over threequarters of a million n e w jobs were created over the past seven months, 308,000 in
March alone. Our unemployment rate remains lower than the average of the 1970s,
1980s and 1990s. Without the President's tax cuts, by the end of this year the
unemployment rate would be as much as 1.6 percent higher and as many as 3
million fewer Americans would be working.
Retail sales numbers recently brought more good news; in March they were up 1.8
percent in, the biggest increase in a year. This certainly bodes well for the overall
economy.
Another excellent indicator of our economic growth is the housing market.
Homeownership is at an all-time high of 68.6 percent, with substantial gains among
minority homeowners. N e w and used h o m e sales continue at high levels, and n e w
h o m e construction remains strong after hitting its highest level in 25 years in 2003.
In the last half of 2003, we saw a growth rate of 6.2 percent - that's the strongest in
nearly 20 years. Without the tax relief, it is estimated that real G D P would have
been 3.5 to 4 percent lower by the end of this year.
This is all evidence of what happens when the government lets you keep more of
your o w n money... and these are also the reasons why the President has called on
Congress to m a k e the tax cuts permanent.
Tax cuts are one of the top reasons why after-tax incomes are up 10 percent since
December of 2000 - substantially above levels following the last recession.
Buoyed by the return of the stock market and strong home values, in part because
of the tax cuts, household wealth is at a record high. After five consecutive quarterly
increases, household net worth is up by almost $6 trillion, reaching over $44 trillion
at the end of last year.
It's important to remember that all of this good economic news has happened on
the heels of an extremely difficult time in our nation's history - both economic and
otherwise.
Responding to an unprecedented series of blows to the U.S. economy - including a
recession, the bursting of the high tech bubble, terrorist attacks and corporate
scandals - with pro-growth policies w a s essential. As a result, our economy is
strong and getting stronger, and our financial markets were given the needed
confidence to grow.
The incentives in the President's tax relief led to a positive response in business
investment, which is back to strong growth. Technology investment is climbing
rapidly. Following the enactment of the President's Jobs & Growth Tax Relief
Reconciliation Act of 2003, business investment spiked from previously low levels.
From the trough in early 2003, market equity increased more than $4 trillion
throughout the year and the S & P 500, D o w Jones, and N A S D A Q all posted their
first annual gains since 1999.
So tax day this year is replete with good financial news. Another important issue on
this day is the issue of tax compliance.
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IS-1328: Treasury Secretary John W . Snow<br>Prepared Remarks<br>Philadelphia C h a m b e r of Comm...
Page 3 of 4
The vast majority of taxpayers are honest and seek to abide by the law... while
making sure that they are not over-paying their taxes, giving Uncle S a m m o n e y
they don't have to. W e need to be vigilant in protecting their rights
I am sorry to say that their task can be difficult, given the complexity of our tax
code.
Simplification of the code is a goal for Congress - I know that Senator Specter
supports simplification, and I c o m m e n d his leadership on the issue.
While Congress works on the larger issue of simplification, the Treasury
Department and IRS have taken steps to both assist honest taxpayers w h o struggle
with the difficulty of filing their tax forms and crack down on the dishonest w h o are
trying to take advantage of a complicated code by not paying their fair share.
There are several options that can make the burden of paying taxes a little easier.
For example, filing returns electronically. IRS e-file is the fastest, most accurate and
a secure w a y to file a tax return. If a taxpayer is due a refund, the waiting time for efilers is half that of paper filers. E-filing this year remains well ahead of last year's
pace; overall e-filing reached 48.5 million as of April 2nd, which is more than 5
million ahead of last year's pace.
Corporations can file returns electronically as well. The Treasury Department
introduced software in the first quarter of 2004 that enables corporations to file their
tax returns electronically. This modernized platform will improve the IRS' customer
service and save significant corporate resources, allowing businesses to allocate
more resources for investment to create jobs and boost the economy.
Small businesses like yours can also apply online for an "Employer Identification
Number," which you need to file your returns or open bank accounts. It used to take
weeks for businesses to get these numbers, n o w you can get them in real-time over
Internet, saving valuable time and helping n e w businesses focus on creating
business value instead of paperwork.
Millions of taxpayers also qualify for the Free File service accessed through
IRS.gov. Free File offers the efficiency of e-filing without having to purchase the
software. T h e Free File w e b site features private-sector partners that allow most
taxpayers to prepare and file their taxes online for free. Treasury, O M B and IRS
m a d e this possible through a public-private partnership.
Any taxpayer who is having difficulty navigating the world of tax filing is encouraged
to visit the IRS's award-winning w e b site. Anyone with Internet access can
download tax forms, instructions and publications as well as tax law information and
answers to frequently-asked tax questions. A special section of IRS.gov created
this year called 1040 Central offers information specifically tailored to individual
filers.
Another example of assistance on IRS.gov is "Where's my Refund?" If a taxpayer
wants to know whether his or her refund has been processed or w h e n the refund
will be mailed or directly deposited, "Where's M y Refund?" has the answers, also
available on IRS.gov.
The benefits offered to taxpayers through e-filing and electronic assistance are
terrific, and the President really wants to encourage more people to file that way.
That's w h y his F Y 05 Budget includes a proposal to extend the filing deadline by 15
days for all taxpayers w h o file electronically, including those eligible for Free File.
The proposal is pending in Congress.
The bottom line is that we want tax filing to be less painful for honest Americans.
For those who are not playing by the rules, however, no relief will be offered. For
those w h o are abusing the system w e are offering increased scrutiny and serious
P://www.treas.eov/nress/re1ea.ses/is 1328.htm
5/27/2005
fS-1328: Treasury Secretary John W . Snow<br>Prepared Remarks<br>Philadelphia C h a m b e r of Comm...
Page 4 of 4
penalties.
As part of a comprehensive strategy to ensure all taxpayers pay their fair share, the
Treasury Department and the IRS are moving aggressively to combat abusive tax
avoidance transactions. Abusive transactions are being addressed effectively
through increased disclosure by taxpayers and promoters, timely response by the
Treasury Department and the IRS to transactions that are identified, and, where
necessary, targeted legislative changes to the tax laws. The Administration's
actions to carry out each of these principles have been focused, significant and,
most importantly, effective.
We are taking vigorous enforcement action against abusive tax shelters by
increasing the disclosure of those shelters and shutting them down.
The President's legislative proposals, if passed by Congress, will shut down specific
abusive tax shelters, give the IRS important new tools and strengthen its ability to
combat abusive tax shelters, and enhance the IRS' effectiveness without
compromising taxpayer protections.
We are also reining in international tax abuses and are committed to exploring ways
in which the IRS can work more effectively without compromising taxpayer
protections.
Americans are not accustomed to good news on tax day, but President Bush has
delivered it. The news is good for working families, retirees, small business
owners... literally every American w h o pays income taxes.
And if you have any questions about how good the news is... just take a look at the
strength of our economy. It's growing and the world is watching with great respect.
The only bad news today is for those who are trying to get out of paying their fair
share... and cracking down on them is good news for the rest of America.
I understand that Americans will never look forward to, or celebrate, tax day - and
w e shouldn't. W e should always maintain that spirit that turned Boston Harbor into a
teapot in 1773. It's an essential part of what makes us Americans. But this year, tax
day doesn't have quite the sting that it sometimes has, and w e should enjoy the
good news: benefactors are as small as every individual, and as large as our
growing economy.
Thank you so much for having me here today.
-30-
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(S-1329: Remarks by<BR>Michael A. Dawson<BR>Deputy Assistant Secretary of the Treasury<BR>F... Page 1 of 3
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 15,2004
JS-1329
Remarks by
Michael A. Dawson
Deputy Assistant Secretary of the Treasury
For Critical Infrastructure Protection and Compliance Policy
Before the National Association of Federal Credit Unions
Identity Theft Seminar: Helping You Help Your Members
Dover, Delaware
Fighting Identity Theft: Challenges and Opportunities in Implementing the
Fair and
Accurate Credit Transactions Act of 2003
I want to thank NAFCU and all the other people involved in the planning of the
seminar for this opportunity to address this important collection of professionals
from the federal credit union community. Thanks to the Dover Federal Credit Union
from the Dover Air Force Base community for hosting the event. You work, day in
and day out, as the credit union motto attests, "not for profit, not for charity, but for
service," and this is doubly true of the service m e n and w o m e n and their families
among you that have dedicated their lives to service. I want to talk to you a lot
about your service today.
You have already served so well. I want to acknowledge that at the outset. You
have done an extraordinary job in working with us to comply with the new antimoney laundering and anti-terrorist finance provisions of Title III of the U S A
P A T R I O T Act and its implementing regulations. Never before in the history of
financial regulation have so many new regulatory burdens been imposed on such
an array of financial institutions in so short a period of time. Of course, those new
obligations are an important component of the war on terror. At the Treasury, w e
appreciate your diligent efforts to comply with not only the letter, but the spirit, of the
new regulations. You are making an important difference in this fight. Thank you.
I am here to say that we expect still more of you. In particular, we need your help your service - in the fight against identity theft.
I don't have to tell you that identity theft is one of the fastest growing crimes in
America. According to a November 2003 study by the Federal Trade Commission,
10 million Americans were victims of identity theft in 2002. Identity theft cost
American consumers $5 billion in 2002. It cost financial institutions $50 billion.
I don't have to tell you that identity theft is right here, in Delaware. Comprehensive
state by state data is hard to come by. But w e have some idea from a January
2004 report by the Federal Trade Commission on the number of identity theft
complaints submitted to its consumer sentinel database. Delaware was ranked
number 20.
The President recognized the growing threat of identity theft. He called it, "one of
the most harmful abuses of personal information." For that reason, the President
tasked Secretary S n o w and the Department of the Treasury with identifying new
tools in the fight against identity theft. W e , in turn, consulted with financial
institutions, technology companies, regulators, and victims. O n June 30, Secretary
S n o w announced the result: a baker's dozen of proposals to help fight identity theft
and renew national uniform standards that govern our national consumer credit
reporting system. With some exceptions, w e didn't invent the ideas in the
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IS-1329: Remarks by<BR>Michael A. Dawson<BR>Deputy Assistant Secretary of the Treasury<BR>F...
Page 2 of 3
proposals. These didn't c o m e from bureaucrats in Washington. They c a m e from
you: from financial institutions, technology companies, consumers, and, most
importantly, from victims.
Congress showed great leadership in this battle. Chairman Oxley, Congressman
Bachus, and Chairman Shelby held extensive hearings documenting the scope of
the problem of identity theft and the economic importance of national, uniform
consumer credit reporting standards. Their leadership, and the leadership of many
of their committee members, culminated in the Fair and Accurate Credit
Transactions Act of 2003, which passed the Congress with overwhelming bipartisan
support.
The President signed the FACT Act on December 4. It was an important step
toward strengthening our economy. As the President said, "reliable access to credit
and capital is essential to growth and prosperity." And the F A C T Act, as the
President said, "confronts the problem of identity theft." For example:
Consumers will be able to get a copy of their credit report free of charge every
year so that they can correct inaccuracies and spot fraud early in the crime spree.
With one phone call, a consumer will be able use the national security alert
system established under the law to put merchants and lenders on their guard that
an impersonator is transacting business fraudulently in the consumer's name.
An Active Duty Alert will permit our active duty service men and women, or
their representatives, to alert merchants and prospective creditors that they are
away from h o m e for an extended period of time, and potentially vulnerable to fraud.
Bank regulators will draw up guidelines to identify patterns of identity crime that
financial institutions will use to help prevent the crime and protect their customers.
Since passage of the Act and the President's signing, regulators - the FTC, the
Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and, of course, and the
National Credit Union Administration - have been hard at work implementing the
Act through rules and regulations.
This process is a difficult one. Congress imposed very tight deadlines on the
regulators so that the rules would be issued as soon as possible. The issues are
difficult and complicated. They are inter-related. There are many moving parts. It
is something of an understatement to say that implementation of the F A C T Act
through regulation presents s o m e challenges.
I believe that we can meet those challenges if we keep two principles in mind. They
were the principles that the President talked about when he signed the Act. They
were the principles that the Secretary talked about when he announced the
Administration's proposals way back on June 30 th They are accessibility and
security. A s w e write the rules, w e should keep our eye on expanding access to
credit while enhancing the security and accuracy of consumers' personal financial
information. For example, when w e contemplate rules implementing new notice
provisions, w e should ensure that the notices help expand access to credit and
enhance the security and accuracy of consumers' personal financial information.
In some cases, those goals may be served by sending the notice to many, many
consumers. As, for example, is the case with the negative information reporting
provision of the F A C T Act.
In other cases, it seems better to ensure that notices are sent only to customers
w h o might benefit from them more immediately than generally. D o all consumers
need to receive a risk-based pricing notice every time they apply for credit? If they
do h o w long before consumers will start to disregard the notice? H o w will a
consumer know w h e n to take the notice seriously enough to check his or her credit
report to see whether there are inaccuracies that are driving up the cost of credit to
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JS-1329: Remarks by<BR>Michael A . D a w s o n < B R > D e p u t y Assistant Secretary of the Treasury<BR>F... Page 3 of 3
that consumer? If consumers c o m e to disregard the notices, what purpose will they
serve? Will they expand access to credit? Will they enhance the accuracy of
information in the consumer reporting system?
At the same time, it is important to recognize that you can go too far in the other
direction. Efforts to too narrowly target the notice to consumers w h o need it most
could backfire. O n e could imagine a rule that is very difficult and very expensive to
comply with. Ultimately, such regulatory traps hurt consumers because they raise
the costs of financial services and drive companies from providing services to
segments of the market that they might otherwise serve.
How to achieve the balance? That's the challenge. Maybe different rules make
sense for different types of credit. Maybe the notice could be limited to situations in
which very specific, objective, quantifiable terms are affected in s o m e specific,
quantifiable way? Ultimately, these are questions for the regulators to resolve. I
a m hopeful that they will resolve them in a w a y that advances the twin goals of the
F A C T Act: expanding access to credit and enhancing the security and accuracy of
consumers' financial information.
I would like to close where I began -- with the concept of service. Because I haven't
gotten to the hardest part of the F A C T Act. That will be your efforts to comply. The
F A C T Act imposes a number of n e w obligations on financial institutions to ensure
that they are following best practices, spotting red flags, and helping us fight identity
theft. It will be the spirit of service that will carry you through. Not service to us,
your government. After all, the government works for the people. Rather, it will be
your service to your customers that makes the F A C T Act real and that protects your
customers from the growing problem of identity theft.
Thank you.
'w.treas.eov/Dress/releases/isl329.htm
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JS-1330: M E D I A A D V I S O R Y : < b r > D e p u t y Secretary B o d m a n to Discuss the Latest Progress in the<br>... Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 15,2004
JS-1330
MEDIA ADVISORY:
Deputy Secretary Bodman to Discuss the Latest Progress in the
Iraqi Asset Hunt
Treasury Deputy Secretary Samuel Bodman will discuss the latest progress in the
Bush Administration's efforts to locate, freeze and repatriate Iraqi assts. Dr.
Bodman's statement will be followed by an on the record, on camera briefing by
officials from the Department of the Treasury and the Department of State.
WHO:
Statement by Deputy Secretary Samuel Bodman, followed by remarks
and Q & A with:
Juan C. Zarate, Deputy Assistant Secretary, Executive Office for Terrorist
Financing and Financial Crimes
Tony Wayne, Assistant Secretary, Bureau of Economic and Business Affairs,
Department of State
WHAT: Statement and Q & A
WHEN: 1:45 PM EST
WHERE: Department of the Treasury, Media Room 4121
**Today's announcement and briefing will be web cast live at
http://www.treasury.gov.
Media without Treasury press credentials (including media with White House
credentials) planning to attend should contact Frances Anderson in Treasury's
Office of Public Affairs at (202) 528-9086. Please be prepared to provide her with
the following information: full name, social security number and date of birth by
noon EST
ttp://www.treas. eo v/nress/releases/is 1330.htm
JS-1331: Treasury Designates Front Companies, Corrupt <BR>Officials Controlled by Saddam Hussein'... Page 1 of 4
PRLSS R O O M
F R O M THE OFFICE OF PUBLIC AFFAIRS
April 15,2004
JS-1331
Treasury Designates Front Companies, Corrupt
Officials Controlled by Saddam Hussein's Regime
In a joint effort with the United Kingdom, the U.S. Department of the Treasury today
designated a worldwide group of front companies and individuals that were
procuring weapons, skimming funds, operating for the Iraqi Intelligence Service,
and doing business in support of the fallen Saddam Hussein regime.
"We are unmasking the financial fagade of the former Iraqi regime. Hussein and his
cronies used a global network of agents and businesses to pilfer from the Iraqi
people and to underwrite their tyranny," said Juan Zarate, the Treasury
Department's Deputy Assistant Secretary for Terrorist Financing and Financial
Crimes.
Today's action is against eight front companies of the former Iraqi regime and
five associated individuals. The United States is submitting the names of these
companies and individuals to the United Nations with the recommendation they be
listed by the 1518 Committee under U.N. Security Council Resolution (UNSCR)
1483. Today's action is taken pursuant to Executive Order 13315. Three of these
front companies and one of the individuals were previously designated by the
Treasury Department.
UNSCR 1483 requires U.N. member states to identify, freeze and transfer to the
Development Fund for Iraq (DFI) assets of senior officials of the former Iraqi regime
and their immediate family members, including entities owned or controlled by them
or by persons acting on their behalf. In addition, assets of the previous
Government of Iraq or its state bodies, corporations or agencies located outside of
Iraq before May 22, 2003, must also be transferred to the DFI for reconstruction,
administration and humanitarian assistance.
The Department of the Treasury is taking these steps to help the international
community identify Iraqi assets connected to the designated entities. Treasury is
also encouraging other countries to undertake independent investigations to identify
other Iraqi-related assets, publish similar listings and return identified funds to the
DFI.
"The Bush Administration will continue to unravel Saddam's financial web with the
help of our allies and partners. The world should know that we will not tire in our
efforts to hold the Hussein regime accountable for its corruption and to return Iraq's
money to the Iraqi people," Zarate continued.
The Treasury Department took action today against:
AL-WASEL AND BABEL GENERAL TRADING LLC
Information available to the U.S. indicates Al Wasel and Babel was controlled by,
and acted for or on behalf of, senior officials of the former Iraqi regime, including
Iraqi Deputy Prime Minister and Finance Minister Hikmat Mizban Ibrahim alAzzawi. Al-Azzawi has been named by the United Nations as a senior official of the
former Iraq regime on the list established pursuant to U N S C R 1483.
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Much of this information was developed during an investigation by U.S. authorities
on Al Wasel and Babel's attempts to procure a sophisticated surface-to-air missile
system for Iraq.
Other information developed by the U.S. Government indicates Al Wasel and Babel
played a key role in the former Iraqi regime's schemes to obtain illicit kickbacks on
goods purchased through the U.N. Oil-for-Food (OFF) Program.
Addresses
Ibrahim Saeed Lootah Building, Al Ramool Street
P.O. Box 10631 &638
Rashidiya, Dubai
UAE
Lootah Building, Airport Road
Rashidiya, Dubai
UAE
Al Wasel and Babel - Iraqi Offices
Harasiya area, Baghdad
Iraq
Individuals
Hikmat Jarjes Bahnam
a.k.a. Hikmat Gargees
Baghdad, Iraq
Tarik Nasser S. Al Obaidi
a.k.a. Tarik al-'Ubaydi
a.k.a. Tariq al-'Ubaydi
Baghdad, Iraq
AL-HUDA STATE COMPANY FOR RELIGIOUS TOURISM
Al-Huda served as a commercial front for the Iraqi Intelligence Service, an agency
of the former Iraqi regime. Al-Huda, which held a monopoly over the provision,
transportation and other tourism services to Iranian pilgrims visiting the Shi'ite
shrines in Iraq, skimmed lucrative amounts off tour packages and directed the funds
to the regime's coffers. Estimates show this skimming racked up as much as $500
million each year for the regime.
a.k.a.
Al-Huda for Religious Tourism Company
Al-Hoda State Company for Religious Tourism
Al-Hoda for Religious Tourism Company
Address
Iraq
AVIATRANS ANSTALT
Aviatrans Anstalt was established to manage assets of the former regime and its
senior officials. This Liechtenstein-based company was reportedly the registered
owner and manager of a Falcon-50 jet, which was purchased by the former Iraqi
regime with Iraqi Air Force funds and used to transport senior Iraqi government
officials.
a.k.a.
Aviatrans Establishment
Address
Ruggell, Liechtenstein
LOGARCHEO S.A.
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Logarcheo was established to manage assets of the former regime and its senior
officials. Logarcheo is reportedly the owner and manager of real estate in France
that is ultimately owned by Saddam Hussein.
a.k.a.
Locarcheo A G
Address
Chemin du Carmel
1661 Le Paquier-Montbarry
Switzerland
MIDCO FINANCIAL, S.A.
Midco's president, administrator and authorized signatory Khalaf Al-Dulaymi was
also a director of investments for the Iraqi Intelligence Service.
a.k.a.
Midco Finance, S.A.
Address
Switzerland
MONTANA MANAGEMENT, INC.
Khalaf Al-Dulaymi, also associated with Midco Financial, was a principal of
Montana Management, which reportedly owned substantial shares of stock in one
or more French firms on behalf of senior officials of the former Iraqi regime.
Address
Panama
Individuals
Khalaf M. M. Al-Dulaymi
a.k.a. Khalaf Al-Dulaimi
Adnan S. Hasan Ahmed
a.k.a. Hasan Ahmed S. Adnan
a.k.a. Ahmed Sultan
Amman, Jordan
AL-ARABI TRADING COMPANY
Al-Arabi is the ultimate holding company for a variety of Iraqi front companies that
engaged in military procurement for the former regime. Al-Arabi owns 99 percent of
the UK-incorporated company Technology and Development Group Limited (TDG),
which in turn owns T M G Engineering Limited. T D G and T M G were involved in
Iraq's arms procurement network during the late 1980s.
Addresses
Hai Babil
Lane 11, Distrcit 929
Baghdad, Iraq
Hai Al-Wahda
Lane 15, Area 902
Office 10
Baghdad, Iraq
P.O. Box 2337
Alwiyad
Baghdad, Iraq
AL-BASHAIR TRADING COMPANY
Al-Bashair, directed by Munir Al-Qubaysi, reportedly acted as the largest of Iraq s
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arms procurement front companies and was involved in a range of sanctions
busting and corruption schemes on behalf of the regime. Al-Bashair reported
directly to the Organization of Military Industrialization, which was responsible for
Iraq's military procurement programs and was headed by former Deputy Prime
Minister Abd-al-Tawab Mullah Huwaysh. Huwaysh has been named by the U.N. as
a senior official of the former Iraq regime on the list established pursuant to U N S C R
1483.
Reporting based on documents removed from Al-Bashair's headquarters describes
a variety of deals involving sham contracts, kickbacks, falsified export
documentation and money laundering designed to deceive U.N. inspectors and
deliver, among other things, missile components, surveillance equipment and tank
barrels to the former Iraqi regime. The company also allegedly helped seniors
officials of the former regime launder and hide Iraqi government funds.
a.k.a.
Al-Bashaer Trading Company, LTD
Al-Bashir Trading Company, LTD
Al-Basha'ir Trading Company, LTD
Al-Bashaair Trading Company, LTD
Address
Al-Ani Building, Sadoon Street
First Floor
Baghdad Iraq
Individual
Munir Al-Qubaysi
a.k.a. Munir Al-Kubaysi
a.k.a. Muneer Al-Kubaisi
a.k.a. Munir M a m d u h Awad
a.k.a. Munir A. A w a d
Syria
Midco Financial, Montana Management, Al-Arabi Trading Company and the
individual Khalaf Al-Dulaymi were designated by the Treasury Department in the
early 1990s as Specially Designated Nationals (SDNs) of Iraq. The United States is
submitting the names to the U.N. today in order to speed the transfer to the DFI of
assets that remain in these entities' names in other jurisdictions.
aw-treas.gov/press/releases/is 1331 .htm
5/27/2005
JS-1332: M E D I A ADVISORY:<br>Treasury Under Secretary John Taylor will travel to Brazil, Argentina Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 15,2004
JS-1332
MEDIA ADVISORY:
Treasury Under Secretary John Taylor will travel to Brazil, Argentina
John Taylor, Treasury Under Secretary for International Affairs, will travel to Brazil
and Argentina next week to for discussions of the economies of each country.
On Monday, April 19, Taylor will be in Rio de Janeiro, Brazil, for meetings of U.S. Brazil Group for Growth. The Group for Growth discussions are designed to
examine strategies for increasing productivity growth. The first meetings were held
in Washington, D C in August 2003. Taylor will have additional meetings with
members of the financial community, small business representatives, economists
and academics, including meetings on the morning of Tuesday, April 20.
Under Secretary Taylor will arrive in Buenos Aires, Argentina on the evening of
Tuesday, April 20. O n Wednesday, April 21 he will meet with economic officials of
the Government of Argentina in order learn first hand the progress of economic
reform. Taylor will also meet with members of the Argentine Congress of Deputies,
and representatives of the business community.
The visit on Wednesday will also include a roundtable discussion on Argentina and
the global economy with graduate students at Universidad Torcuato di Telia.
Further times and details on the visits will be forthcoming.
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js-1334: Remarks of Deputy Secretary B o d m a n on the Designation of Front Companies, <br>Individuals... Page 1 of 2
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 15,2004
js-1334
Remarks of Deputy Secretary Bodman on the Designation of Front
Companies,
Individuals of the Former Iraqi Regime
Thank you all for being with us today. I want to thank Juan Zarate, the Treasury
Department's Deputy Assistant Secretary for Terrorist Financing and Financial
Crimes, and Tony Wayne, Assistant Secretary for the State Department's Bureau of
Economic and Business Affairs, for joining m e here today and for their continued
hard work and leadership on the critically important effort of finding and repatriating
Iraqi assets. W e have seen a great deal of very productive inter-agency
collaboration in this effort, and I a m grateful to both the State Department and
Treasury teams for their tireless dedication.
I am very pleased to announce that, once again, the United States and the United
Kingdom's efforts have resulted in substantial progress in the hunt for Iraqi assets.
Today w e are designating a group of front companies of the former Iraqi regime, as
well as individuals associated with those companies. The commitment of our
British allies played an important role in today's action and in the overall hunt for
Iraqi assets.
With this action, we begin the unveiling of Saddam's financial web around the
world. In the coming weeks and months, the Treasury Department plans to take
similar actions against other operatives of the former regime.
The companies and individuals designated today were used by Saddam Hussein
and his cronies to support their cruel and oppressive regime. O n e company played
a key role in the former Iraqi regime's schemes to obtain illicit kickbacks on goods
purchased through the U.N. Oil-For-Food Program - a program intended to help
Iraqi families - and attempted to procure a sophisticated surface-to-air missile
system. Another served as the commercial front for the Iraqi Intelligence Service.
Yet another bilked religious Iranian pilgrims out of roughly $500 million each year
and directed it right into the regime's coffers.
The United States is submitting the names of eight front companies and five
individuals to the United Nations with the recommendation they be listed by the
1518 Committee under U.N. Security Council Resolution ( U N S C R ) 1483. Three of
these front companies and one of the individuals were previously designated by the
Treasury Department.
Today's action, which was achieved through international cooperation, requires
more of the same. U.N. member states must now identify, freeze and transfer the
assets, holdings and looted funds of Saddam Hussein and his regime officials, their
immediate families, front companies and agents to the Development Fund for Iraq
(or "DFI"). W e also encourage other countries to undertake independent
investigations to identify other Iraqi-related assets, publish similar listings and return
identified funds to the DFI. With U.S. leadership, nearly $6 billion of Iraqi assets
and Hussein's pilfered funds have been frozen worldwide, and over $2.5 billion has
been transferred by the U.S. and our global partners for the benefit of the Iraqi
people.
The DFI is essential for rebuilding Iraq after decades of oppression. A country that
,://
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js-1334: Remarks of Deputy Secretary B o d m a n on the Designation of Front Companies, <br>Individuals... Page 2 of 2
w a s once stagnant is now starting to flourish physically and economically. The
peace-embracing people of Iraq are seeing the construction of n e w schools, roads,
hospitals and homes. Iraqis are receiving the humanitarian support they were
starved for under the former regime. And the Iraqi economy is beginning to thrive,
as more people find work and bring h o m e legitimate wages for their families.
As President Bush has said, this Administration's commitment to the Iraqi people is
unwavering. A free, democratic and prosperous Iraq will contribute not only to
peace in the Middle East region, but also to the security of all Americans.
-30-
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js-1335: Report to Congress on International Economic and Exchange Rate Policies<br> April 2004
Page 1 of 11
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 15,2004
js-1335
Report to Congress on International Economic and Exchange Rate Policies
April 2004
This report reviews developments in international economic policy, including
exchange rate policy, focusing on the second half of 2003. The report is required
under the Omnibus Trade and Competitiveness Act of 1988, which states that: "The
Secretary of the Treasury shall analyze on an annual basis the exchange rate
policies of foreign countries, in consultation with the International Monetary Fund,
and consider whether countries manipulate the rate of exchange between their
currency and the United States dollar for purposes of preventing effective balance
of payments adjustments or gaining unfair competitive advantage in international
trade."
For the purpose of assessing whether an economy is satisfying the terms of the
Act, Treasury has traditionally undertaken a careful review of the trading partner's
exchange rates, external balances, foreign exchange reserve accumulation,
macroeconomic trends, monetary and financial developments, the state of
institutional development, and financial and exchange restrictions. Isolated
developments in any area do not typically provide sufficient grounds to conclude
that exchange rates are being manipulated under the terms of the Act. A
combination of factors, on the other hand, can and has in the past led Treasury to
find that certain countries had satisfied the terms of the Act.
After reviewing developments in the United States, the report examines exchange
rate policies in major economies across five regions of the world: (1) the Western
Hemisphere, (2) Europe and Eurasia, (3) Africa, (4) the Middle East and South
Asia, and (5) East Asia. To summarize, the report finds that:
• Economies around the world continue to follow a variety of exchange rate
policies, ranging from a flexible exchange rate with little or no intervention to
currency unions and full dollarization. For example, Canada follows a
flexible exchange rate regime with no intervention, twelve countries are
members of the European Monetary Union, and El Salvador and Panama
use the U.S. dollar as their "domestic" currency.
• A notable trend observed over the past several years is the move by many
economies to adopt flexible exchange rates, combined with clear price
stability goals and a transparent system for adjusting monetary policy
instruments.
• The report finds that no major trading partner of the United States met the
technical requirements for designation under the Omnibus Trade and
Competitiveness Act of 1988 during the second half of 2003. The report
notes that while a number of economies continue to use pegged exchange
rates and/or intervene in foreign exchange markets, a peg or intervention
does not in and of itself satisfy the statutory test. Treasury has consulted
with the IMF management and staff, as required by the statute, and they
concur with our conclusions. The Administration strongly believes that a
system of flexible, market-based exchange rates is best for major trading
partners of the United States.
• Treasury is continuing to engage actively with economies and to encourage,
in both bilateral and multilateral discussions, policies for large economies
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that promote a flexible market-based exchange rate combined with a clear
price stability goal and a transparent system for adjusting policy
instruments. In this light, the communique of the G 7 Finance Ministers and
Central Bank Governors in February of this year stated: "...that more
flexibility in exchange rates is desirable for major countries or economic
areas that lack such flexibility to promote smooth and widespread
adjustments in the international financial system, based on market
mechanisms."
The United States International Accounts
The growth of the U.S. current account deficit over more than a decade has been
linked to increasing levels of domestic U.S. capital formation. Perceived high rates
of return on U.S. assets, based on strong productivity growth relative to the rest of
the world, combined with an efficient U.S. capital market to attract foreign
investment. This helped finance U.S. investment and worked to increase the
current account deficit.
The current account deficit is conceptually equal to the gap between investment
and saving as a matter of international accounting. W h e n investment in the United
States is higher than domestic saving, foreigners m a k e up the difference, and the
United States has a current account deficit. In contrast, if saving exceeds
investment in a country, then that country has a current account surplus as its
people invest abroad.
In the second half of 2003, for example, the U.S. current account deficit was $503
billion (at a seasonally adjusted annual rate and on a national income and product
accounting, or NIPA," basis) or 4.5% percent of G D P . This $503 billion deficit
equaled the gap between $2,079 billion in investment and $1,575 billion in saving
[1]
. That is, U.S. domestic investment w a s $503 billion more than domestic saving
with net foreign investment making up the difference.
Viewed in these terms, the $55 billion increase in the U.S. current account deficit in
2003, measured on a NIPA basis, w a s caused by a $91 billion increase in
investment outstripping a $36 billion increase in saving. The increase in investment
w a s a key factor in the acceleration in U.S. economic growth during 2003. Overall,
real G D P grew at an 8.2 % annual rate in the third quarter and 4.1% in the fourth.
Consumer spending increased sharply, but growth became more balanced over the
second half as business investment in equipment and software increased at
double-digit rates.
The current account was $526 billion in deficit (at a seasonally adjusted annual rate
[2]
and on a balance of payments basis ) in the second half of 2003. H o w has the
deficit been financed? The largest single balance of payments component
financing the current account deficit has recently been net private foreign purchases
of U.S. securities, which reached $335 billion in the second half of 2003. (Included
in these were net private foreign purchases of U.S Treasuries amounting to $141
billion.) In addition, foreign official institutions increased their U.S. assets by $219
billion.
Viewed over a longer period, the U.S. current account deficit rose, as a percent of
G D P , from the first quarter of 1991 to reach a temporary peak of 4.4% in the fourth
quarter of 2000 before beginning to contract as domestic and foreign activity
weakened. The current account deficit began to widen again in the first quarter of
2002 with the recovery of the U.S. economy although it appears to have reached at
least a temporary plateau, in the neighborhood of 5 % of G D P , over the last seven
quarters.
Due to the current account deficit the net investment position of the United States
(with direct investment valued at the current stock market value of owners' equity)
fell to a negative $2.6 trillion as of December 31, 2002, the latest date for which
data are available, from a negative $2.3 trillion at the end of 2001. Despite a large
negative position, U.S. residents earned $22 billion more on their foreign
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investments in 2003 than foreigners earned on their U.S. investments. These
positive net income receipts are the result of large net inflows of income from direct
investment offsetting net outflows of income on portfolio investment.
The U.S. Dollar
The Federal Reserve Board's "broad" nominal dollar index declined 3.9% during the
second half of 2003. The dollar declined 7.9% against the "major" foreign
currencies (the currencies of seven industrialized economies) while rising 1.2%
against "other important trading partners" (largely currencies of emerging market
economies). The broad index declined 12.9% from February 27, 2002, when it
reached its recent peak, through December 31, 2003.
Inflation remained subdued during this period. The consumer price index rose
1.9% over the 12 months of 2003 and the core inflation rate (excluding food and
energy items) w a s 1.1%, the smallest increase in core consumer prices since
1966. The Federal Reserve has held the target federal funds rate at 1.0% since
June.
As discussed below, the currencies of different economies showed varying degrees
of flexibility relative to the dollar, as s o m e monetary authorities sought to dampen or
prevent movements of their exchange rates against the dollar while others did not
intervene at all. The United States did not intervene in foreign exchange markets
during the second half of 2003.
Western Hemisphere
Interest rate spreads between the Latin American component of the JPMorgan
Emerging Markets Bond Index (EMBI+) and U.S. Treasury securities continued
their downward trend, falling from 662 basis points at the end of June 2003 to 518
basis points by year end. The Latin American economies appear to be undergoing
a recovery, with regional real G D P growth estimated at around 1.5% in 2003. The
region's current account turned to an estimated surplus of 0.2% of G D P in 2003.
Canada's economy slowed in 2003 with real G D P growth of 1.7%, while its current
account remained relatively unchanged at a surplus of 2.1% of G D P .
Argentina
Argentina abandoned its convertibility law, which pegged the peso one-to-one with
the U.S. dollar, at the end of 2001 and has had a flexible exchange rate since that
time. Argentina's currency remained relatively steady in the second half of 2003,
depreciating 4 % from 2.81 pesos per dollar to 2.93 pesos per dollar. Argentina's
trade surplus was $7.2 billion in the second half of 2003, with the value of exports
rising 1 2 % and the value of imports rising 6 8 % compared with the s a m e period the
previous year. Argentina's bilateral trade surplus with the United States w a s $226
million during the second half of 2003. Argentina's gross foreign exchange
reserves grew $1.9 billion during the second half of the year to $14.1 billion at the
end of December as Argentina purchased foreign currency during periods of peso
strengthening to rebuild reserves. The economic recovery continued after the
severe contraction in the first half of 2002, with real G D P growing at an annual rate
of over 1 0 % in the fourth quarter of 2003. Consumer prices were nearly stable,
with an increase of 1.6% from end-June 2003 to end-December 2003.
Brazil
Brazil has a floating exchange rate regime and relies on inflation targeting to guide
monetary policy. Following a 3 5 % nominal depreciation in 2002, and a 2 4 %
nominal appreciation in the first half of 2003, the real depreciated 2 % in the second
half of 2003 and ended the year at BRL2.89/US$. Market sentiment continued to
improve and Brazil's sovereign risk, as measured by the Brazilian component of the
EMBI+, declined 325 basis points in the second half of the year to 463 basis points
over U.S. Treasuries at year-end. Monetary tightening in the fourth quarter of 2002
and the first half of 2003 helped lower inflation in the second half of 2003; year on
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year inflation through December fell to 9.3% from 16.7% in June. However, full
year inflation of 9.3% exceeded the revised inflation target of 8.5%. The Central
Bank began to ease monetary policy in the second half of 2003, cutting the
monetary policy interest rate by 10 percentage points from June through December
to 16.5%. Brazil registered a seasonally adjusted current account surplus of $3.14
billion (1.1% of G D P ) for the second half of the year following a $862 million (0.4%
of G D P ) surplus in the first half of the year. The 2003 full-year current account
surplus of $4.0 billion (0.8% of G D P ) w a s driven by a $24.8 billion merchandise
trade surplus. This performance compares with a $7.7 billion (1.6% of G D P )
current account deficit and a $13.1 billion merchandise trade surplus in 2002.
Brazil's bilateral merchandise trade surplus with the United States for the second
half of the year was $3.4 billion. The Central Bank increased international reserves
(net of IMF disbursements) to $17 4 billion at year-end from $14.6 billion in June
2003 and $14.2 billion at year-end 2002.
Canada
Canada has a flexible exchange rate regime and has not intervened in the foreign
exchange market since 1998, except to make a small contribution to the brief G-7
intervention in support of the euro in September 2000. During the second half of
2003 the Canadian dollar appreciated 4.9% from 1.36 C$/US$ to 1.29 C$/US. The
J.P. Morgan trade-weighted real effective exchange rate for Canada appreciated
1.1%. During this time, Canada ran a current account surplus of 2.4% of G D P
The United States ran a US$28.6 billion bilateral merchandise trade deficit with
Canada during the second half of 2003. Economic conditions remained soft in the
middle of 2003, but accelerated to 3.8% (saar) growth in the fourth quarter.
Mexico
Mexico has a flexible exchange rate and targets inflation at 3% with +/-1% band.
The Bank of Mexico also follows a rule-based mechanism whereby half of the
foreign reserves acquired in the previous quarter are auctioned in the foreign
exchange market. During the second half of 2003 the Mexican peso depreciated
6.9% from 10.46 pesos/dollar to 11.23 pesos/dollar. The J.P. Morgan tradeweighted nominal effective exchange rate depreciated 7.8%, and the J.P. Morgan
trade-weighted real effective exchange rate depreciated 4.4%. During this time,
Mexico's current account deficit was 1.3% of G D P . Mexico's bilateral merchandise
trade surplus with the United States was $19.6 billion during the second half of
2003. International reserves grew $3.2 billion during the second half of the year,
reaching $56.1 billion by year-end. Economic conditions strengthened during this
period with real G D P growing at an annual rate of 2.1% between the first and
second half of 2003 compared with the 0.5% growth between the second half of
2002 and the first half of 2003.
Europe and Eurasia
The European Monetary Union
The euro appreciated 9.5% against the dollar in the second half of 2003 although,
according to the Eurostat index, the real effective exchange rate appreciated only
2.0%. The European Central Bank did not intervene in exchange markets during
this period.
The countries in the Euro-zone as a whole had a current account surplus during the
second half of 2003 equal to $26 billion (sa), or 0.6% of G D P , up from $6.8 billion,
or 0.2% of G D P , in the first half of 2003. Goods exports increased 1.4% in the
second half of 2003 from the first half of 2003, and goods imports fell 0.6%. For the
year, the surplus w a s 0.4% of G D P . The strong euro appeared to moderate the
increase in the current account surplus in fourth quarter of 2003. The trade surplus
of the Euro-zone vis-a-vis the U.S. w a s relatively constant at $31.4 billion in the first
half of 2003 and $32.2 billion in the second half.
Euro-zone growth was an estimated 0.6% in 2003. The largest economies have
been a drag on overall Euro-zone growth. Growth w a s strongest in the area of
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government consumption, as private consumption growth remained at 1%. Yearend inflation w a s 2.0% (yoy), near the ECB's 2 % ceiling.
Central Europe
After exhibiting nominal weakness against the dollar in the first half of 2003, the
currencies of the major Central European economies appreciated in the second half
of the year. However, several currencies continued to exhibit nominal weakness
against the euro (the most important currency for trade) and saw a decline in their
respective trade-weighted real exchange rates.
In Poland and the Czech Republic, continued large budget deficits and declining
export competitiveness contributed to currency weakness. Despite the nominal
appreciation against the dollar, the zloty and the koruna depreciated 5.5% and
2.6%, respectively against the euro. In Hungary, the forint strengthened both in
nominal ( 1 2 % against the dollar and 1.5% against the euro) and real trade-weighted
(2.3%) terms as the National Bank raised interest rates by 6 percentage points.
In Slovakia, the koruna appreciated 0.2% against the euro in nominal and 7.4% in
real terms. Separately, the Bulgarian lev continued to appreciate against the dollar
as its value w a s fixed to the euro as part of Bulgaria's successful currency board
arrangement.
Russia
The trend of large net inflows of foreign exchange resulting from high oil prices and
high foreign borrowing by Russian corporations witnessed in the first half of 2003
continued during the second half. Russia's current account surplus in the second
half of 2003 w a s 6.7% of G D P ($15.3 billion) compared with 10.0% in the first half
($20.5 billion). This led to a 3.1% appreciation of the ruble against the U.S. dollar in
July-December compared to a 5.3% appreciation in January-June. The Russian
monetary authorities intervened to moderate the appreciation of the ruble against
the dollar, and foreign exchange reserves increased $12.5 billion to a record high of
$76.9 billion.
Africa
Nearly all major currencies in Africa appreciated against the U.S. dollar on a
nominal basis during the second half of 2003. The South African rand posted the
largest gain, appreciating 12.1%, as a result of favorable interest rate differentials,
strong commodity prices, sound economic fundamentals, and improved investor
sentiment toward emerging markets in general. The currencies of the C F A zone
also strengthened against the dollar, in line with the euro, to which these currencies
are pegged. The Zimbabwe dollar w a s the continent's weakest performer,
reflecting the country's severe economic crisis.
Real GDP growth in Africa rose to 3.8% in 2003 from 3.5% in 2002. The continent's
overall current account deficit narrowed slightly to 0.5% of G D P in 2003, though a
number of sub-Saharan countries experienced much larger deficits. Net capital
inflows, including from private sources, increased, leading to a $13.3 billion
increase in foreign exchange reserves. North Africa accounted for two-thirds of this
reserve accumulation, due mainly to higher oil prices.
Middle East and South Asia
Growth in the Middle East and South Asia was robust in 2003, supported by high oil
prices and a quick resolution of economic uncertainties stemming from the conflict
in Iraq. Oil exporting countries accounted for much of the growth, although non-oil
exporting countries also experienced modest growth. With the substantial increase
in the average oil price and export production volume for 2003 relative to 2002,
current account surpluses skyrocketed in the oil exporting nations. Saudi Arabia's
current account surplus, for example, more than doubled from 2002 to 2003 to
reach close to 1 3 % of G D P . The majority of countries in the region maintain
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pegged exchange rate regimes, with many, including the Gulf Cooperation Council
countries, explicitly tying their currencies to the dollar.
The Indian rupee appreciated 1.9% in nominal terms against the dollar and 1.3% on
a real trade-weighted basis in the second half of 2003. India's overall economy
grew by an estimated 8.1% in 2003, compared to 4.2% in 2002, while inflation
remained low at 5.4%. Despite a significant trade deficit, the current account
showed a small surplus of $1.7 billion (0.4% of G D P ) in the first three quarters of
2003, due to robust services earnings and transfers, compared to a surplus of $4.3
billion (1.3% of G D P ) during the s a m e period in 2002. The U.S. bilateral
merchandise trade deficit with India for the second half of 2003 totaled
approximately $4 billion - matching the trade deficit for the first half of the year.
Foreign exchange reserves continued to increase. Foreign exchange reserves
were $96.5 billion at the end of 2003, up from $78.2 billion at the end of June 2003.
Indian authorities have also taken a number of steps to reduce upward pressures
on the currency. In February 2004, Reserve Bank controls on capital outflows were
loosened to allow resident individuals to invest up to $25,000 per year abroad
without prior approval. Authorities also used growing reserves to prepay over $3
billion in external debt in 2003.
Turkey and Israel have flexible exchange rates. The Turkish lira was relatively flat
between the end of June 2003 and the end of December 2003, but appreciated
17.9% in nominal terms against the U.S. dollar and 6.4% in real trade-weighted
terms in 2003, due primarily to large capital inflows as confidence in the
government's economic program increased. Real G N P grew 5.9% in 2003, and
inflation fell to 18.4% from 2 9 . 7 % in 2002. The current account deficit in 2003
increased to 2.9% of G N P from 0.8% of G N P in 2002, with the strong real
appreciation of the Lira helping import growth in intermediate and capital goods
outpace strong export growth. Gross foreign exchange reserves grew $4.5 billion in
the last six months of 2003, reaching $33.6 billion by end-December (or 7 9 % of
short-term external debt, residual maturity basis) as the lira's strength gave the
central bank an opportunity to build up reserves.
The Israeli shekel was relatively stable against the dollar in nominal terms, but
depreciated 5.8% in real trade-weighted terms, during the second half of 2003,
following 8.9% nominal dollar and 1.9% real trade-weighted appreciation in the first
half of the year. G D P in Israel grew only 1.2% in 2003, following a slight
contraction in 2002. Meanwhile, prices contracted 1.9%. Foreign exchange
reserves climbed steadily in the s a m e period, up 4.9% to $25.6 billion by endDecember (or 88.6% of short-term external debt) from $24.4 billion at end-June.
The increase in reserves w a s largely a result of an improved current account
position and the issuance of dollar-denominated bonds guaranteed by the U.S
government. The current account ended the year nearly balanced for the first time
since 1990.
The Egyptian pound depreciated 23% in nominal terms against the dollar from
January to June 2003, following the Egyptian government's announcement that the
pound would float. The pound has remained close to LE6.2/$ since June. The
differential between the official and parallel market rates reported in the press
widened by 10 percentage points to approximately 1 5 % by year-end. The current
account surplus continued to expand during the second half of 2003, reaching 1.9%
of G D P in the third quarter compared to 0.1% in the s a m e quarter the year before.
The growing current account surplus w a s due to a strong upswing in tourism
receipts and the narrowing of the trade deficit, which resulted from increased oil and
gas revenues and the depreciation of the Egyptian pound.
East Asia
After a sluggish start at the beginning of 2003, East Asian GDP growth accelerated
sharply in the latter half of 2003. Several factors were behind the ratcheting up of
growth rates. The economic impact of S A R S proved to be short-lived, and affected
economies rebounded in the second half. The quick resolution of oil market
uncertainties stemming from the conflict in Iraq also raised confidence in the
economic outlook. Finally, strengthened external demand, principally from the
United States and China, bolstered growth throughout the region.
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These factors have also led to increased current account surpluses and foreign
direct investment inflows into East Asia. This has been most striking in Korea and
Thailand. But the greater effect on flows in the foreign exchange market have
c o m e from a sharp rise in net portfolio capital inflows - especially into China and
Japan, as well as Korea and Taiwan. Portfolio capital inflows have been lured by
and fueled equity market rallies in the region, but they also reflected expectations of
exchange rate appreciation in selected economies.
Monetary authorities in these economies intervened, purchasing foreign exchange,
in order to limit upward pressure on their currencies, often citing speculative capital
inflows and, in Japan and Taiwan, concerns about deflation. Intervention did not
prevent appreciation in several economies over the review period.
Trade flows among East Asian economies have increased sharply in recent years,
reflecting increased integration of economies in the region. But increased intraregional trade also reflects the increasing diffusion of component production a m o n g
economies in the region, often for products that are exported outside East Asia. A s
a result, monetary authorities appear to be increasingly concerned about the effect
of currency appreciation on their competitiveness relative to other economies in
East Asia. While noting these concerns, the Administration has encouraged
increased exchange rate flexibility for East Asian economies generally, both in
bilateral discussions and in regional fora such as A P E C .
Japan
Japan's economic recovery, which began in the second quarter of 2002, gathered
m o m e n t u m in 2003. G D P grew 2.7% in 2003, and at an annual rate of 6.4% in the
fourth quarter. In the second half of 2003, personal spending picked up slightly,
and business investment grew strongly (notably in the fourth quarter). Net exports
played an important role in the recovery, both directly, and through increased
investment in m a n y export industries.
Japan's current account surplus grew to $75.5 billion (3.4% of GDP) in the second
half of 2003, up from $62.8 billion (3.0% of G D P ) in the first half. Japan's bilateral
merchandise trade surplus with the United States w a s $33.8 billion in the second
half of 2003, up from $32.2 billion in the first half of 2003, but below its level a year
earlier ($36.8 billion in the second half of 2002).
The persistent Japanese global current account surplus reflects the high rate of
Japanese domestic saving relative to domestic investment, and the transition of
Japan from being one of the fastest growing economies in the industrial world to
one of the slowest. Slower growth over a longer period has meant lower
investment, and the share of private investment in G D P has fallen from 2 6 % in the
1960s, to 2 2 % in the 1980s, to 1 9 % in the last 3 years. Notwithstanding a decline
in personal saving to cushion consumption in the downturn and in view of the aging
of the economy, excess private saving has been partially absorbed by larger
government deficits and by persistent capital exports to the rest of the world.
A net outflow of private capital throughout 2002 and in the beginning of 2003
partially offset Japan's current account surplus. But, starting in M a y 2003, net
private capital moved into Japan in large amounts, with particularly large flows at
the end of the year and into 2004. T w o factors were behind this shift. The first w a s
large foreign flows into the Japanese equity market, as the recovery increased
confidence in Japan's near-term prospects. The second w a s sales of foreign bond
holdings by Japanese residents after the rise in Japanese domestic interest rates in
the s u m m e r of 2003. Expectation of yen appreciation m a y have also added to net
capital inflows.
During the June 30 to December 31 reporting period, the yen appreciated by 11.9%
against the dollar, from ¥119.9 to ¥107.1. The yen appreciated nearly 5 % in the
week of September 15-22 around the time of the meeting of G 7 finance ministers
and central bank governors in Dubai and then appreciated gradually during the
remainder of the reporting period.
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S o far in 2004 the exchange rate between the yen and the dollar has swung
broadly, against the backdrop of strong capital inflows into Japan and large official
Japanese intervention. O n balance, the dollar continued to depreciate against the
yen through the first months of 2004, reaching ¥104.2 at the end of March. Looked
at over a slightly longer period, the dollar - as measured by the Federal Reserve's
broad trade-weighed index - reached its peak in late February, 2002. Since then
through the end of March, 2004, the dollar has depreciated by 22.6% against the
yen, in line with its 2 4 . 4 % depreciation against the major currency component of the
index over the s a m e period.
Japanese authorities continued to intervene in the foreign exchange market in the
second half of 2003. Intervention totaled $60 billion in the first half of 2003, and
$119 billion in the second half Japan's foreign exchange reserves grew by 24%
to $652.8 billion at the end of December, up from $526.6 billion at the end of June
2003 and $451.5 billion at end-December 2002.
The Japanese foreign exchange intervention came at the same time as a shift in
monetary policy toward more rapid growth in base money in order to overcome
persistent Japanese deflation. The provision of yen in the course of foreign
exchange intervention has been an important component of monetary base growth,
as it has been only partially absorbed ("sterilized") by the sale of government
securities. This shift in monetary policy has had s o m e success, with yearly average
consumer price deflation moderating to -0.3% in 2003 from -0.9% in 2002.
Even though the dollar-yen foreign exchange market is huge, with transactions
estimated at $230 billion per day, the scale of Japanese intervention has been
extremely large. Japanese authorities have stated that their "intervention is carried
out when excess volatility or over-shooting is observed in the markets," and that
they do not target particular values of the exchange rate.
The Treasury is actively engaged in discussions with Japanese authorities on these
issues, both bilaterally and through the meetings of the G-7 finance ministers and
central bank governors. At the G-7 meetings in Dubai and more recently in Boca
Raton, the Treasury worked with the G-7 to promote a strong consensus in support
of flexible exchange rates. Japan joined the United States and other G-7 nations in
these declarations.
China
In the second half of 2003, China's overall trade surplus (not seasonally adjusted)
w a s $21 billion (2.6% of G D P ) , compared with $17 billion (2.5% of G D P ) a year
earlier. China's overall trade account turned from surplus in 2003 to a deficit in
January-February 2004 of $8 billion. China's bilateral merchandise trade surplus
with the United States grew to $70 billion in the second half of 2003, up from S60
billion in the second half of 2002.
More than half of China's exports come from foreign-funded operations in China,
m a n y Asian-owned. Exports to the U.S. from other Asian economies are
increasingly routed through China for final assembly and processing before
shipment from Chinese ports. In the last three years, as the U.S. trade deficit with
China has increased, the U.S. trade deficit with the other emerging economies of
East Asia has fallen.
Given the Chinese exchange rate peg, balance of payments inflows into China are
absorbed by the Chinese central bank and reflected in an increase in Chinese
reserves. China's official foreign exchange reserves grew by a net $57 billion
during the last half of 2003, or by 1 6 % of end-June foreign exchange reserves, to
reach $403 billion. Chinese authorities, however, transferred S45 billion of reserves
in December to recapitalize two large state-owned financial institutions thereby
reducing net reserve accumulation over the period. China's accumulation of foreign
exchange reserves created monetary pressures that fueled domestic credit growth
and inflation. China's real G D P officially increased 9.1% in 2003, with official
fourth-quarter growth put at 9.9%. Rapid acceleration of China's import demand
growth in 2003 reflects this rapid G D P growth and potential overheating and over-
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investment.
China maintains controls on capital flows, tariff and non-tariff trade barriers not yet
addressed by W T O accession, and a variety of export incentive programs. These
controls are largely asymmetrical, restricting outflows more than inflows, and hence
provide upward pressure on the currency's value.
The renminbi remained pegged to the dollar throughout the reporting period and in
the first three months of 2004 at 8.28 renminbi per dollar, the s a m e rate that China
has maintained since 1995. China's effective exchange rate, averaged across its
trading partners, has moved with the dollar, depreciating by 3.9% in the last half of
2003, and by a further 0.3% in the first three months of this year. In real terms, the
renminbi depreciated by 2.7% in the last half of 2003, but appreciated by 2.1% in
the firstquarter of this year.
Since 1994, when it unified its exchange rates and adopted its current pegged
exchange rate system, the Chinese economy has grown rapidly, as has China's
participation in world trade. A pegged exchange rate policy is not appropriate for a
major economy in the global system such as China, and the Chinese government
has indicated publicly and at senior levels that it will m o v e to a flexible exchange
rate regime. The Administration has urged China to m o v e as soon as possible
toward greater flexibility. President Bush, in his meeting with Premier W e n in
December, raised the issue of China's exchange rate policy as well as liberalization
of trade and capital markets. At the September 2003 G-7 meeting in Dubai, the
ministers and central bank governors endorsed flexibility in exchange rates for large
economies. This position w a s reiterated at the February 2004 G-7 meeting in Boca
Raton. A regular series of talks between senior financial officials from the G-7 and
senior financial officials from China has been established. During discussions last
month with the Chinese central bank governor, Secretary S n o w stressed that a
flexible market-based exchange rate regime and reduced controls on capital flows
are the best system for China and all major world economies. Secretary S n o w will
meet also with Vice Premier Huang Ju in Washington in the next few months on this
topic.
The United States is actively assisting the transition to flexible rates. Treasury has
appointed a senior financial expert to serve as Secretary Snow's emissary in
Beijing. The financial expert will ensure close communications on exchange rate
and other pressing financial issues. Under the leadership of the Secretary of the
Treasury and the governor of the central bank of China, a technical cooperation
program w a s launched last year. A Treasury-led delegation w a s in Beijing in
February to discuss the creation of market mechanisms necessary for a flexible
exchange rate regime. A m o n g other subjects, techniques for supervision of banks'
currency risk and for regulation of foreign exchange derivative markets under a
flexible exchange rate regime were discussed.
China will need to lay the groundwork for a shift to a floating exchange rate. In this
regard, China has taken m a n y steps to prepare for a flexible exchange rate regime.
It has liberalized FDI outflows, is preparing for renminbi trading in Hong Kong and
has allowed insurance companies to invest a portion of their portfolio in foreign
assets. China is also preparing to allow, within limits and through qualified
institutions, investments in securities traded on foreign markets. China is also
strengthening its financial architecture. China recapitalized two of its four largest
state-owned financial institutions in December 2003 and has continued to write off
non-performing loans in the banking system. It has introduced n e w regulations to
allow banks to raise capital through subordinated debt, and it has announced
measures to allow foreign banks a greater share in joint venture banks. In addition,
in December the central bank announced measures to liberalize certain domestic
interest rates.
Treasury will continue its efforts to encourage and assist China to move as soon as
possible to a flexible exchange rate regime.
Korea
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After contracting in the first half of 2003, the Korean economy rebounded in the
second half of last year. Real G D P increased at a 6.7% annual rate in the third
quarter and an 11.4% annual rate in the fourth quarter. The first half slowdown w a s
due to both contracting domestic demand and slowing external sales; the second
half rebound w a s the result of strong export growth, up 2 1 % over the s a m e period
in 2002.
Korea's current account surplus increased to $11.4 billion (3. 8% of GDP) in the
second half of 2003, up from $0.9 billion (0. 2 % of G D P ) in the first six months of
2003 and $2.4 billion (1.0% of G D P ) in the last half of 2002. The U.S. bilateral
trade deficit with Korea rose to $7.5 billion in the second half of 2003, up from $6.9
billion in the s a m e period of 2002. Net portfolio capital inflows also increased
sharply, to $15.3 billion in the second half, compared to $2.7 billion in the first half
and $0.7 billion for all of 2002. Much of this inflow went into the Korean stock
market, where the broad share price index increased by 3 1 % over the course of the
year and 21 % in the last half alone.
Korean authorities intervened to counter upward pressure on the won exchange
rate over the course of the year. Official foreign reserves increased by $23.6 billion
in the second half of 2003, and by $33.7 billion for the year as a whole, to reach
$154.5 billion by end-December (or more than three times short-term external
debt). Reserves have increased another $8.2 billion through end-March 2004.
The nominal dollar/won rate ended 2003 essentially unchanged from a year earlier;
although over the course of 2003 the rate fluctuated over a range of 8 % . O n a real
trade-weighted basis, the w o n depreciated 0.5% during 2003. In the first three
months of 2004 the w o n has appreciated by 4.0% vis-a-vis the U S dollar. Over the
past five years the w o n has been more stable against the Japanese yen than
against the dollar, suggesting that the authorities m a y be more concerned with
Korea's competitiveness with Japan than with the United States.
Taiwan
After contracting by 0.5% at an annualized, seasonally adjusted rate in the first half
of 2003, Taiwan's economy rebounded by 10.2% in the second half. This G D P
growth w a s driven by export growth and a strong recovery in household
consumption and business investment.
Total foreign exchange reserves increased by nearly $30 billion in the second half
of 2003, twice the amount of first half reserve growth, to reach $207 billion (almost
five times short-term external debt). Rapid reserve growth has continued through
the first three months of 2004, with an almost $20 billion increase. The current
account surplus in the second half of 2003 w a s 1 0 % of G D P (or $14.2 billion), a
proportion that has remained relatively constant for the last two years. Taiwan's
bilateral trade surplus with the United States decreased from $7.3 billion in the first
half of 2003 to $6.8 billion in the second half of 2003. The increase in Taiwan's
balance-of-payments position in the second half, which in turn fueled the reserve
growth, w a s primarily due to the strong financial inflows, including a net portfolio
inflow of $7 4 billion in the second half of 2003 compared with net outflows of $12.6
billion in the first half of 2003. This turnaround followed a decision by the Taiwan
government in July to scrap a rule restricting foreign fund investments in Taiwanese
shares to $3 billion per fund, and very large net inflows occurred in the third quarter
of 2003.
Taiwan has been in deflation since the third quarter of 2001, and prices in June
2003 were about 0.5% lower than the previous year. Despite falling prices, the
authorities let base money contract into mid-2002, before reversing course to
provide for growth in the monetary base. Money base growth continued during the
last half of 2003 and into this year, and by early 2004 prices had begun to rise
again. Foreign exchange intervention, not fully sterilized, provided growth of base
m o n e y during the last half of 2003 and into 2004.
Deflation abated, but continued during the reporting period, with consumer prices
declining 0.1% in December 2003 compared to the previous year versus 0.5% year
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over year in June. Taiwan continues to pursue an easy money policy. Narrow
money grew 2 1 % , year-on-year, in 2003, and much of the growth w a s in the second
half as a result of reserve accumulation.
While the Taiwanese central bank maintains that "the NT dollar exchange rate is in
principle determined by market forces", the bank also notes that it will respond to
"excessive volatility' in order to maintain the "dynamic stability of the N T dollar
exchange rate." The nominal Taiwan dollar vs. U.S. dollar exchange rate
appreciated 1.8% in the second half of 2003 after appreciating a slight 0.3% in the
first half of 2003. In the first three months of 2004, the Taiwan dollar has
appreciated by a further 3.0% vs. the dollar. According to JP Morgan's real tradeweighted index, the Taiwan dollar declined 0.8% during the second half of 2003.
Malaysia
Malaysia's economy grew 5.2% in 2003 (after growing 4.1% in 2002), with growth
accelerating to an annual rate of almost 8 % in the second half, as personal
spending picked up and investment growth turned positive. The external
contribution to Malaysian growth w a s negative in the last half, due to strong growth
in imports.
The current account surplus decreased slightly to 12.2% of GDP in the second half
of 2003 from 12.3% in the first half (and 9.6% in the second half of 2002).
Malaysia's bilateral trade surplus with the United States increased, to $7.9 billion in
the second half of 2003, up from $7.7 billion in the s a m e period in 2002.
Malaysia has maintained a fixed peg to the dollar since September 1998, when it
also expanded capital controls. Controls on capital flows have since been relaxed,
but offshore trading of the ringgit remains prohibited, and foreign portfolio
investment by residents continues to be restricted. The ringgit depreciated 3.2%
over the second half of 2003 on a real trade-weighted basis, as measured by the JP
Morgan index. At the end of December, reserves stood at $44.9 billion, about five
times short-term external debt, up from $37.1 billion at end-June 2003.
Including the relatively small statistical discrepancy.
Although the current account measures are conceptually the same, balance of
payments statistics are compiled on a slightly different basis from national income
statistics. Saving includes the statistical discrepancy between the income and
product accounts.
Published Japanese Ministry of Finance data on intervention in all currencies
converted to dollars with exchange rates as published in Federal Reserve Release
H10.
REPORTS
• Omnibus Trade And Competitiveness Act Of 1988 (H.R. 3)
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OMNIBUS TRADE AND COMPETITIVENESS ACT OF
1988 (H.R. Tl
SEC. 3004. INTERNATIONAL NEGOTIATIONS ON
EXCHANGE RATE AND ECONOMIC POLICIES.
The Secretary shall provide a written update of developments
six months after the initial report. In addition, the Secretary
shall appear, if requested, before both committees to provide
testimony on these reports.
(b) CONTENTS OF REPORT.-Each report submitted under
(a) MULTILATERAL NEGOTIATIONS.-The President shall
subsection (a) shall containseek to confer and negotiate with other countries-
(1) to achieve(A) better coordination of macroeconomic policies of
the major industrialized nations; and
(B) more appropriate and sustainable levels of trade
and current account balances, and exchange rates
of the dollar and other currencies consistent with
such balances; and
(2) to develop a program for improving existing mechanisms for coordination and improving the functioning
of the exchange rate system to provide for long-term
exchange rate stability consistent with more
appropriate and sustainable current account balances.
(b) BILATERAL NEGOTIATIONS .-The Secretary of the
Treasury shall analyze on an annual basis the exchange rate
policies of foreign countries, in consultation with the
International Monetary Fund, and consider whether countries
manipulate the rate of exchange between their currency and the
United States dollar for purposes of preventing effective balance
of payments adjustments or gaining unfair competitive
advantage in international trade. If the Secretary considers that
such manipulation is occurring with respect to countries that (1)
have material global current account surpluses; and (2) have
significant bilateral trade surpluses with the United States, the
Secretary of the Treasury shall take action to initiate
negotiations with such foreign countries on an expedited basis,
in the International Monetary Fund or bilaterally, for the
purpose of ensuring that such countries regularly and promptly
adjust the rate of exchange between their currencies and the
United States dollar to permit effective balance of payments
adjustments and to eliminate the unfair advantage. The
Secretary shall not be required to initiate negotiations in cases
where such negotiations would have a serious detrimental
impact on vital national economic and security interests; in such
cases, the Secretary shall inform the chairman and the ranking
minority member of the Committee on Banking, Housing, and
Urban Affairs of the Senate and of the Committee on Banking,
Finance and Urban Affairs of the House of Representatives of
his determination.
SEC.3005. R E P O R T I N G R E Q U I R E M E N T S .
(a) Reports Required- In furtherance of the purpose of this
title, the Secretary, after consultation with the Chairman of the
Board, shall submit to the Committee on Banking, Finance and
Urban Affairs of the House of Representatives and the
Committee on Banking, Housing, and Urban Affairs of the
Senate, on or before October 15 each year, a written report on
international economic policy, including exchange rate policy.
(1) an analysis of currency market developments and the
relationship between the United States dollar and the
currencies of our major trade competitors;
(2) an evaluation of the factors in the United States and
other economies that underline conditions in the
currency markets, including developments in bilateral
trade and capital flows;
(3) a description of currency intervention or other actions
undertaken to adjust the actual exchange rate of the
dollar;
(4) an assessment of the impact of the exchange rate of the
United States dollar on (A) the ability of the United States to maintain a more
appropriate and sustainable balance in its current
account and merchandise trade account;
(B) production, employment, and noninflationary
growth in the United States;
(C) the international competitive performance of
United States industries and the external
indebtedness of the United States;
(5) recommendations for any changes necessary in United
States economic policy to attain a more appropriate
and sustainable balance in the current account;
(6) the results of negotiations conducted pursuant to
section 3004;
(7) key issues in United States policies arising from the
most recent consultation requested by the International
Monetary Fund under article IV of the Fund's Articles
of Agreement; and
(8) a report on the size and composition of international
capital flows, and the factors contributing to such
flows, including, where possible, an assessment of the
impact of such flows on exchange rates and trade
flows.
SEC. 3006. DEFINITIONS.
As used in this subtitle:
(1) SECRETARY.-The term "Secretary" means the Secretary
of the Treasury.
(2) B O A R D - T h e term "Board" means the Board of Governors
of the Federal Reserve System.
IS-1336: Secretary S n o w Swears In Under Secretary Brian Roseboro
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PRESS R O O M
FROM THE OFFICE OF PUBLIC AFFAIRS
April 13,2004
JS-1336
Secretary Snow Swears In Under Secretary Brian Roseboro
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
iP^/www.treas.gov/Dress/releases/js 1336.htm
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JS-1337: Secretary S n o w Swears In Under Secretary Brian Roseboro
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PHLSS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 13,2004
JS-1337
Secretary S n o w Swears In Under Secretary Brian Roseboro
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
'.treas.gov/Dress/releases/isl337.htm
5/27/2005
JS-1338: Secretary S n o w Swears In Under Secretary Brian Roseboro
Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 13,2004
JS-1338
Secretary S n o w Swears In Under Secretary Brian Roseboro
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
ttp://www.treas. sov/nress/releases/i s 13 3 8 .htm
5/27/2005
JS-1339: Secretary S n o w Swears In Under Secretary Brian Roseboro
Page 1 of 1
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PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 13,2004
JS-1339
Secretary S n o w Swears In Under Secretary Brian Roseboro
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
%://www.treas.gov/press/releases/js 1339.htm
5/27/2005
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FROM THE OFFICE OF PUBLIC AFFAIRS
April 16,2004
JS-1340
Statement from Secretary Snow on the Swearing in of
Brian Roseboro to be Under Secretary of the Treasury for
Domestic Finance
Today, I have the honor of swearing in Brian C. Roseboro as Treasury's new Under
Secretary for Domestic Finance. In his new role, Brian will serve as m y top advisor
on all aspects of domestic finance including the formulation of policy and legislation
in the areas of financial institutions, public debt management, capital markets,
government financial management services, federal lending, fiscal affairs,
government-sponsored enterprises, and community development.
Brian has been an invaluable part of the Treasury team since 2001. His leadership,
experience and knowledge will serve not only the Treasury Department, but also
the American people well as w e continue to pursue the goals of greater economic
growth and job creation. The Treasury Department is fortunate to have Brian on
board, and w e thank Brian and his family for their commitment to public service.
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fS-1442: Media Advisory:<BR>Treasury Secretary John W . S n o w to Lead <BR>"National Teach Child... Page 1 of 2
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 16,2004
JS-1442
Media Advisory:
Treasury Secretary John W . S n o w to Lead
"National Teach Children to Save" Day
in N e w York
Treasury Officials to Join the American Bankers Association in Schools
Across the Country to
Promote Savings to Children
Treasury Secretary John W. Snow will lead Treasury's efforts in the eighth annual
"National Teach Children to Save Day." Secretary Snow will teach a fifth-grade
class in East Harlem's Twentieth School District in N e w York City. Secretary S n o w
will lead a lesson on the importance of saving for the future and how budgeting can
help individuals achieve their goals. This nationwide event is sponsored by the
American Bankers Association Education Foundation. More information on
"National Teach Children to Save Day" can be found at
http://www.aba.com/Consumer+Connection/teachchildrentosave.htm
In addition to Secretary Snow, several other Treasury officials will teach financial
education lessons in classrooms across the country on Thursday. More information
on these events will be available next week.
WHO:
Secretary of the Treasury John W. Snow
Mr. Donald G. Ogilvie, President and C E O , American Bankers Association
Ms. Dara Duguay, Director of Citigroup's Office of Financial Education
Mr. John Bryant, Founder, Chairman and C E O , Operation H O P E
WHAT:
Teaching a Financial Education lesson to a fifth grade class in conjunction
with "National Teach Children to Save Day", sponsored by the American
Bankers Association Education Foundation
WHEN:
Thursday, April 22, 2004
9:30 a m E D T
WHERE:
P.S. 50 Vito Marcantonio
433 E. 100 St.
N e w York, N e w York 10029
**Media interested in covering this event should call Treasury's Office of
Public Affairs at 202/622-2960
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F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 19,2004
js-1443
Remarks of Samuel W. Bodman,
Deputy Secretary of the United States Treasury
at the Annual Meeting of the
Eurpoean Bank for Reconstruction and Development
On behalf of President Bush and Treasury Secretary Snow, let me first say how
pleased I a m to be here in London. I offer m y sincere thanks to Prime Minister Blair
and the British government for hosting this important meeting. I think it's fair to say
that w e are gathered here at a critical time for this institution.
In less than two weeks, eight of the EBRD's countries of operation will join the
European Union. This historic event will mark their transition, in a mere 13-year
period, from communist countries with centrally planned economies to independent
countries with strong democratic policies and open market economies. These
countries deserve our congratulations for their achievements. For the E B R D as well
- with its mandate to promote this very type of transition - this is an opportunity to
declare victory.
In this context, it is appropriate that the shareholders take a fresh look at the future
of this Bank. It has always been our view that transitions are, by definition, fleeting.
As w e are to carry out the EBRD's mission, w e must continually evaluate our
operations in the context of a changing global environment. Maintaining the status
quo m a y be the easiest path forward, but it is not necessarily the most effective
path. In that vein, the upcoming Capital Resources Review (CRR) in 2006
represents a very good - and much-needed - opportunity for the Governors to
revisit the Bank's graduation policy.
Moving forward, the EBRD should build on its successes in the accession countries
by focusing on its poorest countries of operation, where the volume of E B R D
activity has actually declined for the last four years. W e are pleased that the Bank
intends to upgrade its efforts in these countries through an Early Transition Country
initiative. The initiative should incorporate programs such as the Direct Investment
Facility and the U.S.-sponsored S M E lending program. Success will require
sustained input from the private sector, a detailed plan for implementation, a
redirection of E B R D resources . . . and likely some organizational and cultural
changes within the Bank. In this context, I would argue that the Bank's
compensation policies need re-examination to ensure staff have the appropriate
incentives to pursue projects in these difficult environments.
As the EBRD shifts its focus south and east, we should keep in mind that the total
volume of E B R D activity is not - in and of itself - a measure of the EBRD's
success. Indeed, as the Bank's activities decline in the advanced transition
countries and expand in the poorer countries, w e can expect a decline in total
volumes, but an increase in transition impact.
With the dramatic surge in growth in many of the former Soviet countries, the
opportunities for the E B R D to promote transition in the region while ensuring
profitability have increased. The E B R D should look for investments that support
economic diversification. T w o such areas are the financial sector, where reform has
often lagged, and municipal infrastructure and services, especially in poorer
countries where crumbling infrastructure is a central barrier to growth. In contrast,
the E B R D must be more selective in the extractive industries, which are
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increasingly well-served by private capital.
Political change creates new opportunities as well. Recent events in Georgia
provide renewed hope for fiscal health and economic growth. W e have already
seen dramatic results: Georgia has run a fiscal surplus in the first three months of
the year. . confounding the skeptics. With the eyes of the international community
on Georgia, this is the time for real progress on improving the business
environment, particularly by reducing corruption.
In Serbia, the new government faces the urgent challenge of accelerating growth
and job creation. Cooperation with the International W a r Crimes Tribunal is a
necessary first step that will open n e w avenues of support from the international
community and potential investors. Improving the investment climate will be a key
priority for Serbia.
Bosnia-Herzegovina must spur more private sector-lead growth as it reduces a
bloated public sector that consumes over half of its G D P and cannot be financed as
international aid diminishes. W e urge accelerated efforts to build a simple, effective,
predicable tax and regulatory system. It currently takes 60 days to start a business
in that country. The recent instability in Kosovo reaffirms the urgency of better
economic performance. Accelerating privatization and building a strong legal and
regulatory environment must be top priorities. W e call on the E B R D to take a
leadership role in developing Kosovo's infrastructure and promoting privatization as
improvements are m a d e in the policy environment.
Last year, the EBRD focused attention on the early transition economies of Central
Asia by holding its annual meeting in Tashkent, Uzbekistan. Since that time, there
has been s o m e good news - notably, higher growth in Tajikistan and the Kyrgyz
Republic - but also disappointments, particularly in Uzbekistan, where there has
been very limited progress on political and economic reforms. This area of the world
certainly presents a challenge to the E B R D
but it also presents real potentiator
transition impact and enhancing regional integration.
Going forward, as the EBRD looks for opportunities to promote development, it
should expand support for the small business sector, including through increased
contribution of its o w n resources. E B R D projects which promote access to credit for
small businesses have encouraged entrepreneurship, expanded employment
opportunities, and strengthened local financial systems. W e strongly support these
programs and expect that the Bank will continue to see them as vital to its mission.
The Bank's promotion of improved legal structures and good corporate governance
contributes to improvements in the business environments of its countries of
operation. It s e e m s logical - and, w e would argue, is required - that the E B R D itself
should adhere to the highest standards of corporate governance. The E B R D , like
other international financial institutions, is a steward of the taxes paid by the citizens
of its m e m b e r s and, as such has significant and serious responsibilities to its
shareholder nations.
And so, we are pleased that the Bank has committed to establish a strong
framework of internal controls and assessment procedures for the 2004 financial
statements and beyond. This commitment will serve as a powerful example to other
international financial institutions.
Yet our work is not done. More progress is needed, particularly on the
independence of key individuals and the improvement of transparency and
disclosure policies.
Before I conclude, I'm pleased to report that just this week the United States
government completed the process of accepting Mongolia as an E B R D country of
operation. W e look forward to other shareholders following suit within their o w n
governments.
Now let me end where I started . this Bank has accomplished much in a short
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period of time. It has played a vital role in fostering the transition of countries toward
pluralistic, multiparty democracy and market economies. W e must n o w seek to
replicate success in those countries where difficult transition challenges remain. I
k n o w that I speak for President Bush and Secretary S n o w w h e n I say that given its
history thus far, w e are confident that the E B R D is up to this great task.
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F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 20, 2004
JS-1444
Treasury Secretary John Snow
Testimony before the
Senate Appropriations Committee
Subcommittee on Transportation, Treasury
and General Government
Chairman Shelby, Senator Murray, and Members of the Committee, I appreciate
the opportunity to appear before you today to discuss President Bush's F Y 2005
proposed budget for the Department of the Treasury.
The President's request for FY 2005 of $11.7 billion for Treasury provides funding
w e need to support the core missions as identified in our new strategic plan - in
promoting national prosperity through economic growth and job creation;
maintaining public trust and confidence in our economic and financial systems; and
ensuring the Treasury organization has the workforce, technology, and business
practices to meet the nation's needs effectively and efficiently. T w o key strategic
objectives are to collect federal tax revenue when due through a fair and uniform
application of the law and to disrupt and dismantle the financial infrastructure of
terrorists, drug traffickers, and other criminals and isolate their support networks.
One historic change at Treasury in the past year has been the movement of most of
the Department's law enforcement divisions - affecting some 30,000 employees to the Department of Homeland Security and the Department of Justice. This
change has provided an opportunity for Treasury to refocus on its core missions as
the Federal Government's economic policymaker, financial manager, and revenue
collector. This puts us in a better position to fulfill our critical role in fighting the war
on terrorist financing. In addition, the Department revised and completed a new
strategic plan in September 2003. To complement this strategic planning initiative,
the Department and many of the bureaus underwent a restructuring of their budget
activities and programs - discontinuing enforcement programs which no longer fit
into the Treasury strategic vision and developing new performance goals and
measures focused on getting value for taxpayers. As a result of these efforts, our
F Y 2005 request reflects significant reengineering and reprogramming to ensure
efficient and effective use of our resources.
Mr. Chairman, we provided the Committee with a detailed breakdown and
justification for President's F Y 2005 budget request for Treasury. I would like to
take the opportunity today to point out some highlights of our request and then I'd
be happy to take whatever questions you may have.
Promoting Prosperous and Stable U.S. and World Economies
The aim of these strategic goals is to ensure that the United States and world
economies perform at full economic potential. In order to perform at its full
potential, the U.S. economy must increase its rate of growth and create new, high
quality jobs for all Americans. Additionally, the legal and regulatory framework must
support this growth by providing an environment where businesses and individuals
can grow and prosper without being limited by unnecessary or obsolete rules and
regulations. The Treasury Department and three of its bureaus, the Community
Development Financial Institutions Fund, the Office of the Comptroller of Currency
and the Office of Thrift Supervision play diverse roles in the domestic economy.
From serving as the President's principal economic advisor to issuing tax refunds to
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millions of Americans, the Treasury has a significant influence on creating the
conditions for economic prosperity in the U.S. A prosperous world economy serves
the United States in m a n y ways. It creates markets for U.S. goods and services,
and it promotes stability and cooperation a m o n g nations. For these reasons, the
Department of the Treasury will work with other federal agencies and offices to
promote international economic growth and raise international standards of living
through interaction with foreign governments and international financial institutions.
Our budget requests $158.9 million to support these strategic goals.
Maintaining Public Trust and Confidence in our Economic and Financial
Systems
Treasury's mission of managing the U.S. Government's finances effectively is the
bulk of the President's F Y 2005 request for the Department. The budget request of
$11 billion - the majority of which is for the Internal Revenue Service - will provide
funds to ensure that the tax system is fair for all while maintaining high quality
service to our taxpayers and ensuring compliance with the tax laws.
In past years, IRS's focus has been on improving customer service. We believe
that w e have been successful in that effort and are committed to further enhancing
customer service for the vast majority of American taxpayers w h o do their best to
pay their fair share. For those w h o do not, fundamental fairness requires that our
enforcement efforts in F Y 2005 continue moving us towards a tax system in which
everyone is complying with the tax laws. Our F Y 2005 request, which includes a net
increase of $300 million, will focus our resources toward enforcement initiatives
designed to curb abusive tax practices, end the proliferation of abusive tax shelters,
improve methods of identifying tax fraud, identify and stop promoters of illegal tax
schemes and scams, and increase the number and effectiveness of audits to
ensure compliance with the tax laws. This request will allow the IRS to apply
resources to areas where non-compliance proliferates: promotions of tax schemes,
misuse of offshore accounts and trusts to hide income, abusive tax shelters,
underreporting of income, and failure to file and pay large amounts of employment
taxes.
The President's request also provides $285 million to continue our effort in
modernizing the nation's tax system through investments in technology. During the
fall of 2003, the IRS performed comprehensive studies to review its modernization
efforts. From these studies, the IRS has resized its modernization efforts to allow
greater m a n a g e m e n t focus and capacity on the most critical projects and initiatives.
The IRS is also responding to these studies by increasing the business unit
ownership of the projects and revising its relationships with the contractor and
ensuring joint accountability. While the IRS has thus far failed to deliver several
important projects with which taxpayers are not directly involved, it is important to
note they have had s o m e notable successes. The IRS has m a d e progress on
applications such as improved telephone service and a suite of e-services to tax
practitioners. For the first time, large businesses and corporations can
electronically file. In addition, taxpayers can access refund and Advance Child Tax
Credit information from the irs.gov website. The IRS's business systems
modernization expenditure plan provides more detail on this request.
In addition, IRS will work to improve customer service by making filing easier;
providing top quality service to taxpayers needing help with their return or account;
and providing prompt, professional, improved taxpayer access and helpful
treatment to taxpayers in cases where additional taxes m a y be due.
The provisions of the Trade Act of 2002 (P.L. 107-210) chartered the Treasury
Department (through the IRS) with establishing and implementing a n e w health
coverage tax credit program in 2003. This program provides a refundable tax credit
to eligible individuals for the cost of qualified health insurance for both the individual
and qualifying family members. The request provides $35 million to continue
implementation and operation of the Health Insurance Tax Credit Program.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) was created when the
Homeland Security Act of 2002 divided the Bureau of Alcohol, Tobacco and
Firearms into two agencies. Our F Y 2005 request includes $81.9 million for TTB:
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$58.3 million to support the Collect the Revenue function, and $23.5 million to
Protect the Public, both of which will facilitate their efforts in collecting $14.6 billion
in revenue from the alcohol and tobacco industries and monitor alcohol beverages
in the marketplace to detect contamination and adulterated products. Their focus
this coming fiscal year is to promote voluntary compliance of existing regulations
and to protect the consumer through efficient and effective service.
Key to the U.S. Government's management of financial systems is the Financial
Management Service (FMS), whose mission is to provide central payment services
to Federal program agencies, operate the Federal government's collection and
deposit systems, provide Government-wide accounting and reporting services, and
m a n a g e the collection of delinquent debt. The F Y 2005 request of $231 million for
F M S includes legislative proposals to improve and enhance opportunities to collect
delinquent debt through F M S ' debt collection program. The proposals would:
eliminate the 10-year limitations period applicable to the offset of federal non-tax
payments to collect debt owed to federal agencies; increase amounts levied from
vendor payments (from 15 percent to 100 percent) to collect outstanding tax
obligations; allow the Secretary of the Treasury to match information about persons
owing delinquent debt to the federal government with information contained in the
Department of Health and H u m a n Service's National Directory of N e w Hires; and
allow the offset of federal tax refunds to collect delinquent state unemployment
compensation overpayments.
The Bureau of the Public Debt (BPD) continues its management and improvement
of federal borrowing and debt accounting processes. B P D will provide vital support
to the processing of applications and the operation of systems used for re-enforcing
its mission of providing quality debt management services to financial institutions,
individuals, foreign governments, and over 200 government trust funds.
The activities of the United States Mint and the Bureau of Engraving and Printing
(BEP) are vital to the health of our Nation's economy. These agencies share the
responsibility for ensuring that sufficient volumes of coin and currency are
consistently available to carry out financial transactions in our economy. Treasury,
Mint and B E P will deliver a study to Congress regarding options to merge and/or
streamline operations by consolidating certain functions and sharing costs between
the Mint and the B E P
Fighting the War on Terror and Safeguarding our Financial Systems
Our goals in preserving the integrity of U.S. financial systems include ensuring that
the U.S. financial system and access to U.S. goods and services are closed to
individuals, groups and nations that threaten U.S. vital interests, ensuring that these
systems are kept free and open to legitimate users while excluding those w h o wish
to use the system for illegal purposes, and ensuring that the financial systems will
continue to operate without disruption from either natural disaster or m a n m a d e
attacks. To support such efforts, the President has requested $250.9 million for F Y
2005.
The Administration announced the creation of the Office of Terrorism and Financial
Intelligence (TFI) within the Department of the Treasury on March 8, 2004. TFI will
lead Treasury's efforts to sever the lines of financial support to international
terrorists and will serve as a critical component of the Administration's overall effort
to keep America safe from terrorist plots.
The TFI, which will include Treasury's newly established Executive Office for
Terrorist Financing and Financial Crime (EOTF/FC), will have policy oversight over
the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets
Control (OFAC), and the Treasury Executive Office for Asset Forfeiture (TEOAF).
This will create a single lead office in Treasury for fighting the financial war on terror
and combating financial crime, enforcing economic sanctions against rogue nations,
and assisting in the ongoing hunt for Iraqi assets.
The Office of Foreign Assets Control (OFAC) is central to our efforts to disrupt
financing of terrorist activities. Only days after September 11, 2001, O F A C drafted
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and implemented Executive Order 13224, which invoked Presidential authority
contained in the International Emergency Economic Powers Act and froze the
assets of 29 entities and individuals linked to O s a m a bin Laden and his al Q a e d a
network. Since then, O F A C research and investigation helped identify between 200
and 300 additional entities and individuals as Specially Designated Global
Terrorists under the Order. Since September 2001, O F A C and our allies have
frozen over $136 million in terrorist assets and vested $1.9 billion of frozen Iraqi
assets.
The President's FY 2005 request also includes $64.5 million for the Financial
Crimes Enforcement Network (FinCEN) to enhance its ability to fight the war on
terror and combat financial crimes such as m o n e y laundering. Its mission to
safeguard the U.S. financial systems from the abuses imposed by criminals and
terrorists and to assist law enforcement in the detection, investigation, disruption
and prosecution of such illicit activity is accomplished through its statutory role as
the administrator of the Bank Secrecy Act (31 C.F.R.) FinCEN issues and enforces
regulations that require a wide gamut of financial institutions to implement antim o n e y laundering programs and report transactions that are indicative of m o n e y
laundering, terrorist financing and other financial crimes, thus providing a wealth of
information to assist law enforcement, both domestic and international, in pursuing
such crimes. FinCEN also ensures that the information collected under these
regulations is m a d e fully accessible to law enforcement and the regulatory
community in a secure manner and provides both tactical and strategic analysis to
a variety of customers. In addition, FinCEN is the Financial Intelligence Unit (FIU)
for the United States and has been central in the development of a consortium of
FlUs around the globe that permits fast and effective sharing of financial
intelligence on an international scale.
The IRS's Criminal Investigative Division (IRS-CI) also plays a key role in
investigating financial crimes. The request supports the unique skills and expertise
of IRS-CI agents in investigating tax fraud and financial crimes not only support tax
compliance, but also benefit the war on terror and our efforts to root out financial
crimes.
In addition, the Office of Critical Infrastructure Protection and Compliance Policy
leads our efforts to safeguard the financial infrastructure. This Office works closely
with the Department of Homeland Security, other federal agencies, and the private
sector to safeguard our infrastructure. That is essential, given that the majority of
the critical financial infrastructure of the United States is owned and operated by the
private sector. The financial system is the lifeblood of our economy and this Office
leads our efforts to keep it safe.
Ensuring Professionalism, Excellence, Integrity and Accountability in
Management
of Treasury
The President has requested $229.6 million for ensuring proper stewardship of the
Department. Included in this request is $14.2 million for the Department's Office of
Inspector General (OIG) and $129.1 million for the Inspector General for Tax
Administration (TIGTA).
The 1988 amendments to the Inspector General Act of 1978 created the OIG to
conduct audits and investigations relating to Treasury programs and operations; to
promote e c o n o m y and efficiency, and detect and prevent fraud and abuse, in such
programs and operations; and to notify the Secretary and Congress of problems
and deficiencies in such programs and operations.
The Internal Revenue Service Restructuring and Reform Act of 1998 created the
Inspector General for Tax Administration (TIGTA) to oversee operations at the
Internal Revenue Service (IRS). TIGTA promotes the public's confidence in the tax
system by assisting the IRS in achieving its strategic goals, identifying and
addressing its material weaknesses, and implementing the President's
M a n a g e m e n t Agenda. Further, T I G T A undertakes investigative initiatives to protect
the IRS against threats to systems and/or employees.
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To maximize efficiencies and effectiveness, the Administration has proposed to
merge the Treasury Inspector General and the Treasury Inspector General for Tax
Administration into a n e w Inspector General office, called the Inspector General for
Treasury. The n e w organization will have all of the s a m e powers and authorities as
its predecessors have under current law. W e will work with the Congress to m o v e
this legislation forward.
Also included in this request is an increase of $10.8 million for a host of
modernization activities of our systems including IT Governance, E-Govemment,
operational security, and Treasury enterprise architecture.
Foundation for Success - The President's Management Agenda
As mentioned earlier, following the movement of the law enforcement bureaus to
the Departments of Homeland Security and Justice, Treasury restructured and
refocused its strategic goals and objectives based on the five initiatives of the
President's Management Agenda (PMA). Treasury developed and issued its n e w
Strategic Plan, which linked intricately with each of the five initiatives of the P M A .
This n e w strategic vision, coupled with the efforts underway in the P M A , provides
the mechanism and focus for continuous improvement throughout Treasury and its
bureaus.
In FY 2003, Treasury achieved many significant milestones in implementing the
President's Management Agenda. Specific accomplishments included:
• In the past 18 months, Treasury has drafted the first-ever Department-wide
H u m a n Capital Strategic Plan, which addresses the Standards for Success
as issued by the Office of Personnel Management ( O P M ) and the Office of
Management and Budget (OMB). Treasury incorporated h u m a n capital into
its strategic planning and budget formulation and execution processes, and
the plan will guide future efforts in areas such as workforce and succession
planning, diversity, performance management, and managerial
accountability.
• In competitive sourcing, Treasury completed 3 full competitions, over 20
streamlined competitions, and currently has studies involving approximately
4,500 positions in various phases of completion.
• In budget and performance integration, Treasury revised the performance
reporting requirement to facilitate review and assessment of bureaus' key
performance data. Treasury also restructured s o m e of the bureaus' budget
activities to reflect alignment with the n e w strategic plan and the full cost of
achieving results.
Treasury also maintained its government-wide lead in accelerated financial
reporting. The Department implemented a three-day monthly close and
successfully issued its F Y 2003 Performance and Accountability Report on
November 14, 2003, two
and one-half months ahead of the official deadline.
Treasury will continue to work closely with OMB and other stakeholders to make
improvements in implementing the initiatives set forth in the President's
Management Agenda.
The President's Six Point Economic Growth Plan
At the beginning of my testimony I talked about what the Treasury Department does
to support our strategic goal of encouraging a prosperous and stable U.S.
economy. I would also like to talk about our efforts across the Administration to
promote economic growth as embodied by President's six-point plan for growth.
That includes making health care more affordable with costs more predictable.
We can do this by passing Association Health Plan legislation that would allow
small businesses to pool together to purchase health coverage for workers at lower
rates.
[i//www.treas.2ov/Dress/releases/isl444.htm
5/27/2005
JS-1444: Treasury Secretary John Snow<BR>Testimony before the<BR>Senate Appropriations Commit... Page 6 of 7
W e also need to promote and expand the advantages of using health savings
accounts ... how they can give workers more control over their health insurance
and costs.
And we've got to reduce frivolous and excessive lawsuits against doctors and
hospitals. Baseless lawsuits, driven by lottery-minded attorneys, drive up health
insurance costs for workers and businesses.
The need to reduce the lawsuit burden on our economy stretches beyond the area
of health care. That's why President Bush has proposed, and the House has
approved, measures that would allow more class action and mass tort lawsuits to
be moved into Federal court -- so that trial lawyers will have a harder time shopping
for a favorable court.
These steps are the second key part of the President's pro-jobs, pro-growth plan.
Ensuring an affordable, reliable energy supply is a third part.
We must enact comprehensive national energy legislation to upgrade the Nation's
electrical grid, promote energy efficiency, increase domestic energy production, and
provide enhanced conservation efforts, all while protecting the environment.
Again, we need Congressional action: we ask that Congress pass legislation based
on the President's energy plan.
Streamlining regulations and reporting requirements are another critical reform
element that benefits small businesses, which represent the majority of new job
creation: three out of every four net new jobs c o m e from the small-business sector!
Let's give them a break wherever w e can so they're free to do what they do best:
create those jobs.
Opening new markets for American products is another necessary step toward job
creation. That's why President Bush recently signed into law new free trade
agreements with Chile and Singapore that will enable U.S. companies to compete
on a level playing field in these markets for the first time -- and he will continue to
work to open new markets for American products and services.
Finally, we've got to enable families and businesses to plan for the future with
confidence.
That means making the President's tax relief permanent.
Rate reductions, the increase in the child tax credit and the new incentives for
small-business investment - these will all expire in a few years. The accelerated
rate reductions that took effect in 2003 will expire at the end of this year. Expiration
dates are not acceptable - w e want permanent relief.
The ability of American families and businesses to make financial decisions with
confidence determines the future of our economy. And without permanent relief,
incentives upon which they can count, w e risk losing the m o m e n t u m of the recovery
and growth that w e have experienced in recent months.
The tax relief is the key stimulus for increased capital formation, entrepreneurship
and investment that cause true economic growth.
Conclusion
Mr. Chairman, I look forward to working with you, members of the Committee, and
your staff to maximize Treasury's resources in the best interest of the American
people and our country as w e move into F Y 2005. I a m hopeful that together w e
can work to m a k e this Department a model for management and service to the
p://www.treas.pnv/nress/re1eases/isl444.htm
5/27/2005
jS-1444: Treasury Secretary John Snow<BR>Testimony before the<BR>Senate Appropriations Commit... Page 7 of 7
American people.
Thank you again for the opportunity to present the Department's budget today.
would be pleased to answer your questions.
p://www.treas.sov/press/releases/jsl444.htm
5/27/2005
fS-1445: Treasury and IRS Address Foreign Tax Credit, Partnership Transactions
PRLSS R O O M
":;= - - - - - - - -
Page 1 of 1
<^jg
FROM THE OFFICE OF PUBLIC AFFAIRS
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 20, 2004
JS-1445
Treasury and IRS Address Foreign Tax Credit, Partnership Transactions
The Treasury Department and the Internal Revenue Service today issued
temporary regulations requiring partnerships to allocate foreign taxes in the same
manner as they allocate the income to which those taxes relate. These regulations
target certain transactions in which U.S. partners (or U.S. shareholders of partners
that are controlled foreign corporations) attempt, through special partnership
allocations, to claim foreign tax credits that are not matched by income subject to
U.S. tax.
"As we discussed in Notice 2004-19, we will use all of the tools available to us to
address inappropriate foreign tax credit transactions," said Acting Assistant
Secretary for Tax Policy Greg Jenner. "Allocations by partnerships of foreign taxes
without the corresponding income do not give rise to the double taxation that is the
economic basis for the foreign tax credit. These types of allocations should not be
allowed."
The temporary regulations generally apply to taxable years beginning on or after
today. No inference is intended as to the treatment of partnership allocations of
foreign taxes under the existing regulations.
REPORTS
• REG-139792-02E
• TD-9121
jp://www.treas. gov/press/releases/j s 1445 .htm
5/27/2005
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG-139792-02]
RIN1545-BB11
Partner's Distributive Share: Foreign Tax Expenditures
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rule making by cross-reference to temporary regulations and notice of
public hearing.
SUMMARY: This document contains proposed regulations relating to the proper allocation of
partnership expenditures for foreign taxes. The proposed regulations affect partnerships and their
partners. In the rules and regulations portion of this issue of the Federal Register, the IRS is issuing
temporary regulations that modify the rules relating to the proper allocation of creditable foreign taxes.
The text of the temporary regulations also serves as the text of these proposed regulations. This
document also contains a notice of public hearing on these proposed regulations.
DATES: Written or electronic comments must be received by Tuesday, August 24, 2004. Outlines of
topics to be discussed at the public hearing scheduled for Tuesday, September 14, 2004, at 10 a.m.,
must be received by Tuesday, August 24, 2004.
ADDRESSES: Send submissions to: CCPA:LPD:PR(REG-139792-02), room 5203, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CCPA:LPD:PR
(REG-139792-02), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, N W . ,
Washington, DC. Alternatively, taxpayers may submit electronic comments directly to the IRS internet
site at www.irs.gov/regs or www.regulations.gov. The public hearing will be held in the Auditorium,
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Beverly M.
Katz, (202) 622-3050; concerning submissions and the hearing, Treena Garrett, (202) 622- 7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The temporary regulations amend the rules in 26 CFR part 1 regarding the allocation of foreign
taxes among partners under section 704(b). The text of the temporary regulations also serves as the
text of these proposed regulations. The preamble to the temporary regulations explains the regulation.
Special Analyses
It has been determined that this notice of proposed rulemaking is not a significant regulatory
action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also
has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations, and because these regulations do not impose on small entities a
collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact on small business.
2
C o m m e n t s and Public Hearing
Before these proposed regulations are adopted as final regulations, consideration will be given
to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely
to the IRS. All comments will be available for public inspection and copying.
A public hearing has been scheduled for Tuesday, September 14, 2004, at 10 a.m. in the
Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Because of
access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30
minutes before the hearing starts. For information about having your name on the building access list to
attend the hearing, see the FOR FURTHER INFORMATION CONTACT portion of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments
must submit written or electronic comments by Tuesday, August 24, 2004, and an outline of the topics
to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by
Tuesday, August 24, 2004. A period of 10 minutes will be allotted to each person for making
comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for
receiving outlines has passed Copies of the agenda will be available free of charge at the hearing.
Drafting Information
The principal author of this regulation is Beverly M. Katz, Office of the Associate Chief Counsel
(Passthroughs & Special Industries). However, other personnel from the IRS and Treasury Department
participated in its development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
3
Proposed A m e n d m e n t s to the Regulations
Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as follows:
PART 1-INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26
U.S.C. 7805 * * *
Par. 2. Section 1.704-1 is amended as follows:
1. Paragraphs (b)(l)(ii)(b) and (b)(4)(xi) are added.
2. Paragraph (b)(5) is amended by adding Example 25 through Example 28.
The additions and revisions read as follows.
§ 1.704-1 Partner's distributive share.
/^\ * * *
/j\ * * *
111 i
(b) [The text of this proposed amendment is the same as the text of § 1.704- lT(b)(l)(ii)(b)
published elsewhere in this issue of the Federal Register].
*****
M\ * * *
(xi) [The text of this proposed amendment is the same as the text of § 1.704- lT(b)(4)(xi)
published elsewhere in this issue of the Federal Register].
4
(5) [The text of this proposed amendment of §1.704-1(b)(5) is the same as the text of §1.704lT(b)(5) published elsewhere in this issue of the Federal Register].
John M. Dalrymple
Acting Deputy Commissioner for Services and Enforcement.
5
[4830-01-p]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parti
[TO 9121]
RIN1545-BD11
Partner's Distributive Share: Foreign Tax Expenditures
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: The temporary regulations provide rules for the proper allocation of partnership
expenditures for foreign taxes. The temporary regulations affect partnerships and their partners. The
text of the temporary regulations also serves as the text of the proposed regulations set forth in the
notice of proposed rulemaking on this subject in the Proposed Rules section of this issue of the Federal
Register. The final regulations consist of technical revisions to reflect the issuance of the temporary
regulations.
DATES: Effective Date: These regulations are effective April 21, 2004.
Applicability Date: For dates of applicability, see § 1.704-l(b)(l)(ii).
FOR FURTHER INFORMATION CONTACT: Beverly Katz at 202-622-3050 (not a toll-free
number.
SUPPLEMENTARY INFORMATION:
Background
Subchapter K is intended to permit taxpayers to conduct joint business activities through a
flexible economic arrangement without incurring an entity-level tax. To achieve this goal of a flexible
economic arrangement, partners are generally permitted to decide among themselves how a
partnership's items will be allocated. Section 704(a) of the Internal Revenue Code (Code) provides
that a partner's distributive share of income, gain, loss, deduction, or credit shall, except as otherwise
provided, be determined by the partnership agreement.
Section 704(b) places a significant limitation on the general flexibility of section 704(a).
Specifically, section 704(b) provides that a partner's distributive share of income, gain, loss, deduction,
or credit (or item thereof) shall be determined in accordance with the partner's interest in the partnership
(determined by taking into account all facts and circumstances) if the allocation to a partner under the
partnership agreement of income, gain, loss, deduction, or credit (or item thereof) does not have
substantial economic effect. Thus, the statute provides that partnership allocations either must have
substantial economic effect or must be in accordance with the partners' interests in the partnership.
Section 1.704- l(b)(2)(i) provides that the determination of whether an allocation of income,
gain, loss, or deduction to a partner has substantial economic effect involves a two-part analysis that is
made as of the end of the partnership taxable year to which the allocation relates. First, the allocation
must have economic effect within the meaning of § 1.704-1 (b)(2)(ii). Second, the economic effect of the
allocation must be substantial within the meaning of § 1.704-1 (b)(2)(iii).
For an allocation to have economic effect, it must be consistent with the underlying economic
arrangement of the partners. This means that, in the event that there is an economic benefit or burden
that corresponds to the allocation, the partner to whom the allocation is made must receive such
2
economic benefit or bear such economic burden. §1.704- l(b)(2)(ii). Generally, an allocation of
income, gain, loss, or deduction (or item thereof) to a partner will have economic effect if, and only if,
throughout the frill term of the partnership, the partnership agreement provides: (1) for the determination
and maintenance of the partners' capital accounts in accordance with §1.704- l(b)(2)(iv); (2) for
liquidating distributions to the partners to be made in accordance with the positive capital account
balances of the partners; and (3) for each partner to be unconditionally obligated to restore the deficit
balance in the partner's capital account following the liquidation of the partner's partnership interest. In
lieu of satisfying the third criterion, the partnership may satisfy the qualified income offset rules set forth
in § 1.704-l(b)(2)(ii)(d).
Section 1.704- l(b)(2)(iii)(a) provides as a general rule that the economic effect of an allocation
(or allocations) is substantial if there is a reasonable possibility that the allocation (or allocations) will
affect substantially the dollar amounts to be received by the partners from the partnership, independent
of tax consequences. The section further provides that, even if the allocation affects substantially the
dollar amounts, the economic effect of the allocation (or allocations) is not substantial if, at the time the
allocation (or allocations) becomes part of the partnership agreement, (1) the after-tax economic
consequences of at least one partner may, in present value terms, be enhanced compared to such
consequences if the allocation (or allocations) were not contained in the partnership agreement, and (2)
there is a strong likelihood that the after-tax economic consequences of no partner will, in present value
terms, be substantially diminished compared to such consequences if the allocation (or allocations) were
not contained in the partnership agreement.
3
The regulations under section 704(b) provide that the allocation of certain items cannot have
substantial economic effect, and accordingly provide guidance on allocating those items in a manner that
will be deemed to be in accordance with the partners' interests in the partnership. Items that cannot be
allocated with substantial economic effect include tax credits, nonrecourse deductions, and recapture
amounts. These items are addressed in §§1.704-1(b)(4) and 1.704-2.
Explanation of Provisions
1. Clarifying the Allocation of Expenditures for Foreign Taxes
Section 901(b)(5) provides that an individual who is a partner will, subject to certain limitations,
qualify for the foreign tax credit for his proportionate share of taxes of the partnership paid or accrued
during the taxable year to a foreign country or to any possession of the United States. Section
702(a)(6) provides that each partner shall take into account separately his distributive share of the
partnership's taxes, described in section 901, paid or accrued to foreign countries and to possessions of
the United States. Section 703(a)(2)(B) provides that the partnership is not entitled to the deduction for
taxes provided in section 164(a) with respect to taxes, described in section 901, paid or accrued to
foreign countries and to possessions of the United States. Section 703(b)(3) provides that elections
affecting the computation of taxable income derived from a partnership shall be made by the
partnership, except that any election under section 901 (relating to taxes of foreign countries and
possessions of the United States), will be made by each partner separately.
These temporary regulations clarify the application of the regulations under section 704 to
creditable foreign tax expenditures for which the partnership bears legal liability as described in § 1.9012(f). Unlike most other trade or business expenses, foreign taxes described in section 901 or 903 are
4
fully creditable against a partner's U.S. tax liability, subject to certain limitations, including primarily the
foreign tax credit limitation under section 904. For this reason, the temporary regulations provide that
partnership allocations of creditable foreign tax expenditures cannot have substantial economic effect
and, therefore, must be allocated in accordance with the partners' interests in the partnership. A
creditable foreign tax is a foreign tax paid or accrued for U.S. tax purposes by a partnership and that is
eligible for a credit under section 901(a). A foreign tax is a creditable foreign tax for these purposes
without regard to whether a partner receiving an allocation of such foreign tax elects to claim a credit for
such amount.
The temporary regulations establish a safe harbor under which partnership allocations of foreign
tax expenditures will be deemed to be in accordance with the partners' interests in the partnership.
Under this safe harbor, if the partnership agreement satisfies the requirements of §1.704- l(b)(2)(ii)(b)
or (d) (i.e., capital account maintenance, liquidation according to capital accounts, and either deficit
restoration obligations or qualified income offsets), then an allocation of a foreign tax expenditure that is
proportionate to a partner's distributive share of the partnership income to which such taxes relate
(including income allocated pursuant to section 704(c)) will be deemed to be in accordance with the
partners' interests in the partnership. This rule is consistent with the underlying purposes of the foreign
tax credit, which is to avoid double taxation of foreign source income, and the foreign tax credit
limitation, which is to prevent foreign tax credits from offsetting tax liability on a taxpayer's U.S. source
income. Also, this rule achieves greater parity between entities that are taxed under foreign law at the
partner level and entities that are taxed under foreign law at the entity level. If a partnership were taxed
under foreign law at the partner level, then the amount of foreign taxes imposed on a partner generally
5
would be proportionate to the partner's share of the income subject to the foreign tax. T h e partner
would take into account this amount of foreign tax in computing U.S. tax liability. Likewise, for
partnerships that are taxed under foreign law at the entity level, the safe harbor provides that a partner is
allowed to take into account in computing U.S. tax liability the share of the partnership's foreign tax
expenditures that is proportionate to the partner's share of the income to which such taxes relate.
If the taxpayer does not satisfy this safe harbor, then the taxpayer's allocations will be tested
under the partners' interests in the partnership standard set forth in § 1.704-1 (b)(3). Under that
standard, the determination of a partner's interest in a partnership is made by taking into account all
facts and circumstances relating to the economic arrangement of the partners. Among the facts to be
considered are: (a) the partners' relative contributions to the partnership; (b) the interests of the partners
in economic profits and losses (if different than their interests in taxable income or bss); (c) the interests
of the partners in cash flow and other non-liquidating distributions; and (d) the rights of the partners to
distributions of capital upon liquidation. Ultimately, the partners' interests in the partnership signify the
manner in which the partners have agreed to share the economic benefit or burden (if any)
corresponding to the income, gain, loss, deduction, or credit (or item thereof) that is allocated. The
sharing arrangement with respect to a particular item may or may not correspond to the overall
economic arrangement of the partners. Thus, a partnership's allocation of a foreign tax expenditure that
does not satisfy the safe harbor contained in these temporary regulations, may, in unusual circumstances
(such as where there is substantial certainty that U.S partners will deduct, rather than credit, foreign
taxes) be in accordance with partners' interests in the partnership under § 1.704- 1(b)(3).
2. Application of § 1.704- l(b)(2)(iii) Substantiality Requirement Where Partnership Allocation Has Tax
Effect on O w n e r s of Partners
6
A s discussed above, in determining if the economic effect of a partnership allocation is
substantial, the partnership must consider the after-tax economic consequences to the partners. The IRS
and Treasury have become aware that some partnerships are taking the position that, in determining if
the economic effect of a partnership allocation is substantial, they need not consider any tax
consequences to an owner of the partner that result from the allocation. The IRS and Treasury believe
that such a position is inconsistent with the policies underlying the substantial economic effect mles,
because it would allow a partnership to make tax-advantaged allocations if the tax advantages of the
allocations were to accrue to an owner of a partner, rather than to the partner itself. The IRS and
Treasury are planning to issue guidance on the application of the section 704(b) regulations to these
situations.
3. Effective Date
The provisions of these regulations generally apply for partnership taxable years beginning on or
after the date that the temporary regulations are published in the Federal Register. A transition rule is
also provided for existing partnerships. Under the transition rule, if a partnership agreement was entered
into before April 21, 2004, then the partnership may apply the provisions of § 1.704-1 (b), as if the
amendments made by this temporary regulation had not occurred, until any subsequent material
modification to the partnership agreement, which includes any change in ownership, occurs. This
transition rule does not apply if, as of April 20, 2004, persons that are related to each other (within the
meaning of section 267(b) and 707(b)) collectively have the power to amend the partnership agreement
without the consent of any unrelated party. No inference regarding the treatment of allocations of
7
foreign taxes under § 1.704-1 (b) (prior to the amendments made by this temporary regulation) is
intended.
Special Analyses
It has been determined that this Treasury Decision is not a significant regulatory action as
defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6),
refer to the Special Analyses section of the preamble to the notice of proposed rulemaking on this
subject published in the Proposed Rules section of this issue of the Federal Register. Pursuant to
section 7805(f) of the Code, this notice of rulemaking will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact on small business.
Drafting Information
The principal author of this regulation is Beverly M . Katz, Office of the Associate Chief Counsel
(Passthroughs & Special Industries). However, other personnel from the IRS and Treasury Department
participated in its development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 C F R parts 1 and 301 are to be amended as follows:
PART 1-INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read, in part, as follows: Authority: 26
8
U.S.C. 7805 * * *
Par. 2. Section 1.704-1 is amended as follows:
1. Paragraph (b)(0) is amended by adding entries for §§ 1.704-l(b)(l)(ii)(a), 1.704l(b)(l)(ii)(b), 1.704-l(b)(4)(viii), 1.704-l(b)(4)(ix), 1.704-l(b)(4)(x), and 1.704-l(b)(4)(xi).
2. The text of paragraph (b)(l)(ii) is redesignated as paragraph (b)(l)(ii)(a).
3. A heading is added to newly designated paragraph (b)(l)(ii)(a).
4. Paragraphs (b)(l)(ii)(b), (b)(4)(viii), (b)(4)(ix), (b)(4)(x), and (b)(4)(xi) are added.
5. Paragraph (b)(5) is amended by adding Example 20 through Example 28.
6. The additions read as follows:
§ 1.704-1 Partner's distributive share.
(b) Determination of partner's distributive share - -(0) Cross-references.
Generally
Foreign tax expenditures
1.704-l(b)(l)(ii)(a)
1.704- l(b)(l)(ii)(b)
[Reserved] 1.704-l(b)(4)(viii)
[Reserved]
[Reserved]
Allocation of creditable foreign taxes
1.704-l(b)(4)(ix)
1.704-l(b)(4)(x)
1.704-l(b)(4)(xi)
/j\ * * *
(ii) * * *(a) Generally.
(b) Foreign tax expenditures. [Reserved]. For further guidance, see § 1.704- lT(b)(l)(ii)(b).
9
* * * * *
(4) * * *
(viii) [Reserved].
(ix) [Reserved].
(x) [Reserved].
W Allocation of creditable foreign taxes [Reserved]. For further guidance, see § 1.704lT(b)(4)(xi).
* * * *
5
Examples (20) through (24). [Reserved].
Examples (25) through (28). [Reserved]. For further guidance, see § 1.704- lT(b)(5),
Examples (25) through (28).
Par. 3. Section 1.704- IT is added to read as follows:
§ 1.704- IT Partner's distributive share (temporary).
(a) through (b)(l)(ii)(a) [Reserved]. For further guidance, see §1.704- 1(a) through
(b)(l)(ii)(a).
(b)(l)(ii)(b) Rules relating to foreign tax expenditures- -(1) In general. The provisions of
paragraphs (b)(4)(xi) (regarding the allocation of foreign tax expenditures) apply for partnership taxable
years beginning on or after April 21, 2004.
(2) Transition mle. If a partnership agreement was entered into before April 21, 2004, then the
partnership may apply the provisions of this paragraph (b) as if the amendments made by this temporary
regulation had not occurred, until any subsequent material modification to the partnership agreement,
10
which includes any change in ownership, occurs. This transition rule does not apply if, as of April 20,
2004, persons that are related to each other (within the meaning of section 267(b) and 707(b))
collectively have the power to amend the partnership agreement without the consent of any unrelated
party.
(b)(l)(iii) through (b)(4)(vii) [Reserved]. For further guidance, see § 1.704- l(b)(l)(iii) through
(b)(4)(vii).
(b)(4)(viii) through (b)(4)(x) [Reserved].
(b)(4)(xi) Allocations of creditable foreign taxes - -(a) In general. Allocations of creditable
foreign taxes cannot have substantial economic effect and, accordingly, such expenditures must be
allocated in accordance with the partners' interests in the partnership. An allocation of a creditable
foreign tax will be deemed to be in accordance with the partners' interests in the partnership if- (!) The requirements of either paragraph (b)(2)(ii)(b) or (b)(2)(ii)(d) of this section are satisfied
(i.e., capital accounts are maintained in accordance with paragraph (b)(2)(iv) of this section, liquidating
distributions are required to be made in accordance with positive capital account balances, and each
partner either has an unconditional deficit restoration obligation or agrees to a qualified income offset);
and
(2) The partnership agreement provides for the allocation of the creditable foreign tax in
proportion to the partners' distributive shares of income (including income allocated pursuant to section
704(c)) to which the creditable foreign tax relates.
(b) Creditable foreign taxes. A creditable foreign tax is a foreign tax paid or accrued for U.S.
tax purposes by a partnership and that is eligible for a credit under section 901(a). A foreign tax is a
11
creditable foreign tax for these purposes without regard to whether a partner receiving an allocation of
such foreign tax elects to claim a credit for such amount.
(c) Income related to foreign taxes. A foreign tax is related to income if the income is included
in the base upon which the taxes are imposed, which determination must be made in accordance with
the principles of § 1.904-6. See Examples (25) through (28) of paragraph (b)(5) of this section.
(b)(5)***
Examples 1 through 19 [Reserved]. For further guidance, see §1.704-1(b)(5), Examples 1
through 19.
Examples 20 through 24 [Reserved].
Example 25. (i) A and B form AB, an eligible entity (as defined in §301.7701-3(a) of this
chapter), treated as a partnership for U.S. tax purposes. AB's partnership agreement (within the
meaning of paragraph (b)(2)(ii)Q of this section) provides that the partners' capital accounts will be
determined and maintained in accordance with paragraph (b)(2)(iv) of this section, that liquidation
proceeds will be distributed in accordance with the partners' positive capital account balances, and that
any partner with a deficit balance in his capital account following the liquidation of his interest must
restore that deficit to the partnership. A B operates business M and earns income from passive
investments in country X. Assume that country X imposes a 40 percent tax on business M income,
which tax is a creditable foreign tax, but exempts from tax income from passive investments. In year 1,
A B earns $100 of income from business M and S30 from passive investments and pays or accrues $40
of country X taxes. For purposes of section 904(d), the income from business M is general limitation
income and the income from the passive investments is passive income. Pursuant to the partnership
agreement, all partnership items, including creditable foreign taxes, from business M are allocated 60
percent to A and 40 percent to B, and all partnership items, including creditable foreign taxes, from
passive investments are allocated 80 percent to A and 20 percent to B. Accordingly, A is allocated 60
percent of the business M income ($60) and 60 percent of the country X taxes (S24), and B is
allocated 4 0 percent of the business M income ($40) and 40 percent of the country X taxes (SI 6).
(ii) Under paragraph (b)(4)(xi) of this section, the $40 of taxes is related to the SI 00 of general
limitation income and no portion of the taxes is related to the passive income. Because AB's
partnership agreement allocates the general limitation income 60/40 and the country X taxes 60/40. the
allocations of the country X taxes are in proportion to the allocation of the income to which the foreign
tax relates. Because A B satisfies the requirement of paragraph (b)(4)(xi) of this section, the allocations
of the country X taxes are deemed to be in accordance with the partners' interests in the partnership.
12
Example 26. (i) A and B form A B , an eligible entity (as defined in §301.7701 -3(a) of this
chapter), treated as a partnership for U.S. tax purposes. AB's partnership agreement (within the
meaning paragraph (b)(2)(ii)© of this section) provides that the partners' capital accounts will be
determined and maintained in accordance with paragraph (b)(2)(iv) of this section, that liquidation
proceeds will be distributed in accordance with the partners' positive capital account balances, and that
any partner with a deficit balance in his capital account following the liquidation of his interest must
restore that deficit to the partnership. A B operates business M in country X and business N in country
Y. Assume that country X imposes a 40 percent tax on business M income, country Y imposes a 20
percent tax on business N income, and the country X and country Y taxes are creditable foreign taxes.
In year 1, A B has $100 of income from business M and $50 of income from business N . Country X
imposes $40 of tax on the income from business M and country Y imposes $10 of tax on the income of
business N . Pursuant to the partnership agreement, all partnership items, including creditable foreign
taxes, from business M are allocated 75 percent to A and 25 percent to B, and all partnership items,
including creditable foreign taxes, from business N are split evenly between A and B (50/50).
Accordingly, A is allocated 75 percent of the income from business M ($75), 75 percent of the country
X taxes ($30), 50 percent of the income from business N ($25), and 50 percent of the country Y taxes
($5). B is allocated 25 percent of the income from business M ($25), 25 percent of the country X
taxes ($10), 50 percent of the income from business N ($25), and 50 percent of the country Y taxes
($5).
(ii) Because the income from business M and business N is general limitation income and the
partnership agreement provides for different allocations with respect to such income, it is necessary to
determine which foreign taxes are related to the business M income and which foreign taxes are related
to the business N income. Under paragraph (b)(4)(xi) of this section, the $40 of country X taxes is
related to business M and the $10 of country Y taxes is related to business N . Because AB's
partnership agreement allocates the $40 of country X taxes in the same proportion as the general
limitation income from business M , and the $10 of country Y taxes in the same proportion as the general
limitation income from business N , the allocations of the country X taxes and the country Y taxes are in
proportion to the allocation of the income to which the foreign taxes relate. Because A B satisfies the
requirements of paragraph (b)(4)(xi), the allocations of the country X and country Y taxes are deemed
to be in accordance with the partners' interests in the partnership.
Example 27. ft) The facts are the same as in Example 26, except that AB does not actually
receive the $50 accrued with respect to business N until year 2. Also assume that A, B and A B each
report taxable income on an accrual basis for U.S. tax purposes and A B reports taxable income on a
cash basis for country X and country Y purposes. In year 1, A B pays country X taxes of $40. In year
2, A B pays country Y taxes of $10. Pursuant to the partnership agreement, in year 1, A is allocated 75
percent of business M income ($75) and country X taxes ($30) and 50 percent of business N income
($25). B is allocated 25 percent of business M income ($25) and country X taxes ($10) and 50
percent of business N income ($25). In year 2, A and B will each be allocated 50 percent of the
country Y taxes ($5).
13
(ii) Because the income from business M and business N is general limitation income and the
partnership agreement provides for different allocations with respect to such income, it is necessary to
determine which foreign taxes are related to business M income and which foreign taxes are related to
business N income. Under paragraph (b)(4)(xi) of this section, $40 of country X taxes is related to the
$100 of general limitation income from business M . Under paragraph (b)(4)(xi), the country Y tax
imposed in year 2 is allocable to the $50 of business N income A B recognizes in year 2 under country
Y law and is treated as paid in year 2 on the $50 of business N income recognized for U.S. tax
purposes in year 1. See § 1.904-6(a)(l)(iv) and (c), Example 5. Accordingly, the $10 of country Y
taxes is related to the $50 of general limitation income from business N . Because AB's partnership
agreement allocates the $40 of country X taxes in proportion to the general limitation income from
business M , and the $10 of country X taxes from business N in proportion to the year 1 general
limitation income from business N , the allocations of the country X and country Y taxes are in
proportion to the allocation of the income to which the foreign taxes relate. Therefore, AB's partnership
agreement satisfies the requirement of paragraph (b)(4)(xi)(a)(2) of this section. Because A B also
satisfies the requirements of paragraph (b)(4)(xi)(a)(JQ of this section, the allocations of the country X
and Y taxes are deemed to be in accordance with the partners' interests in the partnership under
paragraph (b)(4)(xi) of this section.
Example 28. (i) A and B form AB, an eligible entity (as defined in §301.7701-3(a) of this
chapter), treated as a partnership for U.S. tax purposes. AB's partnership agreement provides that the
partners' capital accounts will be determined and maintained in accordance with paragraph (b)(2)(iv) of
this section, that liquidation proceeds will be distributed in accordance with the partners' positive capital
account balances, and that any partner with a deficit balance in his capital account following the
liquidation of his interest must restore that deficit to the partnership. A B operates business M in country
X. Assume that country X imposes a 20 percent tax on the net income from business M , which tax is a
creditable foreign tax. In year 1, A B earns $300 of gross income, has deductible expenses, exclusive of
creditable foreign taxes, of $100, and pays or accrues $40 of country X tax. For purposes of section
904(d), all income from business M is general limitation income. Pursuant to the partnership agreement,
thefirst$100 of gross income each year is allocated to A as a return on excess capital contributed by
A. All remaining partnership items, including creditable foreign taxes, are split evenly (50/50) between
A and B. A s s u m e that the gross income allocation is not deductible for country X purposes.
(ii) Under paragraph (b)(4)(xi) of this section, the $40 of taxes is related to the $200 of general
limitation net income. In year 1, AB's partnership agreement allocates $150 or 75 percent of the
general limitation income to A ($100 attributable to the gross income allocation plus $50 of the
remaining $100 of net income) and $50 or 25 percent of the net income to B. AB's partnership
agreement allocates the country X taxes in accordance with the partners' shares of partnership items
remaining after the $100 gross income allocation. Therefore, A B allocates the country X taxes 50
percent to A ($20) and 50 percent to B ($20). Under paragraph (b)(4)(xi) of this section, the
allocation of country X taxes cannot have substantial economic effect and must be allocated in
accordance with the partners' interests in the partnership. AB's allocations of country X taxes are not
14
deemed to be in accordance with the partners' interests in the partnership under paragraph (b)(4)(xi) of
this section, because they are not in proportion to the allocation of the income to which the country X
taxes relates.
15
(c) through (e)(4)(ii)(b) [Reserved]. For further guidance, see § 1.704- 1(c) through
(e)(4)(ii)(b).
John M . Dalrymple
Acting Deputy Commissioner for Services and Enforcement.
Approved: March 25, 2004
Gregory F. Jenner
Acting Assistant Secretary of the Treasury.
16
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PRESS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 21, 2004
JS-1446
Testimony of
Lee Jeffrey Ross, Jr., Senior Advisor
Executive Office for Terrorist Financing & Financial Crimes
U.S. Department of the Treasury
Before the H o u s e Subcommittee o n
National Security, Emerging Threats, and International
Relations
Chairman Shays, Vice-Chair Turner, and distinguished Members of the
Subcommittee, thank you for inviting m e to testify today about the Hussein regime's
corruption of the Oil-for-Food (OFF) Program -- through kickbacks, after sales fees,
inflated pricing and other methods - and the Department of the Treasury's efforts to
help uncover abuses associated with O F F in light of our overarching mission to
recover Hussein-related assets.
On March 18, 2004, Treasury Department Deputy Assistant Secretary Juan Zarate
testified extensively before the House Financial Services Subcommittee on
Oversight and Investigations about the overarching interagency and international
efforts to identify, freeze, and recover Iraqi assets worldwide. I a m attaching the
March 18 testimony to this statement, and request that it be admitted into the record
of this hearing.
Our efforts have been to identify and target companies and individuals "fronting,"
that is, owned, operated, or acting on or behalf of the former regime. Our goal is to
identify and return to the Iraqi people that which has been stolen from them
financially.
I leave it to my distinguished panelists, who are far more versed in the creation,
development and machinery of the O F F program and the U.S. efforts at the United
Nations and elsewhere to do all possible to curb its abuses, to discuss those
topics. Their testimony will describe a concerted history of U.S. efforts to ensure
the proper functioning of the O F F Program and to deny the Hussein regime the
benefits of its corrupt and illegal actions in O F F .
My primary purpose today is to describe to this Committee how the Treasury
Department, regardless of the disparate financial crimes being addressed —
narcotics and other m o n e y laundering, the financing of weapons of m a s s
destruction, organized crime, terrorist financing, state corruption, the financing of
the insurgency in Iraq, or the intentional corruption and abuse of a trade-based
financial system such as the O F F Program ~ applies unified financial investigative
methodologies and techniques. In the financial crimes identification and
enforcement arenas, w e at the Treasury Department employ an integrated
approach to uncovering such systems and schemes.
Whether working with the DEA on the financing of drug money trafficking, the FBI
on terrorist financing, the Department of Homeland Security on International
Emergency Economic Powers Act (lEEPA)-related and sanctions busting schemes,
or in the case of Iraq, with the military in the case of insurgency financing, w e (the
Executive Office for Terrorist Financing and Financial Crimes) the IRS-CI, the
Office of Foreign Assets Control, and the Financial Crimes Enforcement Network)
bring the s a m e financial crimes disciplines and expertise, as well as our unique
international financial contacts, to the table.
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This unified approach to financial crimes and sanctions enforcement is being taken
a step further. Last month, the Administration announced the creation of the Office
of Terrorism and Financial Intelligence at Treasury. This n e w Office further will
enhance the Treasury Department's ability to identify and address the financial
underpinnings of financial crimes at h o m e and abroad by streamlining the analysis
and use of both financial and intelligence data available to the Department.
As we continually find, and as our financial enforcement efforts in Iraq again have
confirmed, attacking the use of a financial system, for example, hawalas or cash
couriering, by one criminal group for one purpose, can lead to the identification of
other financial criminals utilizing the s a m e systems and financial professionals. A
hawaladar m a y m o v e narcotics proceeds one day, terrorist-related proceeds the
next, and funds destined for Iraqi insurgents the day after. Removing the
hawaladar, or mandating a transparent hawala system, disrupts each of these
criminal groups simultaneously.
Recent Designations and Nominations to the United Nations
Our efforts to identify and block and return funds looted by the Husssein regime
through regime-created or controlled "front" companies as described in Executive
Order 13315, has led as well to entities and individuals involved in the corruption
and abuses of the O F F Program.
This past week, the United States and the United Kingdom jointly nominated to the
United Nations for listing under U N S C R 1483 eight "front" companies of the
Hussein regime, as well as five individuals associated with those companies.
These designations and submissions to the United Nations for listing followed the
March 18, 2004, designation of 16 immediate family m e m b e r s of senior officials of
the former Iraqi regime pursuant to Executive Order 13315, and the submission of
these individuals, as well as the identities of 191 Iraqi parastatal (quasigovernment) entities, to the United Nations for listing by the 1518 Committee under
U.N. Security Council Resolution ( U N S C R ) 1483.
These actions, and more are to come, are being taken to assist the international
community identify Iraqi assets connected to the designated individuals, parastatals
and most-recently, "front" companies. Further, by these actions, the United States
is encouraging other countries to undertake independent investigations to identify
other Iraqi-related assets, publish similar listings, and return identified funds to the
Development Fund for Iraq.
The OFF Program was designed by the United Nations to balance the needs of the
Iraqi people for humanitarian relief against the need of the world community to
prevent the rearming of Iraq. But Saddam's regime, existing on subterfuge,
concealment and the ruthless gathering and use of all possible financial resources,
attempted to corrupt the O F F Program, as well as provide a cover for the illicit sale
of oil outside O F F .
Unauthorized Surcharge on OFF Oil Sales
Beginning in the late 1990's the Hussein regime abused this program to generate
illicit revenues by instituting a surcharge scheme on O F F oil sales. Pursuant to this
scheme, Iraq would charge an extra 10 to 35 cents per barrel "surcharge" on Iraqi
oil sales'transacted under the O F F program. The size of the "surcharge" varied
with the oil shipment's destination. After this b e c a m e known in late 2000, the U.S.
and U K thwarted further surcharges by requiring "retroactive pricing" of Iraqi oil,
ensuring that the actual price paid w a s close to market price.
Before the surcharges ended, however, money reportedly was accumulated at Iraqi
embassies or deposited into bank accounts in various jurisdictions, and later
withdrawn in the form of cash. This cash w a s then transported back to Iraq and
reportedly deposited into the Central Bank of Iraq. S o m e of the cash generated by
this kickback s c h e m e w a s not repatriated to Iraq, but instead w a s used to buy
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military equipment and other goods prohibited by international sanctions, without
the knowledge of the U N .
After Sale Service Fee Scheme
The "after sale service fee" scheme involved kickbacks generated from Iraqi
purchases of goods authorized under the O F F program. Under O F F , proceeds
from authorized O F F Iraqi oil sales were deposited in a designated U N account, to
be used for humanitarian purposes, such as purchasing food and medical supplies
for the Iraqi people. To circumvent the restrictions on purchases and generate
additional illicit revenue, the Iraqi government ordered each of its ministries to
institute a 1 0 % kickback scheme. Vendors selling goods to the Iraqi government
were required to inflate the contractual purchase price by 1 0 % and kick back the
excess charge to the Iraqi government. Thus, a vendor would submit records to the
U N indicating that it w a s selling $110 worth of goods to Iraq, w h e n in fact the
vendor w a s selling only $100 worth of goods, and w a s returning the additional $10
to Iraq as a kickback.
The illicit funds generated by this scheme reportedly were handled similarly to the
oil price surcharges, and were either repatriated as cash to Iraq or used to buy
goods in violation of U N sanctions. After Iraqi ministries began cooperating with the
C P A , a process w a s instituted to renegotiate these contracts, with a view of
eliminating kickbacks. W e are working with the Department of State and the C P A
in the latter's ongoing review of these contracts.
We are working with the Department of State and the CPA in the latter's ongoing
review of the Oil for Food Program.
Treasury Role-Pre-2003 War
Office of Foreign Assets Control
On August 2, 1990, upon Iraq's invasion of Kuwait, the President issued Executive
Order 12722, declaring a national emergency with respect to Iraq. This order,
issued under the authority of, inter alia, the International Emergency Economic
Powers Act (50 U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C.
1601 et sec/.), and section 301 of title 3 of the U.S. Code, imposed economic
sanctions against Iraq, including a complete trade embargo and a freeze of
Government of Iraq property and interests in property. In keeping with United
Nations Security Council Resolution 661 of August 6, 1990, and under the United
Nations Participation Act (22 U.S.C. 287c), the President also issued Executive
Order 12724 of August 9, 1990, which imposed additional restrictions. The Iraqi
Sanctions Regulations, 31 C F R part 575 (the "Regulations"), implement Executive
Orders 12722 and 12724 and are administered by the Treasury Department's
Office of Foreign Assets Control ("OFAC").
In keeping with United Nations Security Council Resolution 986, which established
the United Nations Oil for Food program, in 1996 O F A C amended the Regulations
to permit the issuance of licenses for U.S. persons to purchase Iraqi petroleum and
petroleum products, to supply pipeline parts and equipment, and to supply
humanitarian goods to Iraq. The regulations allowed U.S. persons to enter into
contracts with the Iraqi government for that purpose, but required further specific
authorization from the O F A C before executing those contracts. The regulations
also required U.S. persons to comply with requirements established by the United
Nations.
Additionally, OFAC authorized the operation of the escrow account established by
United Nations Security Council Resolution 986. Pursuant to paragraph 15 of that
resolution, the escrow account w a s afforded the traditional privileges and
immunities by the United Nations Security Council.
OFAC is reviewing the licenses it issued in support of the OFF Program to
determine if any U.S. persons were involved in any inappropriate activity and, if so,
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will take all appropriate investigative and enforcement steps as m a y be necessary.
Treasury Role-Post 2003 War
As the recent testimony from DAS Zarate demonstrates, the Department has
undertaken a robust interagency and international effort to identify, trace and return
looted Iraq assets, and most recently is working closely with the interagency
community to identify, trace and choke off funding for the Iraqi insurgency. This
undertaking has involved all components of the Department, including IRS-CI which
has placed agents in Baghdad and elsewhere on a 90 day rotating basis. These
efforts, especially document review and interviews, have revealed important
information that do potentially bear directly upon the recent O F F inquiries launched
by both the United Nations and the C P A through the Iraqi Board of S u p r e m e Audit.
Treasury pledges to m a k e all efforts to assist both of these investigations to the
fullest extent appropriate.
Further, the Hussein regime never could have contemplated the vast windfall of
document and interview information that the IRS-CI agents, our military and others
have unearthed in Iraq. These records and information provide crucial insights and
leads concerning the Hussein regime's "front" companies, his oil smuggling
schemes, and O F F violations. Access to and vigorous exploitation of Iraqi
information is essential. A s with all other crimes relying on financial systems to
raise and m o v e funds, a "follow the money" approach will reveal the originators,
financial facilitators and beneficiaries w h o perverted elements of the O F F
Program.
Lessons Learned and Conclusion
The efforts of this Committee and those at the United Nations and at the CPA to
identify and trace those w h o abused the O F F Program are important. The past is
prologue to the future, and corrupt dictators will seek to abuse future humanitarian
efforts for their purposes. It is essential to identify key nodes for this abuse,
including financial manipulations, to ensure both that future international
humanitarian efforts are shielded from such abuse to the greatest extent possible
and that a larger share of the relief intended does in fact arrive at its intended
destination. T h e Treasury Department is pleased to be a part of these efforts, and
will do all possible to achieve a successful conclusion. Thank you. I will be happy
to respond to any questions you m a y have.
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Page 1 of 1
JS-1447: U.S. Nigeria Photo
PRLSS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 21, 2004
JS-1447
U.S. Nigeria Photo
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
High Resolution Image
/.treas.gov/press/releases/isl447.htm
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I
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 21, 2004
JS-1448
Secretary Snow's Welcoming Remarks
U.S. - Nigeria Bilateral Dialogue
Washington, D C
It is a pleasure to welcome you all here. W e are honored to have such a large,
distinguished delegation from Nigeria and I hope today can be a day of
constructive, frank discussion among long-time friends. W e have gotten to know the
minister, and like many others, w e have been impressed with her energy and
commitment to stimulating broad-based economic growth. W e hope that in some
small way, our meeting today is helpful as you move ahead with your reform
agenda.
The revival of this discussion demonstrates that much has changed since 2000
when the U.S. and Nigeria met in what was then called the Joint Economic
Partnership Committee (JEPC). At that time, expectations were high as the new
democratically-elected government of President Obasanjo had ended a long period
of military leaders. There was hope that economic reform would quickly take root
and a new era of growth, economic freedom and poverty reduction would take
place. The expectations may have been too high, but in any case, they were far
from met. While some steps were taken to introduce transparency and
accountability, little change was seen in budgeting practices, contract awards,
monetary policy, privatization, or public service reform. Nigeria and the IMF
terminated their Stand-by Arrangement, and Nigeria was moved to the low-case
lending scenario at the World Bank. The J E P C was short-lived.
Today, those of us gathered here have an opportunity to change the course of
Nigeria's economic development. The economic team from Nigeria has
demonstrated that this is not business as usual. This uniquely qualified economic
team has already charted that medium-term course by developing the Nigerian
Economic Empowerment and Development Strategy (NEEDS).
In less than a year, you put forward to Parliament a coherent budget which begins a
process of making spending more orderly and ultimately reduces deficits and
promotes macroeconomic stability. You have taken steps to improve transparency,
by posting the monthly budget allocations for the 36 states on your website so that
state governments can be held accountable for the funds received from the federal
government. You have promulgated the Fiscal Responsibility Bill.
And you are tackling one of the most challenging sectors, the oil sector. The
encouragement of more and better audits in the oil sector, work to lift price caps on
gasoline prices, and the plan to open a unit in the Finance Ministry to model the oil
revenue flows are all important positive steps forward. And last but not least, you
have renewed relations with the international financial institutions and bilateral
allies, including with the Paris Club. W e applaud you for your efforts and look
forward to marking further progress in these critical areas.
Behind all these noteworthy accomplishments, there are challenges on the road
towards economic reform, growth and poverty reduction. You have inherited a
heavy legacy, the result of years of mismanagement, corruption and fiscal
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irresponsibility. Skills are weak. Institutions lack capacity. Corruption has b e c o m e a
norm. G a s lines stretch for miles in one of the richest oil states in the world. The
government is seen as one of the few employers in the country. HIV/AIDS rates
have increased and Nigeria has the most HIV-carriers in the continent. Investors
are still staying away due to the volatile macroeconomic environment. Subsidies
and trade barriers have distorted markets and kept inefficient producers afloat while
punishing other potential producers. The reforms you have initiated have upset
m a n y people w h o benefited from the old w a y of doing things. O n e can imagine that
there will be m a n y w h o will resist change.
We want to help you reinforce the message to the critics and doubters that the path
forward cannot be reversed.
As the NEEDS demonstrates, Nigerians recognize the steps necessary to stimulate
growth, develop the private sector and build a dynamic economy. W e hope that the
U S and other donors can be constructive and supportive in that process. I know I
speak for m y colleagues here w h e n I say that the U S is committed to supporting
your efforts.
We hope this meeting will help us find ways to support and strengthen the
accomplishments and tackle those obstacles which are inhibiting Nigeria's
economic potential. I wish the participants here a constructive conference and look
forward to hearing about h o w w e can work together to m o v e Nigeria's reform efforts
forward.
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JS-1449: Remarks by Acting Assistant Secretary for Tax Policy Greg Jenner at The Tax Council's Legis... Page 1 of 5
PRLSS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 21, 2004
JS-1449
Remarks by Acting Assistant Secretary for Tax Policy Greg Jenner at The Tax
Council's Legislative Luncheon
M y predecessor P a m Olson and I have often spoken of the need to reform the
international provisions of the tax code. A year ago, one commentator described
the situation as perhaps the perfect storm that would at last result in sorely needed
changes to our international tax laws. Unfortunately, so far the perfect storm looks
more like a tempest in a partisan teapot. The complexity of the international rules
that black box feel they have for everyone w h o doesn't play in them regularly has
left many legislators concerned that the much needed changes are in fact the
recipe for shipping jobs offshore. Even reform stalwarts have expressed concerns
about the potential effects of the changes.
Treasury and IRS have succeeded in making changes in recent months.
Last fall, we issued proposed regulations on transfer pricing for services
transactions, including services transactions involving intangibles. The current
transfer pricing regulations for services were issued in 1968, back when many of
the types of services crossing borders regularly today were not even an idea in a
grad student's notebook. The proposed regulations represent a complete overhaul,
reflecting the significant economic, legal and technological developments of the
past 35 years. The proposed services regulations are just one part of our overall
efforts to ensure that our transfer pricing rules are up-to-date, reflect international
standards, and reach appropriate results. A major focus of this ongoing work is
ensuring that cross-border transfers and other related party transactions,
particularly transfers of intangible assets, cannot be used to shift income out of the
United States.
We were very pleased that Congress approved our new tax treaty with Japan. The
new treaty will significantly reduce existing tax barriers to trade and investment
between the United States and Japan. It will foster even closer economic ties
between our two countries, enhancing the competitiveness of our businesses and
creating new opportunities in the combined markets of the two countries. A healthy
trade and investment relationship between the United States and Japan, the world's
two largest economies, is critical to creating economic growth throughout the world.
The new Japanese treaty follows closely the ratification of changes to our treaties
with the United Kingdom and Mexico - changes that like those in the Japanese
treaty reduce tax barriers to trade and investment.
The Jobs and Growth Tax Act was significant because the dividend changes
addressed a way in which the U.S. tax system differed from those of our major
trading partners around the world. The 2003 Act reduced the U.S. tax on capital
gains and dividends to 1 5 % . The President's goal was the complete elimination of
the double tax on corporate income. Although w e didn't make it that far, w e did get
to a much more rational system. The change reduces the bias for debt, the
preference for retained earnings over dividends, and the disadvantageous tax
consequences of raising outside capital to grow a business. Our current system
continues to favor passthrough entities, such as partnerships or S corporations,
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with a single layer of tax. But, the Jobs and Growth Tax Act changes reduce the
cost of going to the market w h e n a business needs additional capital to grow.
Reducing the tax on capital matters in the international arena because businesses
today compete for capital on a global playing field. According to an O E C D study,
prior to the 2003 tax Act, the United States w a s ranked second highest in the world
in income taxes on capital income. Secretary S n o w noted that statistic at a W a y s
and Means. H e w a s still testifying w h e n w e heard from our friends in Japan that the
O E C D study w a s out-of-date - that it failed to reflect a recent reduction in Japanese
taxes. Conclusion, w e were number one. This w a s not a competition w e wanted to
win. The 2003 changes didn't m o v e us w a y down on the O E C D list. That's the bad
news. T h e good news is we've moved in the right direction and that w e did so
based on a political recognition of the economic realities of global competition and
the importance of capital to jobs in America.
Global competition. That's what it's all about. Viewed from the vantage point of
today's global marketplace, our tax rules appear outmoded, at best, and punitive of
U.S. economic interests, at worst. Since we've not succeeded in making any
changes so far, that problem remains. And it is a problem that grows worse with
each passing year as the world's economies b e c o m e more closely interrelated
every year.
Before trying to talking about out what our international tax rules should be, let's talk
about where w e are economically.
Over the course of the past year, concerns about the health of the U.S. economy,
particularly the manufacturing sector, have soared. While it is clear w e are at last
on the road to recovery, concerns about the future have not evaporated. Those
concerns stem in part from the fact that the past recession w a s unusually harsh for
manufacturers, particularly for workers in manufacturing. Manufacturing always
reacts more quickly and is affected more deeply by recession and recovery. In
every other post-war recession, manufacturing has fallen roughly 7 percent, while
the economy as a whole has dropped roughly 2-3 percent. Significantly, in this past
recession, while total production fell less than 1 percent, manufacturing still fell by 6
percent. What is also clear is that manufacturing did not pick up as quickly in the
past recession. It only began to expand 18 months into the recovery, rather than
leading the recovery as it had in the past.
Despite what has occurred, the United States represents a growing share of the
world economy. It is more than twice the size of the next largest economy, Japan.
In addition, the United States continues to lead the world in terms of both invention
(i.e., the number of patents filed each year) and innovation (the incremental
changes in operations and business processes that yield greater productivity
gains).
China is cited as a problem regularly in the press and on the Hill, but, in reality,
China is a glass half empty or half full depending on whether you're looking at
what's behind you or what's in front of you, whether you fear the competition or are
looking at the opportunities. Let's take a look at the facts on manufacturing, which
is what drives the China glass-is-half-full-half-empty debate.
Fact: Despite the 31/2-year downturn in manufacturing, the U.S. manufacturing
sector, standing alone, would be the 5th largest economy in the world.
• Fact: The U.S. manufacturing sector is larger than China's entire economy.
• Fact: The U.S. is the largest producer of manufactured goods in the world.
• Fact: The U.S. is the world's largest exporter. Of course, w e are also the
world's largest importer!
• Fact: Our trade gap stems more from declining exports than rising imports
because the economies to which w e export - especially Japan and
G e r m a n y - are stagnant.
• Fact: Our rising trade gap with China has c o m e at the expense of other
Asian nations that have lost market share to Chinese producers.
• Fact: China has lifted about one-quarter of its population out of poverty.
p://www.treas.gov/press/releases/jsl449.htm
5/27/2005
JS-1449: Remarks by Acting Assistant Secretary for Tax Policy Greg Jenner at The Tax Council's Legis... Page 3 of 5
That's 300 million n e w consumers with another 900 million to go!
• Fact: China has lost more manufacturing jobs than there are in the U.S.
Changes in how we do business have been led by our vibrant service sector. The
service sector has inspired n e w ways of doing business, with a vision for the future
that recognizes the importance to the consumer of the reliability of the products
they buy. Viewed one way, a computer manufacturer sells computers. Viewed
another way, a computer manufacturer sells IT and data processing services.
Viewed one way, an automaker sells cars; viewed another, the automaker sells
transportation services. In either example, the consumer wins w h e n the
manufactured product performs reliably and w h e n problems are quickly corrected.
In the long run, the companies that provide the best service will win, and that's what
w e do best in America.
What recent events suggest is that there are more fundamental, structural shifts
under w a y in manufacturing - not just the cyclical effects of the recession.
Those structural shifts flow from three changes. The first -- and arguably the most
important -- is technology. Rapid changes in technology - production technology,
information technology, and transportation - have m a d e it possible to operate a
manufacturing enterprise on a global basis. They have also m a d e it a competitive
necessity to do so because w e can't afford not to do what our competitors are
doing. In effect, what technology has done is eliminate m a n y of the constraints
physical geography imposed on trade in the past.
The second shift is due to the reduction in trade barriers. Those reductions have
benefited consumers around the globe. They have also resulted in a real rising
standard of living in the developing world.
The third shift has to do with the end of political divisions that have affected world
trade since the onset of World W a r I. Experts tell us that the best w a y to think
about this phenomena is that it represents the economic impact of reintegrating the
Russian, Chinese, Eastern European, and Vietnamese economies back into world
markets.
In the face of that, what should we do in terms of government policy? We cannot
stop change and w e cannot turn back the hands of time. Nor should w e want to.
Yes, w e can long for an easier time when this country truly w a s "Fortress America,"
where w e could luxuriate in our splendid isolation. That longing is understandable, I
long to be 18 again. But I'm also smart enough to know I'm not and that I have to
behave and think like the 39 year old I really am! What w e must do is focus on the
fundamentals for growth here at h o m e and abroad. That is the key to rising
standards of living for all.
What does that mean for our international tax rules? Again, let's review where we
are. The subpart F rules date to 1962. At forty-something those rules are showing
their age - and for those of us in the s a m e situation, it s e e m s that each year is a
little less kind. W e also m a d e fairly significant changes to the international tax rules
in 1986. That m a k e s those rules teenagers and like most teenagers, they are hard
to understand, messy, inconsistent, and display little regard for the real world.
Things have changed dramatically in the global marketplace, but our tax rules have
not. At this point, w e wear them like a coat that is several sizes too small.
Given the importance of trade to our economy, it is critical that we move to bring our
tax laws into compliance with the W T O rules. That m e a n s replacing the FSC/ETI
rules with W T O compatible rules. There is bi-partisan agreement on this issue, but
difficulty in ironing out the details. In fact, there is a lot more agreement than all the
messy rhetoric would lead one to believe.
The tax-writing committees have proposed bills that would grant a reduced tax rate
on manufacturing income. O n e has a broader definition than the other - for
example, the W a y s and M e a n s bill includes architecture and engineering services,
both of which were covered by ETI, and construction services. The broader
definition is helpful because it eliminates s o m e anomalies. Non-neutral taxation
p://www.treas.gov/press/releases/jsl449.htm
5/27/2005
JS-1449: Remarks by Acting Assistant Secretary for Tax Policy Greg Jenner at The Tax Council's Legis... Page 4 of 5
reduces national income by re-directing resources to less productive activities.
The proposal for a special tax rate for one category of business income also brings
with it a lot of administrative complexity, essentially requiring companies to compute
taxable income twice, or a third time if w e include the A M T . A s a consequence,
we've suggested looking at other changes that would benefit manufacturers without
the administrative and neutrality concerns. For example, w e might remove the
provisions of the A M T that have a particularly adverse impact on capital intensive
industries such as manufacturing. W e could reform the uniform capitalization rules
and m a k e the R & E credit permanent. W e could also consider changes to the R & E
credit to m a k e it more beneficial to manufacturers
Another component of both FSC/ETI bills is some much-needed international tax
reform. But despite the long history of support in both committees and from both
sides of the aisle for international tax reform and simplification, as I noted those
proposals have attracted considerable criticism. This is a most unfortunate
development. The first post-1986 Act international tax simplification bill w a s
introduced back in 1992 by Chairman Rostenkowski. And there have been
bipartisan, bicameral international tax bills introduced in the last several
Congresses.
Domestic and international are not opposites and this is not about trade-offs. There
is m u c h evidence about the complementarity between the foreign activities and
outlook of U.S.-based multinational corporations and their contribution to the
domestic economy.
The current rhetoric ignores the relationship between U.S. operations abroad and
exports from the United States. W h e n it c o m e s to the export of American
manufactured products, the foreign affiliates of U.S. multinationals are their o w n
best customer. Rather than displacing exports from the United States, the
international activities of U.S. multinational corporations generate a net trade
surplus. A recent O E C D study found that $1.00 of outward foreign direct
investment is associated with $2.00 of additional exports and an increase in the
bilateral trade surplus of $1.70.
There also is a positive relationship between the international activities of U.S.
companies and employment and jobs here in the United States. Professor Tyson,
former Chair of the Council of Economic Advisors, authored a study identifying a
number of political, strategic, and economic reasons w h y maintaining a high share
of U.S. control over global assets is important to our national interest. These
include the fact that U.S. multinationals locate over 70 percent of their employment
and capital assets in the United States; that is, over two jobs in the United States
for every job abroad and more than $2.00 of capital assets for every $1.00 of assets
abroad. Their pay and investment per employee in the United States is greater than
in either developed or developing countries. Finally, U.S. multinationals conduct a
very large percentage of their research and development domestically, which is
critical to maintaining our technological leadership.
There have been reports that recently-released Commerce data on jobs show that
over the 1996-2001 period employment in foreign subsidiaries of U.S.
multinationals increased by 2.3 million. Of course, that is only part of the story.
Over that s a m e period, employment in the U.S. parents of U.S. multinationals
increased by 4.8 million. During the 1996-2001 period w h e n total U.S. employment
grew by 1 0 % , U.S. employment of U.S. multinationals grew by 2 6 % . S o U.S.
multinationals are a source of U.S. employment growth.
Over half of U.S. exports are produced by multinational corporations and more than
4 0 % of those exports are sold to foreign affiliates of the U.S. producer. The
consequence of that relationship is that changes to the international tax rules under
which U.S. multinational corporations operate affects their global competitiveness
and, therefore, the competitiveness of their domestic operations. T h e
competitiveness of U.S. exporters also affects the competitiveness of their domestic
suppliers, w h o m a y not export themselves but, w h o through their sales to exporters,
depend on and are part of the global marketplace. Changes to the international tax
rules m a y have a less direct effect on U.S. operations, but the effect is particularly
p://www.treas.gov/press/releases/jsl449.htm
5/27/2005
JS-1449: Remarks by Acting Assistant Secretary for Tax Policy Greg Jenner at The Tax Council's Legis... Page 5 of 5
important in the increasingly global marketplace.
The bottom line is that the global success of U.S. companies competing in today's
economy matters in terms of economic growth and jobs in the United States. The
raise-the-walls-and-widen-the-moat mentality is short-sighted and wrong. W e must
look to the future. If w e handicap American businesses in today's global economy,
w e harm the American workforce. W e cost ourselves jobs.
Reforming our international tax rules is about enhancing the ability of U.S.
businesses and American workers to compete and prosper in today's global
economy. It is about ensuring that w e m a k e the most of the tremendous
opportunities that globalization and technological advances provide. If w e do not,
w e can be sure that our neighbors both near and far will.
Thank you.
-30-
p://www.treas.gov/press/releases/jsl449.htm
5/27/2005
JS-1450: The Honorable John W . Snow<BR>Prepared Remarks<BR>Teach Kids to Save Day<BR>Vit... Page 1 of 2
a
PRLSS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 22, 2004
JS-1450
The Honorable John W. Snow
Prepared Remarks
Teach Kids to Save Day
Vito Marcantonio School
N e w York, N Y
It's great to be here at the Vito Marcantonio School to talk about something that so
important for all Americans, and that's learning how to save.
Benjamin Franklin, a wise man who played an important role in the founding of our
nation, famously said that "A penny saved is a penny earned."
Of course, a penny was worth a lot more in his day, so today we'll say that "a dollar
saved is a dollar earned."
It sounds clever... but what exactly did he mean by that?
Think about it this way: if you have a dollar - from your allowance, or a birthday or
for doing chores at h o m e - and you spend it on candy or gum, you don't have that
dollar anymore. It was only yours for a short time. If you save it and don't spend it,
the dollar is yours for as long as you keep it, so you've earned a dollar that you
wouldn't have had otherwise.
If Benjamin Franklin was right - and I think he was - then each of you here today
can start to earn money even before get your first job. And the money you save
today will grow and grow throughout your life - now that's pretty exciting.
There's another expression about money that you might have heard. Have you
heard your parents or maybe a big brother or sister say that s o m e money is
"burning a hole in their pocket"? They feel as though the money wants to get out of
their pocket, it wants to be spent, it can't be spent quickly enough. I understand that
feeling and have learned that it's best to put that burning money into the bank, and
fast. That way it can't burn me! If I spend it too quickly, I feel bad because it's gone.
In the bank the money is safe and it cools down.
And by the time it cools down you might realize that you don't really need to buy the
thing that you wanted so badly just a few weeks before.
The tough thing is, some people are born savers and some are not. Like with
anything else, if w e aren't naturally good at it, we'll have to try harder to get it right.
S o m e people can spell a hard word but struggle to remember a friend's phone
number. S o m e people can hit a baseball every time it's pitched, but can't catch it
consistently. Others have neat handwriting, but messy rooms. We're all different;
w e all have different strengths.
We don't have to work as hard on our natural strengths... it's our weaknesses that
take extra time and energy. And most of us need to use extra thought and energy
on saving.
://www.treas.gov/press/releases/jsl450.htm
5/27/2005
JS-1450: The Honorable John W . Snow<BR>Prepared Remarks<BR>Teach Kids to Save Day<BR>Vit... Page 2 of 2
If you put your birthday money from your Aunt or Grandfather into a shoebox and
hide it under the bed, you're probably a natural saver. You've never felt m o n e y
burning a hole in your pocket.
But if you dream about how to spend that money, if it's burning a hole in your
pocket, and then you spend it quick as you can... you're probably someone w h o is
going to have to work very hard at being a saver.
It doesn't make you a bad person, it just means that's not your strength.
But there is good news, even if you aren't a natural saver: like with everything else,
practice does m a k e perfect, and the more you save, the better at it you'll become,
and the greater the rewards will be.
Unless you are the shoebox-under-the-bed type, it takes discipline to put money in
the bank instead using it to buy something that you really want, but it's worth it.
Because if you put your money in a savings account in a bank, the bank will
actually pay you for letting it hold on to your money. N o w that's a dollar earned literally!
The money the bank pays you is called "interest" and overtime it can really add up.
Knowing how hard it can be to save, to put that money in a safe place where it can
be earned instead of spent, President Bush has done s o m e things to m a k e it easier
for Americans to save.
He's made it easier for people to save money for their health-care expenses with
something called Health Savings Accounts (HSAs). And he wants to m a k e it easier
to save for retirement with something called Retirement Savings Accounts (RSAs).
He's asked Congress to that, and to make it easier to save for life's unexpected
expenses with Lifetime Savings Accounts (LSAs). In each case, the President is
working with Congress to change the tax laws, so money can be saved before the
government taxes it - it's something you'll understand better when you're older, but
the bottom line is that you're able to save more money while sacrificing less.
The President understands that when we have a tough job, it helps to have an
incentive to do it. That's how he makes policy decisions about saving. H e wants
Americans to have an incentive to save; he wants it to be as easy as possible.
Because he knows the rewards are great.
If you start saving now, and continue to save well throughout your life, you'll always
be more independent. You can buy your own car and your own house. You'll be
able to look forward to a day when the dollars you saved and earned are enough
that you don't have to worry about money.
A lot of your saving decisions will come down to figuring out what you really need to
spend your m o n e y on versus what you want to spend it on. Our friend from
Citigroup is going to talk a little more about needs and wants and give s o m e advice
on h o w to plan to save.
I'm so glad to have had a chance to talk to you today about saving - I promise that
you'll never regret becoming a saver.
://www.treas.gov/Dress/releases/isl450.htm
5/27/2005
JS-1451: Statement by John B. Taylor<BR>Under Secretary for International Affairs<BR>U.S. Departm... Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
April 21, 2004
JS-1451
Statement by John B. Taylor
Under Secretary for International Affairs
U.S. Department of the Treasury
B u e n o s Aires, Argentina
I am very pleased to be here in Argentina today. We value our relations with
Argentina, and its economy is important to the region. There is no better w a y to
understand what is going on in a country than to c o m e and see it in person. During
this visit, I have had the opportunity to speak not only with government officials, but
also with m e m b e r s of Congress, private economists, businesspeople, bankers, and
even university graduate students. I a m looking forward to meeting with President
Kirchner later this afternoon.
Argentina's economic recovery is impressive. Businesses—particularly small and
medium businesses—are once again investing and creating n e w jobs. A s a result,
poverty has begun to fall. Inflation has been dramatically reduced. These positive
developments are a result of sound fiscal and monetary policies: improvements in
tax administration, fiscal discipline, and careful monetary management have
improved confidence, and lowered interest rates. The United States is proud to
have supported Argentina's efforts—first under the transitional IMF program
launched in January 2003, and n o w under the three-year IMF program launched in
September 2003.
Much of the discussion focused on the challenges confronting Argentina as it seeks
to turn recovery into long-term growth and dramatic poverty reduction. I had the
opportunity to discuss issues that are vital to Argentina's economic future, including
in the fiscal, monetary, banking, regulatory areas. M a n y meeting participants
emphasized the importance of policies to address not only short-term energy
needs, but also to provide the right incentives for the investment needed to meet
Argentina's energy needs in the future. In the fiscal area, I noted the importance of
federal-provincial fiscal reforms needed to lock in the improvements in government
finances and fix the weaknesses of the past. I hope that m e m b e r s of Congress,
provincial leaders, and others work closely with the government on these important
reforms.
I was pleased to hear a report on the government's recent discussions with private
creditors on the issue of Argentina's debt restructuring. A successful debt
restructuring is fundamental for inducing investors at h o m e and abroad to risk their
capital in this country. Private investment will create the long-term economic
growth that is the key to raising living standards for all of Argentina's citizens. I
look forward to negotiations between Argentina and its private creditors with the
give-and-take needed to encourage creditors to participate in the debt exchange. A
successful restructuring will put the legacy of Argentina's crisis permanently in the
past.
^V/www.treas.gov/press/releases/jsl45 1 .htm
5/27/2005
JS-1452: U.S. Treasury Department Teams up<BR>with the American Bankers Association Education F... Page 1 of 2
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 22, 2004
JS-1452
U.S. Treasury Department Teams up
with the American Bankers Association Education Foundation
to Teach Kids the Financial ABC's
on National Teach Children to Save Day
Treasury Secretary John S n o w Leads Nationwide Effort in N e w York's East
Harlem
The Department of the Treasury and the American Bankers Association Education
Foundation will be teaming up on Thursday, April 22, for the eighth annual National
Teach Children to Save Day. Treasury officials and local bankers will be team
teaching financial education lessons in classrooms across the country.
Secretary of the Treasury John W. Snow will lead the effort by teaching a lesson to
fifth graders at P.S. 50 Vito Marcantonio in N e w York's East Harlem School
District. Secretary S n o w will be joined by Dara Dugay, Director of Citbank's Office
of Financial Education, to talk to students about the value of saving. John Bryant,
Founder and C E O of Operation H O P E will then speak about the importance of
financial literacy and how it can help them achieve their goals.
"The value of personal savings and budgeting is an important lesson for every
generation. By reaching out to children, w e can help establish smart money
management habits early. National Teach Children to Save Day is a great
opportunity to help kids realize that beginning to plan and save today, can mean
great things tomorrow," said Secretary Snow.
A total of 15 Treasury officials will be in classrooms around the country on
Thursday. Lessons will include games and activities that teach the value of saving,
budgeting and how interest makes money grow. A complete list of Treasury
officials participating in today's event is attached. For more information on National
Teach Children to Save Day, please visit
http://www.aba.com/Consumer+Connection/teachchildrentosave.htm .
Financial education is critical for young people. For example, 64% of credit card
holders ages 18 to 24 do not know the interest rates they pay on their credit
cards[1]. According to a 2002 Nellie M a e survey, undergraduate students carry an
average of three credit cards and graduate with an average of $20,402 in
combined education loans and credit cards balances[2]. In 2001 more people filed
for bankruptcy than graduated from college[3].
The positive effects of financial education carry into adulthood. Studies show that
students w h o received personal financial education have higher savings rates when
compared to those w h o didn't receive financial education, and individuals w h o have
received financial education tend to participate in employer 401 (k) plans at a higher
rate and with larger contributions than others.
The Department of the Treasury is a leader in promoting financial education.
Treasury's Office of Financial Education (OFE) was established in May 2002. The
O F E focuses the Department's financial education policymaking, and ensures
coordination on financial education within the Department and all of its bureaus.
The O F E provides the Department of the Treasury with expertise on the many
complex and interdisciplinary issues involved in financial education, and taps into
the Department's wide base of expertise on finance. The O F E also supports the
efforts of the Financial Literacy and Education Commission, a group chaired by the
^//www.treas.gov/press/releases/jsl452.htm
JS-1452: U.S. Treasury Department Teams up<BR>with the American Bankers Association Education F... Page 2 of 2
Secretary of Treasury and composed of representatives from 20 federal
departments, agencies, and commissions, which works to improve financial literacy
and education for people throughout the United States.
[1] Margaret W e b b Pressler, "Now They'll Have to Repay the Piper...," The
Washington Post, December 7, 2003
[2] Tami Luhby, "For Students, A New Math / High School Program Shows Youth
that Fiscal Responsibility is More Than Adding and Subtracting," Newsday, May
18,2003
[3] Patricia Wolff," Area Lawmaker Wants Students to Learn More about Personal
Finance," Oshkosh Northwestern, April 28, 2003
REPORTS
• Treasury Officials Participating in Teach Children to Save Day
://www.treas.gov/press/releases/isl452.htm
5/27/2005
Message
Page 1 of 3
Treasury Officials Participating in Teach Children to Save Day
O P E N PRESS EVENTS:
Treasury
Representative
John Snow, Secretary
of the Treasury
School
Time
P.S. 50 Vito
Marcantonio
433 E. 100 St.
New York, N Y 10029
(212)860-5976
9:30 A M
EDT
Open/Closed
to Media
Bank Teaching Partner
OPEN
Dara D u g a y
Director, Citigroup's Office of
Financial Education
Fifth Grade Class
Henrietta Fore
Director of the U.S.
Mint
Hyde Elementary
3219 0 St., N.W.
Washington, D C
20007
(202) 282-0170
10:00
Vayne Abernathy
Assistant Secretary
or Financial
nstitutions
Patrick Henry
College
One Patrick Henry
Circle
Purcerville, V A
20132
10:00
andra Pedroarias
•irector of Outreach,
'ffice of Financial
ducation
Oyster Elementary
2801 Calvert St.,
N.W.
Washington, D C
20008
8:45
reg Zerzan
sputy Assistant
icretary for
nancial Institutions
>licy
Hillsboro High
School
3285 SE Rood Bridge
Rd.
Portland, O R 97123
(503)844-1980
10:00
ichael D a w s o n
puty Assistant
:retary for Critical
rastructure
)tection and
mpliance Policy
Prospect Elementary
36 S. Prospect St.
Oberlin, O H 44074
(440)774-4421
9:30
r
Stormonth
Elementary 7301 N
Kupfer
)uty Chief of Staff
OPEN
AM
EDT
Alyson Klug
President, CitibankMid-Atlantic
Kindergarten Class
OPEN
H o m e Schoolers
OPEN
Cesar Montrose
Branch Manager, Citibank
AM
EDT
AM
EDT
*Lesson will be taught in Spanish and
English
OPEN
Geoffrey Laroche
Financial Consultant, Smith Barney
OPEN
Gary Pfiefer
District Manager, CitiFinancial
OPEN
Susan Luling
Business Development Officer,
AM
PDT
AM
EDT
9:00
//www.treas.gov/Dress/releases/reports/message.htm
5/27/2005
Page 2 of3
Vlessage
Dubis Correal
Department of the
Treasury, Office of
Financial Education
Longacre R d
Milwaukee, W I
53217
(414)351-7493
AM
CDT
South Hialeah
Elementary
265 East 5th Street
South Hialeah, Fl
33010
(305)885-4556
9:00
Michael Schutt
Department of the
Treasury, Office of
financial Education
Dacula Elementary
School
2500 Fence Rd.
Dacula, G A 30019
(770)963-7174
>andra Pedroarias
Mrector of Outreach,
)ffice of Financial
Education
Junior Achievement
of the Central
Carolinas'
E X C H A N G E CITY
Charlotte, North
Carolina
Wauwatosa Savings Bank
OPEN
Ed Dieguez,
AM
EDT
Citibank Investment Services
Representative
*Lesson will be taught in Spanish and
English
9:30
Tom Barnard
OPEN
AM
EDT
12:30
Regional Manager, CitiFinanical
OPEN
PM EDT
CLOSED PRESS EVENTS
School
Treasury Representative
B a n k Teaching Partner
Samuel B o d m a n
sputy Secretary of the Treasury
U.S. Kids Child Development
Center
Washington, D.C.
Brian Roseboro,
nder Secretary of the Treasury
for Domestic Finance
H.S. of Economics & Finance
100 Trinity Place
N e w York, N Y 10006
Charles Raymond
President, Citigroup Foundation
Gregory Jenner,
acting Assistant Secretary for
Tax Policy
Theodore Roosevelt H.S.
4301 13th Street, N W
Washington, D C
Natacha Dugue
Branch Manager, Citibank
Joseph Dillon,
Senior Advisor to the Under
cretary for Domestic Finance
The Lab School of
Washington
4759 Reservoir Road, N W
Washington, D C
A m y Oviedo
Citibank at W o r k Relationship Manager
://www.treas.gov/presc
I C I '•. .. i
^s/message.htm
5/27/2005
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Message
Courtney Clelan Gedualdig
Deputy Assistant Secretary for
Legislative Affairs
Brightwood Elementary
School
1300 Nicholson St., N . W .
Washington, D C 20011
(25 students)
Erik Rushing
Citibank Branch Manager, East River Park Financial
Center
Mark Warshawsky
Assistant Secretary for Economic
Policy
Hebrew Academy of Greater
Washington
13300 Arctic Ave
Rockville, M D
Angela Mitchell
Citibank Branch Manager
Rebecca Contreras
Deputy Assistant Secretary and
Chief of H u m a n Capital
Jennie Dean Elementary
School
9601 Prince William St
Manassas, V A
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IS-1453: The Honorable John W . Snow<br>Prepared Remarks<br>The Bond Market Association<br>N... Page 1 of 4
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 22, 2004
JS-1453
The Honorable John W. Snow
Prepared Remarks
The Bond Market Association
N e w York, N Y
Thank you so much for having me here today.
I appreciate the work you do to keep the bond markets fair, efficient and open
throughout the world.
I'm delighted to be here and to share with you the abundance of good news that our
economy is experiencing right now - and I think you should feel pride when you
hear this type of news. Your work is clearly part of the economic growth that w e are
seeing.
We're on very solid footing, our upward trend is strong, and there can be no doubt
that President Bush's leadership on tax cuts has made the decisive difference.
W h e n combined with low interest rates, the Bush tax cuts are having precisely the
impact w e intended.
Just one year ago, the American economy was in a very different position than it is
today. Then there was talk of a double-dip recession, with some commentators
holding out the specter of deflation - which Chairman Greenspan dismissed just
this week.
And of course, today people wonder if inflation is a threat - but inflation is still
modest, so I'm not particularly concerned about it at this point.
I believe there is enough economic slack to keep price increases at bay, and due to
intense competition, few companies have the ability to raise prices and keep
customers.
So I think there is still a lot of running room for this economy to grow and expand in
a non-inflationary way.
In light of all this, it's amazing to think about what people were saying only one year
ago about our economy. Even those w h o saw the economy in pretty good shape
characterized the recovery as at best wobbly, weak or anemic.
Now, as you well know, the economy is in a strong recovery, with a GDP growth
rate of 6.2 percent in the last half of 2003 - the fastest six-month growth rate in
nearly 20 years. Leading private forecasts are projecting growth of four percent plus
for the 2004 year, well above historical growth rates. The latest Blue Chip report
forecast G D P would grow 4.6 percent in 2004, the highest in 20 years.
Exports are up. The manufacturing sector is beginning to come back. The housing
industry remains strong. Business confidence is up and business spending has
rebounded. W e are beginning to see some come-back in the labor markets.
Unemployment is down and the economy has created 759,000 jobs in the last
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seven months... 308,000 in March alone. Layoffs are down, unemployment is
down, and help wanted ads are up. Initial claims for unemployment insurance have
fallen substantially: d o w n 2 0 % over the last year.
I anticipate that this economy will be creating a lot more jobs in the coming months.
I'm often asked to make a prediction about how many jobs will be created going
forward. I don't know exactly, of course, and I don't m a k e personal predictions or
estimates. But what I a m confident of, what I do know, is that jobs will follow
economic recovery, and jobs will follow economic growth. History tells us that and
history will repeat itself today.
This is all part of our economic present and future here in the U.S. Another
important part of our economic picture is our federal budget and the short-term
federal deficit.
The deficit is too large, but it is understandable and it is manageable. While
addressing the deficit, w e must remember that it is not historically overwhelming.
And it is understandable, as I said, given the extraordinary circumstances of recent
history.
With continued economic growth - which depends importantly on making the
President's tax cuts permanent - and restrained federal spending, w e can cut the
short-term deficit in half over the next five years.
If the tax cuts aren't made permanent, the U.S. economy, in our view, will lose its
current m o m e n t u m . The tax relief is the key stimulus for increased capital
formation, entrepreneurship and investment that causes true, sustained, long-term
economic growth.
Economic growth is key to the prosperity of our citizens... and it also it increases
Treasury receipts and helps to reduce deficits. But that isn't enough. W e also have
to control government spending.
The President's proposed budget combines both strategies - making tax cuts
permanent and tight spending controls. By doing so we'll be able to cut the deficit
in half over the next five years to below 2 % of G D P - low by historical standards.
When people refer to the deficit, it troubles me that they don't always distinguish
between short-term and long-term deficits.
As I've just explained, the Administration has a sound plan to deal with reducing the
short-term deficit. W e are also concerned with long-term deficits and are developing
policies to address those very different issues. O n e of our top concerns is the rising
cost of health care, and h o w that is deeply impacting long-term deficits.
When we released the 2004 Social Security and Medicare Trustees' Reports last
month, the Medicare report revealed even greater challenges than those
confronting Social Security. While Medicare faces the s a m e shifting demographics
as Social Security, it is additionally burdened by sharp increases in underlying
health care costs. From 1998 to 2002, health care costs rose 35 percent. Health
care spending is growing as a percentage of G D P ; its share w a s nearly 15 percent
of our nation's G D P in 2002 and is surely even larger now. Employer-sponsored
health insurance premiums rose 14 percent last year alone. The negative impact of
rising costs is evident in terms of the economy, jobs, and federal programs such as
Medicare.
Rapidly rising health care costs place a great burden on the Medicare program,
which is already under stress from the underlying shift in the age distribution of our
nation's population. Controlling health care costs is the real key to the long run
fiscal sustainability of both Medicare and the federal budget.
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According to the C B O , federal spending on Medicare and Medicaid will rise to 11.5
percent of G D P in 2050, up from 3.9 percent in 2003. If, instead of increasing at the
rate of growth of per capita G D P plus 1 percent as assumed, per beneficiary
spending were to grow at the rate of per capita G D P itself over the s a m e time
period, federal spending on Medicare and Medicaid will rise to only 6.4 percent of
G D P in 2050, thus freeing roughly 5 percent of G D P for other activities.
Achieving a 1 percentage point reduction in the rate of increase in health care costs
should be doable, but it will require the very best efforts of all of us concerned with
the issue. Most importantly, I believe this slowdown in cost increases could be
accomplished without sacrificing the quality and access to health care that our
senior citizens deserve and have c o m e to expect.
Clearly steps must be taken to address growing costs while maintaining high quality
care for our senior citizens and, indeed, all citizens. The President has shown real
leadership in seeking to reduce health care costs without diminishing quality or
access to care. This Administration is committed to helping Americans obtain
improved and more affordable health care coverage. Medical liability reform is
critical to improve health care quality and reduce costs. W e need to help stop
harmful costly medical errors and provide liability protection for doctors and nurses
w h o report mistakes in good faith. W e need to employ more fully the efficiencies of
information technology in the health care sector, such as physician order entry and
electronic medical records.
Additionally, health savings accounts will help millions of Americans with medical
expenses and encourage saving while putting individuals in charge of their o w n
health care choices. The President has proposed refundable tax credits to help lowincome workers purchase health insurance coverage, and proposed allowing small
businesses to band together through association health plans, helping America's
working families to have greater access to affordable health insurance. And we've
been urging Congress to act on all these important measures.
I know that you heard from Treasury Under Secretary Brian Roseboro this morning
about s o m e issues that are particularly important to your industry, and I'd like to
touch on a few of those myself.
First, I want to let you know that Treasury is pleased with the growth and
development of the Treasury Investment Program's (TIP) market remains
committed to further expansion. W e believe that financing at the lowest cost over
time requires a broad and deep investor base, and with this in mind, w e continue to
examine ways of promoting inflation-indexed securities and expanding-the market
for this asset class.
There is a natural and growing demand for inflation protected investments, and any
expansion of the TIPS market would expand and diversify d e m a n d for Treasury
securities.
Second, I want to talk about the ensuring lowest-cost borrowing over time.
Treasury's primary objective in managing its marketable debt is to achieve the
lowest cost, over time, for the federal government's financing needs. To achieve
this objective, the Treasury commits to regular and predictable issuance across a
range of securities.
That means factoring "variance" into our debt management policies. It means
reducing the uncertainty where w e can and planning for where w e cannot. And it
m e a n s preparing the market, as much as possible, w h e n w e do have to m a k e
policy changes.
Treasury issuance will continue to support the broader functioning and growth of
the fixed income market.
Finally, many of you are interested in the 30-year bond and whether there is any
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change in that policy. There is no change.
By working together and making the President's tax cuts permanent, we can
promise a prosperous tomorrow for this country. I appreciate what you do to
achieve that goal, and I appreciate your having m e here today.
Thank you very much.
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PRLSS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 22, 2004
js-1454
Remarks of Under Secretary Brian C. Roseboro before
The Bond Market Association's Annual Meeting
Good morning. I would like to begin by thanking the Bond Market Association for
this opportunity to speak at their annual conference. Treasury enjoys an excellent
working relationship with the B M A , a relationship that has benefited the fixed
income market and the American taxpayer.
More than 2 >2 years ago Treasury undertook several, long overdue or under
emphasized, initiatives intended to improve the primary market for Treasury
securities. Through the hard work and efforts of the Treasury and Bureau of Public
Debt staffs, the Federal Reserve Bank of N e w York, and market participants, w e
have reached many of our goals. However, there is still more w e can do to improve
the primary market. Continued progress is a necessity and w e plan to roll out other
initiatives in the coming months.
Today I will highlight some of the developments in the auction process and our
plans for future improvements. A priority for us is to increase transparency in the
information w e provide to market participants. I will then discuss s o m e of the recent
trends in auction participation and the important role the primary dealers play in the
auction process.
The amount of debt we issue through the auction process is massive by any
measure. To put this into some context, in F Y 2003 Treasury auctioned $3.3 trillion
over a total of 196 auctions. These operations support annual fiscal operations of
$2 trillion in expenditures.
We know that we must continuously seek to improve the auction services we
provide to help meet our objective of lowest cost of financing over time. Our efforts
to improve the auction process are based on our belief that regular, efficient and
transparent auctions translate into lower Treasury borrowing costs. Further, w e
maintain that a smoothly operating primary market enhances the liquidity and
efficiency of the secondary market for Treasury securities. W e have streamlined the
auction process and improved the systems that support auction processing. These
initiatives are designed to achieve faster, more efficient auctions and to enhance
the robustness of the auction processing systems. Underlying these initiatives is
the recognition that w e need to do everything w e can to make your participation in
our auctions easier with minimum risk. W e hope that our efforts have helped you
operate more effectively in the secondary market.
With this in mind, I would like to quickly review how we have translated our beliefs
into actions in the primary market and improvements in the auction process. A s
you are aware, one of our top priorities has been to reduce the time it takes to
release auction results. Processing bids and disseminating results more quickly is a
win-win situation for both bidders and Treasury. The shorter the auction release
time, the less uncertainty you bear - less market risk. In 2000, it took, on average,
27 minutes to release auction results. In August of 2003, w e set the goal of today's
standard of consistent release times of two minutes with a variance of plus or minus
30 seconds. W e have achieved our goal of faster auction release times with an
average release time of 1 minute 35 seconds this fiscal year. The less uncertainty
you face, the less you will charge us for the risk of participating in our auctions. This
cost savings is passed onto the U.S. taxpayer.
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A s a government issuer, w e are obliged to m a k e auctions accessible to all investors
and w e have an extremely diverse pool of auction participants. There are currently
more than 825 investors making use of TAAPSLink (Treasury Automated Auction
Processing System), which allows direct auction participation over the internet.
TreasuryDirect has m a d e it possible for a larger number of individual investors to
participate in our auctions. The average number of investors bidding noncompetitively in all Treasury auctions in 2003 w a s 650 with an average bid size of
$769,000. These bids are clearly important to us more for what they represent to
us as the issuer of government debt rather than what they represent in meeting the
government's financing needs.
Not inconsistent with our success in improving auction release times is our goal is
to do everything possible to get every bid into the auction if possible. W e have
worked with dealers to establish emergency bidding guidelines and strengthen
systems and communication links. W e are also working to m a k e bidding at auction
more efficient for investors. At the recent February quarterly refunding, w e
announced that w e will begin six-decimal place pricing later this year. This will
allow for a more accurate relationship between bid yields and invoice prices in bill
auctions. W e encourage you to take the necessary steps to ensure that your
auction systems are prepared to accommodate this change. (The six-decimal
pricing calculation formulas can be found at
www.publicdebt.treas.gov/of/ofcalc6decimal.htm
We recognize the need to continuously develop systems improvements quickly,
and, with this goal in mind, w e have begun to work to completely redesign all of the
systems that support auction processing. W e expect that this will ultimately lead to
easier and faster bid entry, fewer errors in bid submission, and increased flexibility
of our auction systems to respond to technological change and n e w market issues.
There is a broad spectrum of investors already participating in Treasury auctions,
from small retail investors to foreign central banks. All of these auction participants
are important to us, and w e continually seek broader participation because w e feel
that it is key to maintaining market liquidity and efficiency, two important reasons
m a n y investors choose to participate in the Treasury market in the first place.
In response to market participants' interest in more information about auction
participation, Treasury started releasing additional auction bidding statistics in M a y
2003, providing auction participants with information about h o w each auction is
distributed. Currently that information is released approximately 15 minutes after
each auction. W e are working to significantly reduce the release time for this
a d d e n d u m within the next 6-8 months.
From the data Treasury has released following the auctions, it is clear that direct
bidders play a relatively small role in the auction process, with these investors
bidding for and awarded only 2.2 percent of all auctions in 2003. While bringing us
a further diverse pool of participants, they are not necessarily the drivers of auction
performance.
The second largest category of bidders has been drawing more attention recently.
Indirect bidders include foreign central banks and official accounts that tender
through the Federal Reserve Bank of N e w York, as well as any customer w h o
submits through a primary dealer. They tend to bid for the supply they need. In
2003, indirect bidders submitted $800 billion in bids at auctions, and were awarded
$610 billion -(representing 19 percent of total auction awards). In other words, they
were awarded approximately 75 percent of their bids at auction on average.
Clearly the largest segment of participants both in terms of bids and awards is the
primary dealer community. In 2003, primary dealers bid more than $6 trillion,
making up 86 percent of total bids. They were awarded $2.4 trillion, representing
78 percent of total auction awards. I would argue that the primary dealers are
responsible for an even greater portion of auction awards than is suggested by
looking at only the percentage awarded. This is because they also submit a large
volume of bids on behalf of customers, which is currently captured in the indirect
bidder data.
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The primary dealers are vitally important to the Treasury. Functioning for over 40
years, they are the distribution and support system for Treasury debt. Primary
dealers also play a critical role in the price discovery process for each auction. A s
market makers in the when-issued market, dealers help determine the clearing
price at auction. This helps provide all auction participants with a reference price
for submitting their o w n bids. And dealers aid in the distribution of Treasury
securities to end users in their role as market makers.
Given the recent market focus on auction participation, I also want to point out that
there are other sources of publicly available data on Treasury debt outstanding,
auction participation, and holdings of Treasury securities. These include the
quarterly Treasury Bulletin (<www.fms.treas.gov/bulletin/>), which contains a
breakdown of coupon auction awards by investor type. Additionally, the Monthly
Statement of the Public Debt published on the 4 t h business day of each month by
the Bureau of Public Debt (<http://www.publicdebt.treas.gov/opd/opddload.htm>)
breaks d o w n Treasury debt outstanding. And the monthly release of Treasury
International Capital (TIC) data (<www.treas.gov/tic/>) provides foreign holdings of
Treasuries and transactions in U.S. debt. All of these data are available on line. If
you are not already familiar with these data, I encourage each of you to m a k e use
of them as they can be used to compile a more complete picture of auction
participation and the investor profile in the Treasury market. This information can
only m a k e you better informed and help you bid more effectively at auction.
Outside of the auction process, we have also worked to improve transparency in
other areas by providing the public with information about the composition of our
debt portfolio and factors that influence our debt m a n a g e m e n t decisions. W e have
continually worked to improve the flow of information available to all investors on
our website. For example, during each quarterly refunding w e publish two sets of
charts on our website. These charts, as well as the policy statements and other
information w e publish contain a wealth of information about our strategy for debt
management. A s with the auction process, w e feel that more transparency can
only lead to better communication between Treasury and market participants. I
encourage all of you to take a look at what is available on our website
(http://www.treas.gov/offices/domestic-finance/debt-management/).
Perhaps the most important function the primary dealers play in the auction process
is in the meaningful participation they provide. Meaningful participation can be
defined by three characteristics; 1) the size of actual auction awards, 2) the size
and distribution of underwriting bids, and 3) the consistency with which they provide
both.
I have already discussed the size of the dealers' auction participation, which shows
that they are routinely the largest bidders and are awarded the largest amount at
auction. W h e n I talk about underwriting bids and support, I a m referring to the
primary dealers' total bidding participation at various market rates behind the
expected auction clearing price as opposed to simply their awarded amounts.
\
These underwriting bids play a critical role in the auction pricing process. Auctions
do not always stop right at the level expected by market participants or at the
prevailing when-issued level. Clearly, having an abundance of these underwriting
bids at various rate levels allows for a smooth auction process and helps ensure
that the auction gets priced at a level that reflects fundamental supply and demand.
The existence of the underwriting bids helps reduce volatility and ensures robust
coverage for all of Treasury's auctions. Undoubtedly, robust bidding and healthy
coverage for each auction is in the mutual interest of both Treasury and all Treasury
market participants.
Looking at recent underwriting experience, there are a number of dealers who
consistently provide a large number of underwriting bids at various rate levels
above the expected stop out rate. W e would like to c o m m e n d these dealers for
their consistent, sizeable underwriting support. But w e would like to see this level
of commitment from the rest of the dealer community. W e encourage all the
primary dealers to evaluate critically the underwriting support they provide at
auctions, both in terms of consistency and size of their participation.
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I cannot emphasize h o w important the consistency of the primary dealers'
participation is to a successful auction process. While w e understand that dealers'
interest in any individual offering m a y fluctuate, each primary dealer provides s o m e
level of participation at each and every auction. This ensures both good coverage
and pricing that is aligned with fundamental factors for each auction. The
importance of primary dealer's consistency in participation is particularly
pronounced in times of heightened market stress or uncertainty. W e know that
whatever market conditions might materialize, the U.S. Treasury can count on its
primary dealers to support the auction process. I want to take this opportunity to
thank the primary dealer community for providing this valuable service to the U S
Treasury market.
As I stated at the beginning of my remarks, for us, continued progress is a
necessity. But real and lasting improvements the Treasury market requires
continued progress and support by you as well. Treasury intends to do its part to
promote efficient auctions by providing regular and predictable issuance, making
continuous improvements in the auction systems and processes, and increasing
transparency. And w e encourage the primary market participants to do their best to
ensure a stable auction environment that benefits all participants. W e always
welcome feedback and comments from you, as open dialog between Treasury and
market participants is crucial to a first-rate auction process and fully functioning
secondary market. Working together, w e will help ensure that the U.S. Treasury
market remains the deepest, most liquid, and most efficient market in the world.
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PRLSS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 22, 2004
JS-1455
Remarks by Jeff Huther, Director of the Office of Debt
Management
To the Bond Market Association's Annual Meeting
I would like to focus this morning on how we at Treasury look at chronic settlement
fails such as occurred last year, and to discuss initiatives aimed at mitigating or
preventing a repeat performance.
The large and persistent fails in the May 2013 10-year note can be described as a
consequence of either too little supply or too much demand. Looking first at the
supply side, s o m e market participants would argue that Treasury did not sell
enough of the note to satisfy demand - although at $18 billion the issue was equal
to the largest 10-year auction ever. Others might cite the reportedly large holdings
of foreign central banks - although their take-down in the auction did not stand out
as exceptional - or the reluctance of some owners of the issue to lend their
securities in the collateral market. O n the demand side, commentators have cited
the enormous hedging needs of mortgage and other fixed income investors w h o
were caught offsides when expectations for the future direction of interest rates
changed in late June.
But whether you focus on too little supply or too much demand, the striking fact is
that the collateral market in the M a y 10-year note failed to clear. Borrowing
demand drove the specials rate for the note down to zero in early July and excess
demand at the zero rate then spilled over into settlement fails - forcing buyers to
become involuntary lenders of the issue rather than holders.
In thinking about initiatives to mitigate or prevent chronic fails, I think it is important
to focus on the functioning of the collateral market largely for practical reasons: w e
are unlikely to see basic changes in the forces driving either supply or demand in
this sector of the Treasury curve. Treasury is unlikely to abandon its commitment to
providing you with offerings as regularly and predictably as possible because w e
view "regular and predictable" as a key ingredient to achieving the more basic
objective of financing the federal deficit at lowest possible long-run cost; foreign
central banks are unlikely to stop buying Treasuries; and the hedging requirements
of fixed income investors are unlikely to shrink appreciably in the future.
The heart of the pricing problem last year was, unquestionably, the low federal
funds rate and the consequently low ceiling on the cost of financing a short
position. I would argue that the low ceiling fostered complacency about hedging
and short selling. In particular, market participants didn't have to face the prospect
that they might have to finance short positions at specials rates 4 or 5 percent
below the general collateral repo rate. This may have left them willing to carry
larger long positions in the first place and m a y have increased the attractiveness of
hedging (rather than liquidating) their long positions when intermediate term debt
yields began to rise in late June. This would account for the unusually large short
base in the 10-year note and the concomitantly large borrowing demand for the
note.
After the specials rate for the May 10-year note hit zero in early July and demand to
borrow the note spilled over into fails, s o m e market participants took comfort in the
idea that Treasury would bail out the shorts by creating additional supply. Certainly
w e at Treasury received ample advice to that effect. But reopening the note, while
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possibly advantageous to Treasury in the short run - w h y not sell more of what is in
d e m a n d ? - would only exacerbate the moral hazard that market participants will
c o m e to expect us to fashion debt m a n a g e m e n t policy to accommodate the
collateral market. It would introduce a n e w speculative component into securities
prices and lead to unwelcome pressures on debt managers from shorts w h o want
an issue reopened and longs w h o do not.
The rock-bottom specials rate on the May 10-year note, coupled with speculation
that Treasury might reopen the issue, also led to s o m e particularly dysfunctional
discretionary behavior in the collateral market. Market participants could speculate,
cheaply or even costlessly, against an increase in the specials rate by entering into
a term repo contract to lend the 10-year note even if they did not o w n the security
and were unlikely to fulfill their delivery obligations. Because the repo rate w a s at
or near zero, a putative collateral lender would o w e a borrower little or no interest if
the lender failed to deliver the note. If Treasury reopened the note and the specials
rate rose, the lender could reverse in the security - earning a positive return on the
cash it lent - and fund the loan by delivering the security on the original, low or zero
rate, repo. The availability of such a "free (or low cost) option" added to the fails
problem at a singularly inopportune time.
The current regulatory architecture provides two responses to a situation like last
year in the Treasury market. O n e response requires buy-ins of fails outstanding for
more than 30 calendar days. Last summer, numerous firms asked for relief from the
buy-in rule, arguing that strict application would d a m a g e customer relations and
would not, in any case, contribute to a reduction in aggregate fails. Indeed, while
the buy-in rule s e e m s appropriate for curing an idiosyncratic aged fail by a
customer to a dealer w h e n the dealer can actually obtain the security in a
conventional transaction with an alternative seller, strict application of the rule m a y
be inappropriate w h e n transactions are generally failing to settle on a widespread
basis. Little is gained if the buy-in itself fails to settle.
The other regulatory response to chronic fails is capital charges. Here the case for
the response is clearer: settlement fails create risk for both buyers and sellers. The
prospect that a counterparty might ultimately default on a purchase or sale
obligation suggests prudent reserves should be established w h e n the obligation has
been outstanding an inordinately long time. This is true regardless of whether an
aged fail is an idiosyncratic condition or part of a more widespread condition.
Additionally, capital charges resulting from chronic - widespread and persistent fails soak up dealer capital that might otherwise be used to support profit-making
activities; thereby focusing managerial attention on the underlying fails problem and
incentivizing managers to remedy the problem.
We at Treasury, in conjunction with the BMA, the SEC, the NASD and the NYSE,
have been discussing ways of addressing chronic fails through the regulatory
process, including an examination of the Treasury buy-in rule. However, you
should not conclude that just because w e recognize that the current regulations
m a y not address the problem in an optimal fashion that w e therefore know what
regulations would do the job. W e welcome your thoughts and suggestions.
To a degree, I have already hinted at what I think is the appropriate response to last
summer's events. The problem began with the complacency that preceded the
increase in intermediate term rates and continued with the short hedging that
followed the rate increase. This complacency w a s a consequence of the low ceiling
on the cost of financing a short position; a ceiling created by the market convention
that a seller w h o fails to deliver on a timely basis suffers no direct cost beyond the
loss of the time value of the proceeds of its sale. M y assertion is that, had the cost
of failing been 5 percent per a n n u m instead of 1 percent, so that the specials rate
could have been driven to 500 basis points below the general collateral rate, market
participants would have been more cautious in acquiring long positions, more
cautious using the 10-year note as a hedging vehicle, and more aggressive in
covering their shorts before August. Hedging needs would still have been
substantial, but it is likely that s o m e investors would have sought alternative
hedging vehicles. W e might still have had a fails problem, but it likely would have
been smaller and resolved more quickly.
www.treas.gov/press/releases/j s 145 5 .htm
5/27/2005
JS-1455: Remarks by Jeff Huther, Director of the Office of Debt <br>Management <br>To the Bond Ma... Page 3 of 3
Avoiding market failure in the collateral markets when short-term rates are low
requires a market structure that facilitates the seamless m o v e m e n t of the specials
rate through zero w h e n borrowing d e m a n d exceeds supply at a rate of zero. Aside
from the contractual, documentary, and operational aspects of such a structure, this
requires something that imposes a cost (over and above loss of the time value of
the proceeds of a sale) on those w h o do not deliver securities on a timely basis.
Frankly, I do not know what an appropriate cost might be. It could be regulatory in
nature - perhaps a penalty fee assessed on a seller w h o has failed to deliver
securities for s o m e time - or it could result from the explicit terms of the contract
between the buyer and seller. In either case, I look to you for guidance on h o w to
proceed. Clearly, w e don't want a repeat of last summer. Avoiding a situation like
that, I believe, requires action now.
^/www.treas.gov/press/releases/js 1455.htm
5/27/2005
js-1456: Debt For Nature Agreement For The Republic O f Colombia
Page 1 of 1
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 23, 2004
js-1456
Debt For Nature Agreement For The Republic Of Colombia
The governments of the United States and Colombia, along with The Nature
Conservancy, Conservation International Foundation, and World Wildlife Fund, Inc.
recently signed agreements that will reduce Colombia's debt to the U.S. by over ten
million dollars. In return, the Government of Colombia has committed to using this
savings to fund local conservation projects for the protection and conservation of
several important tropical forest areas in Colombia.
More specifically, the savings will be focused on two priorities: funding conservation
activities in these important tropical forest regions, and creating a permanent
endowment to provide sustainable funding to these areas in the future.
The areas benefiting from the agreement include the forests of the northeastern
tropical Andes, the Llanos region in the Orinoco Basin, and the Caribbean. The
tropical Andes contain one of the largest tracts of oak forest in the country. The
Llanos region is h o m e to many species, including the giant armadillo, jaguar, river
dolphin and the Orinoco crocodile. The Caribbean region also contains several
unique species.
These agreements will be implemented by a committee that will include
representatives from the governments of Colombia and the United States, as well
as representatives from The Nature Conservancy, World Wildlife Fund, and
Conservation International. To carry out this debt-for-nature swap, the U.S.
Government used $7 million of funds appropriated under the Tropical Forest
Conservation Act (TFCA), and the Nature Conservancy, Conservation International
and World Wildlife Fund contributed $1.4 million.
The preservation of tropical forest regions is critically important to the global
environment. This innovative "debt-for-nature" arrangement is m a d e possible under
TFCA. Colombia is the seventh country to benefit from programs under the T F C A the other countries are Bangladesh, Belize, El Salvador, Peru, the Philippines, and
Panama. The T F C A was enacted in 1998 to provide eligible developing countries
the opportunity to reduce their concessional debts owed to the United States while
at the s a m e time generating funds for activities to conserve important tropical
forests.
)://www.treas.gov/press/releases/jsl456.htm
5/27/2005
JS-1457: U.S. Announces Easing and Lifting of Sanctions Against Libya<br>Treasury to Issue General... Page 1 of 2
F R O M T H E OFFICE O F PUBLIC A F F A I R S
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April 23, 2004
JS-1457
U.S. Announces Easing and Lifting of Sanctions Against Libya
Treasury to Issue General License Lifting M u c h of Economic Embargo
The United States today announced that it will effectively lift most of the sanctions
imposed on Libya under the International Emergency Economic Powers Act of 1996
(IEEPA) and that it has taken the necessary steps to have the Iran-Libya Sanctions
Act of 1996 (ILSA) terminated with respect to Libya. Today's action represents the
second round of Libyan sanctions to be eased or modified in response to Libya's
progress in dismantling its weapons of mass destruction and the missiles capable
of delivering them.
The Treasury Department's Office of Foreign Assets Control (OFAC) is issuing a
general license that will authorize most new transactions with Libya. The license
will take effect on the date the Federal Register publishes the Department of
Commerce's revised regulations on exports to Libya.
The general license will lift much of the economic embargo that has been in place
against Libya since 1986.
• Most trade and investment activities between the U.S. and Libya will be
permitted, including the importation and exportation of goods or services,
subject to export controls maintained by the Department of Commerce.
• U.S. companies will be able to enter into and implement most industrial,
commercial or government contracts, as well as invest in Libya, again
subject to export controls based on Libya's status on the State Sponsors of
Terrorism List.
• U.S. banks and other financial service providers will be able to participate in
and support transactions with Libya.
• Libyan students may study in the U.S. if they are accepted by an American
university and qualify for a student visa.
Certain restrictions on transactions with Libya will remain:
• All property blocked as of the effective date of the general license will
remain blocked;
• Goods or technology controlled for export to Libya under the terms of the
U.S. Department of Commerce's Export Administration Regulations require
licensing for export;
• Transportation-related transactions remain prohibited, except as expressly
authorized by the general license for travel issued on February 26, 2004
(general license:
http://www.treasury.gov/offices/eotffc/ofac/sanctions/libya_gl2.pdf). This
includes, but is not limited to, flights to or from Libya by U.S. air carriers,
code-sharing involving flights to or from Libya, and flights to or from the
United States by Libyan air carriers.
Since the general license transfers export licensing jurisdiction back to the
Department of Commerce, it will have a delayed effective date to coincide with the
effective date of Commerce's revised regulations for Libya, so that there will be no
://www.treas.gov/press/releases/jsl457.htm
JS-1457: U.S. Announces Easing and Lifting of Sanctions Against Libya<br>Treasury to Issue General... Page 2 of 2
gap in export licensing jurisdiction.
In January 1986, sanctions were imposed against Libya under IEEPA after Libya's
involvement in the terrorist attacks against the R o m e and Vienna airports in
December of 1985. The sanctions were in reaction to Libya's continued support for
and use of terrorism against the United States, other countries and innocent
persons.
For more information on the United States' February 26, 2004 announcement to lift
the travel ban on Libya, please visit:
http://www.treasury.gov/press/releases/js1197.htm.
://www.treas.gov/press/releases/jsl457.htm
5/27/2005
fS-1458: Joint Statement<BR>U.S. - Nigeria Economic Dialogue<BR>April 21, 2004
Page 1 of 2
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 22, 2004
JS-1458
Joint Statement
U.S. - Nigeria Economic Dialogue
April 21, 2004
During frank and very constructive discussions in Washington, D.C. on April 21,
2004, representatives of the Federal Republic of Nigeria and the United States of
America identified key areas of cooperation to bolster Nigeria's ambitious reform
agenda. They recognized the initiatives introduced by the Government of Nigeria
during the past year and stressed the importance of implementing the agenda with
full participation from every sector of Nigerian society.
Secretary of the Treasury John W. Snow led the United States delegation.
Minister of Finance Dr. Ngozi Okonjo-lweala led the delegation of the Federal
Republic of Nigeria. Each stressed the importance of the close friendship and
cooperation between Nigeria and the United States. They noted the shared interest
in supporting sound economic policies to promote democracy and security in
Nigeria and the West African region. The Nigerian delegation thanked the United
States for its continuing support towards the consolidation of democracy and
economic reform in Nigeria.
The U.S. and Nigeria delegations agreed on the importance of Nigeria's efforts to
diversify its economy, stimulate private sector-led growth, implement sound
macroeconomic fundamentals and fiscal responsibility, as well as create strong a
social sector. The National Economic Empowerment and Development Strategy
( N E E D S ) and its three strategic pillars - reforming government institutions, growing
the private sector, and a social charter -- was recognized as the key roadmap for
Nigeria's reform program. The delegations agreed on the urgency of addressing the
HIV/AIDS epidemic which constitutes a major threat to productivity and the
economy, as well as a serious budgetary burden.
The U.S. reiterated its commitment to Nigeria's reform program and reaffirmed its
willingness to support genuine measurable progress. The U.S. praised Nigeria's
bold efforts to deregulate the petroleum sector and promote increased power and
natural gas development. Nigeria's movement to a Dutch Auction system was noted
and adoption of a wholesale foreign exchange market was encouraged. Both
parties highlighted significant areas of ongoing cooperation, including combating
the spread of HIV/AIDS, strengthening the rule of law, and promoting efficient and
transparent economic management.
Both sides stressed the importance of transparency in all levels of the budget
process and commended the crucial reforms already undertaken in the areas of
budgeting, procurement, and oil and gas revenue management. The United State
Government, as host of the Group of Eight (G-8) Industrialized Countries in 2004,
welcomed the Government of Nigeria's intention to partner with the G-8 in a pilot
program to enhance transparency and accountability in the areas of budget
administration, procurement and concession-letting. Nigeria agreed to develop a
draft statement of its intent to take action in cooperation with G-8 partners for our
joint consideration. This draft statement will form the basis for the "compact"
agreement between Nigeria and the G-8 partners and for a Technical Plan of Action
setting forth our mutual goals and efforts
7www.treas.gov/press/releases/jsl458.htm
5/27/2005
JS-1458: Joint Statement<BR>U.S. - Nigeria Economic Dialogue<BR>April 21, 2004
Page 2 of2
T h e U.S. delegation described the challenges facing the U.S.-Nigeria commercial
relationship, including the imposition of import bans and other tariff and non-tariff
barriers. U.S. representatives raised concern about restrictive trade policies. The
Nigerian delegation explained that such restrictions are small as a percentage of
overall trade and are transitional in nature.
The delegations discussed ways that Nigeria can reach its full economic potential
through diversification, joint ventures, and an improved investment climate. T h e
delegations agreed on the benefits of seeking additional export opportunities under
the African Growth and Opportunity Act ( A G O A ) . The Nigerian delegation noted
Nigeria's need for resources to publicize the benefits of A G O A to its business
community, as well as to build capacity for exploiting these benefits. T h e U.S.
delegation underscored the importance of enhancing trade opportunities through
the World Trade Organization and expressed interest in Nigeria's cooperation.
The U.S. commended the Government of Nigeria for the focus on agricultural
development in its development strategy. Both sides recognized the importance of
adding value to primary agricultural products, promoting private sector-led
leadership in agricultural inputs, developing infrastructure and creating a stable
policy environment. These elements are critical to accelerating agricultural
production and increasing incomes for small-scale farmers. The Nigerians stressed
the continued commitment of the Obasanjo government to the development of
Nigeria's agricultural sector, as demonstrated by the formulation of a n e w
agricultural policy and implementation of the National Special Program on Food
Security, as well as the Presidential Initiative on basic agricultural commodities.
//www.treas. eov/nress/releases/j s 145 8 .htm
5/27/2005
IS-1459: G 7 Photo Opportunities
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
April 23, 2004
JS-1459
G7 Photo Opportunities
*** UPDATED SCHEDULE *** *** NOTE SWEEP TIMES ***
FRIDAY, APRIL 23rd
8:00 PM
G7 Working Dinner
Anderson House
2118 Massachusetts Ave, N W
Pool Coverage
Security Sweep at 7:00pm
SATURDAY, APRIL 24th
8:00 AM
G7 Meetings
Anderson House
2118 Massachusetts Ave, N W
Open Photo Spray At Top
Pool Reporter
Security Sweep at 7:00am
10:00-10:15 AM
G7 Group Photo
Anderson House
2118 Massachusetts Ave, N W
Open Photo
Pool Reporter
Security Sweep at 9:00am
/www.treas.gov/press/releases/js 1459.htm
5/27/2005
rS-1460: Department of the Treasury: <br>Third Quarterly Update of the 2003 - 2004 Priority Guidance ... Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
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April 23, 2004
JS-1460
Department of the Treasury:
Third Quarterly Update of the 2003 - 2004 Priority Guidance Plan
Joint Statement by:
Gregory Jenner
Acting Assistant Secretary (Tax Policy)
U.S. Department of the Treasury
Mark W . Everson
Commissioner
Internal Revenue Service
Donald L. Korb
Chief Counsel
Internal Revenue Service
We are pleased to announce the third quarterly update of the 2003 2004 Priority
Guidance Plan.
On July 24, 2003, we released the 2003 - 2004 Priority Guidance Plan listing 268
projects for the plan year beginning July 1, 2003 and ending June 30, 2004. In our
Joint Statement that accompanied the release of the 2003 - 2004 Priority Guidance
Plan, w e emphasized our commitment to increased and more timely published
guidance. W e indicated that w e would update the plan quarterly to reflect additional
guidance that w e intend to publish during the plan year. Updating the plan also
provides flexibility to respond to developments arising during the year.
The attached update sets forth the guidance on the original 2003 - 2004 Priority
Guidance Plan, as previously updated, that w e have published. Although the
update m a y indicate that a particular item on the plan has been completed, it is
possible that one or more additional projects m a y be completed in the plan year
relating to that item. The update also includes 36 items of additional guidance,
s o m e of which have already been published.
We continue to invite the public to provide us with comments and suggestions as
w e identify and write guidance throughout the plan year.
The updated 2003 -2004 Priority Guidance Plan will be republished on the IRS
website on the Internet (www.irs.gov) under Tax Professionals, IRS Resources,
Administrative Information and Resources, 2003 - 2004 Priority Guidance Plan.
Copies can also be obtained by calling Treasury's Office of Public Affairs at (202)
622-2960.
REPORTS
• Third Quarterly Update of the 2003 - 2004 Priority Guidance Plan
'www.treas.gov/press/releases/jsl460.htm
5/27/2005
DEPARTMENT OF THE TREASURY
Washington, DC 20220
April 23, 2004
Department of the Treasury
Third Quarterly Update of the 2003 - 2004 Priority Guidance Plan
Joint Statement by:
Gregory Jenner
Acting Assistant Secretary (Tax Policy)
U.S. Department of the Treasury
Mark W. Everson
Commissioner
Internal Revenue Service
Donald L. Korb
Chief Counsel
Internal Revenue Service
W e are pleased to announce the third quarterly update of the 2003 - 2004 Priority
Guidance Plan.
On July 24, 2003, we released the 2003 - 2004 Priority Guidance Plan listing 268 projects
for the plan year beginning July 1, 2003 and ending June 30, 2004. In our Joint Statement that
accompanied the release of the 2003 - 2004 Priority Guidance Plan, w e emphasized our
commitment to increased and more timely published guidance. W e indicated that w e would
update the plan quarterly to reflect additional guidance that w e intend to publish during the plan
year. Updating the plan also provides flexibility to respond to developments arising during the
year.
The attached update sets forth the guidance on the original 2003 - 2004 Priority Guidance
Plan, as previously updated, that w e have published. Although the update m a y indicate that a
particular item on the plan has been completed, it is possible that one or more additional projects
m a y be completed in the plan year relating to that item. The update also includes 36 items of
additional guidance, some of which have already been published.
We continue to invite the public to provide us with comments and suggestions as we
identify and write guidance throughout the plan year.
The updated 2003 -2004 Priority Guidance Plan will be republished on the IRS website
on the Internet (www.irs.gov) under Tax Professionals, IRS Resources, Administrative
Information and Resources, 2003 - 2004 Priority Guidance Plan. Copies can also be obtained by
calling Treasury's Office of Public Affairs at (202) 622-2960.
2
OFFICE OF TAX POLICY
AND
INTERNAL REVENUE SERVICE
2003-2004 PRIORITY GUIDANCE PLAN
APRIL 23, 2004 UPDATE
CONSOLIDATED RETURNS
Original PGP Projects:
1. Guidance under section 1502 regarding transactions involving obligations of
consolidated group members.
2. Guidance under section 1502 regarding rate or discount subsidy payments.
3. Final regulations under section 1502 regarding certain group structure changes.
4. Guidance under section 1502 regarding treatment of member stock.
• P U B L I S H E D 3/18/2004 in F R as T E M P 9118
Additional PGP Projects:
5. Guidance under section 1504(a)(5)(C) and (D) regarding affiliation.
6. Guidance under section 1502 regarding application of section 108 to members of a
consolidated group.
• P U B L I S H E D 9/4/2003 in F R as T E M P 9089
• P U B L I S H E D 12/11/2003 in F R as T E M P 9098
• P U B L I S H E D 3/15/2004 in F R as T E M P 9117
CORPORATIONS AND THEIR SHAREHOLDERS
Original PGP Projects:
1. Final regulations regarding the effect of reorganizations on attribute reduction in
respect of cancellation of indebtedness.
2. Guidance regarding redemptions of corporate stock.
3. Guidance regarding transactions involving the transfer or receipt of no net equity
value.
4. Final regulations regarding taxable asset acquisitions and dispositions of insurance
companies.
3
5.
Guidance regarding the acquisition of businesses having certain nonqualified
settlement funds.
6. Guidance regarding the effect of pre-closing changes of acquiror stock value on
continuity of interest.
7. Guidance regarding the business purpose requirement under section 355.
• PUBLISHED 11/17/2003 in IRB 2003-46 as REV. RUL. 2003-110
(released 10/23/2003)
• PUBLISHED 1/26/2004 in IRB 2004-4 as A O D 2004-1
• PUBLISHED 3/15/2004 in IRB 2004-11 as REV. RUL. 2004-23
(released 2/13/2004)
8. Guidance regarding the active trade or business requirement under section 355(b).
9. Guidance regarding predecessors and successors under section 355(e).
10. Guidance regarding the assumption of liabilities in certain transfers of property.
11. Guidance regarding transfers of assets after putative reorganizations.
• PUBLISHED 3/2/2004 in FR as N P R M REG-165579-02
12. Guidance regarding certain cross-chain transactions.
13. Guidance under section 368(a)(1 )(F).
14. Guidance under section 382.
• PUBLISHED 10/6/2003 in IRB 2003-40 as NOTICE 2003-65
(released 9/12/2003)
15. Guidance under section 1374 regarding liquidations of C corporations.
Additional PGP Projects:
16. Guidance under section 358 regarding Allocation of Basis.
EMPLOYEE BENEFITS
A. Retirement Benefits
Original PGP Projects:
1. Guidance on phased retirement arrangements.
2. Guidance on distribution rules for rollover contributions.
4
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. RUL. 2004-12
(released 1/29/2004)
3. Guidance updating Rev. Rul. 81-100.
4. Proposed regulations under section 401(a)(4) for cash balance plans.
5. Regulations under section 401 (a)(9) on required minimum distributions.
6. Guidance on whether employees of a section 501 (c)(3) organization who are
eligible to participate in a section 403(b) plan are excludable employees for section
401 (k) and (m) plans.
• P U B L I S H E D 3/16/2004 in FR as N P R M REG-149752-03
7. Guidance relating to annuity plans under section 403(b).
8. Final regulations under section 408(q).
9. Guidance under section 409(p) on S corporation ESOPs.
• P U B L I S H E D 2/9/2004 in IRB 2004-6 as REV. RUL. 2004-4
(released 1/23/2004)
10. Revenue ruling under section 410(b)(6)(C).
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. RUL. 2004-11
(released 1/29/2004)
11. Guidance under section 411 (a).
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. RUL. 2004-10
(released 1/29/2004)
12. Guidance under sections 411 (b)(1 )(H) and 411 (b)(2).
13. Guidance under section 411 (d)(6).
• P U B L I S H E D 3/24/2004 in FR as N P R M REG-128309-03
14. Guidance on mortality tables.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as NOTICE 2003-62
(released 9/3/2003)
15. Guidance on section 412(i) plans.
• P U B L I S H E D 2/17/2004 in FR as N P R M REG-126967-03
16. Additional transitional rules when a PEO retirement plan is converted to a multiple
employer plan.
• P U B L I S H E D 12/15/2003 in IRB 2003-50 as REV. P R O C . 2003-86
(released 11/25/2003)
5
17. Regulations under section 415.
18. Guidance on section 416(g)(4)(H) for safe harbor 401 (k) plans.
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. RUL. 2004-13
(released 1/29/2004)
19. Guidance on use of electronic technologies for various retirement plan
transactions.
• P U B L I S H E D 2/9/2004 in IRB 2004-6 as N O T I C E 2004-10
(released 1/20/2004)
20. Final regulations under section 417(a).
• P U B L I S H E D 12/17/2003 in FR as T D 9099
21. Guidance under section 417(e).
22. Guidance under section 420.
23. Guidance under section 457.
24. Revenue Procedure on model provisions for section 457(b) plans.
25. Guidance under section 3405 on actions by a duly authorized agent.
Additional PGP Projects:
26. Notice on abusive Roth IRA transactions.
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as N O T I C E 2004-8
(released 12/31/2003)
27. Revenue procedure on funding waivers under section 412(d).
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. P R O C . 2004-15
(released 1/29/2004)
28. Revenue ruling on nondiscrimination requirements for qualified plans selling life
insurance to participants.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. RUL. 2004-21
(released 2/13/2004)
29. Revenue ruling on deduction limits for qualified plans holding life insurance.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. RUL. 2004-20
(released 2/13/2004)
30. Revenue procedure on determining fair market value of life insurance distributed
from qualified plans or taxable under section 79 or section 83.
6
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. P R O C . 2004-16
(released 2/13/2004)
31. Revenue procedure on EGTRRA amendment period extension.
• P U B L I S H E D 4/19/2004 in IRB 2004-16 as REV. P R O C . 2004-25
(released 3/31/2004)
32. Notice on weighted average interest rate modification.
• WILL B E P U B L I S H E D 5/3/2004 in IRB 2004-18 as NOTICE 2004-34
(released 4/12/2004)
33. Announcement on election of alternative deficit reduction contribution.
• WILL B E P U B L I S H E D 5/3/2004 in IRB 2004-18 as A N N . 2004-38
(released 4/12/2004)
34. Announcement requesting comments on revenue procedure for pre-approved
plans.
• WILL B E PUBLISHED 5/3/2004 in IRB 2004-18 as A N N . 2004-33
(released 4/16/2004)
35. Announcement regarding the update on the future of the EP Determination Letter
Program.
• WILL B E PUBLISHED 5/3/2004 in IRB 2004-18 as A N N . 2004-32
(released 4/16/2004)
36. Federal Register notice requesting comments for updating the regulations
regarding the Joint Board for the Enrollment of Actuaries.
37. Guidance on notice by employers electing the alternative deficit reduction
contribution.
B. Executive Compensation, Health Care and Other Benefits, and Employment
Taxes
Original PGP Projects:
1. Guidance under section 35 on credit for health care insurance costs of eligible
individuals.
• P U B L I S H E D 3/1/2004 in IRB 2004-9 as REV. P R O C . 2004-12
(released 2/12/2004)
2. Guidance on election between taxable and nontaxable benefits.
3. Guidance under section 62(c) on payments to couriers.
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as REV. RUL. 2004-1
(released 1/15/2004)
7
4.
Revenue ruling on electronic receipts and accountable plans.
• P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. RUL. 2003-106
(released 10/20/2003)
5. Guidance under section 83.
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as REV. RUL. 2004-37
(released 2/25/2004)
6. Guidance on disability payments.
7. Guidance on HRAs.
8. Revenue ruling under section 105 on nonprescription drugs.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as REV. RUL. 2003-102
(released 9/3/2003)
9. Guidance on debit cards.
10. Revenue ruling on the application of section 280G to various bankruptcy situations.
11. Guidance on health care provider incentive payments.
12. Final regulations on Incentive Stock Options.
13. Guidance on the employment taxation and reporting requirements applicable to
interest in nonstatutory stock options and deferred compensation transferred to a
former spouse incident to divorce.
14. Guidance under section 3121 regarding the definition of salary reduction
agreement.
15. Guidance on the employment tax treatment of bonuses paid to employees on the
signing of a collectively bargained agreement.
16. Guidance on FICA and FUTA tax with respect to incentive stock options under
section 422 and employee stock purchase plans under section 423.
17. Notice on issues with respect to the treatment of choreworkers.
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as N O T I C E 2003-70
(released 10/3/2003)
18. Guidance on the reporting procedures for successor organizations following Rev.
Proc. 96-60.
19. Guidance under section 3504.
8
20. Revenue ruling under section 4980B on Medicare entitlement as a second
qualifying event.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. RUL. 2004-22
(released 2/13/2004)
21. Guidance on tips paid to restaurant employees.
22. Guidance on the deposit requirements for employment tax in connection with the
exercise of nonstatutory options.
Additional PGP Projects:
23. Notice on health savings accounts.
• P U B L I S H E D 1/12/2004 in IRB 2004-2 as N O T I C E 2004-2
(released 12/22/2003)
24. Guidance on the tax treatment of payments under the Smallpox Emergency
Personnel Protection Act.
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as REV. RUL. 2004-17
(released 3/2/2004)
25. Additional guidance on health savings accounts.
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as NOTICE 2004-23
(released 3/30/2004)
26. Regulations on student FICA exception.
• P U B L I S H E D 2/25/2004 in FR as N P R M REG-156421-03
27. Notice on student FICA exception.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as N O T I C E 2004-12
(released 2/24/2004)
28. Notice on transitional relief for health savings accounts.
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as NOTICE 2004-25
(released 3/30/2004)
29. Revenue ruling on high deductible health plans.
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as REV. RUL. 2004-38
(released 3/30/2004)
30. Revenue procedure providing transitional relief on prescription drug coverage for
individuals covered by a high deductible health plan.
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as REV. P R O C . 2004-22
(released 3/30/2004)
9
31. Notice warning taxpayers about questionable positions taken on income tax and
alternative minimum tax on the exercise of statutory and nonstatutory stock
options.
• P U B L I S H E D 4/19/2004 in IRB 2004-16 as N O T I C E 2004-28
(released 3/26/2004)
32. Revenue ruling on interaction of health savings accounts, flexible spending
accounts, and health reimbursement arrangements.
33. Regulations on transfers of nonstatutory stock options.
EXCISE TAXES
Original PGP Projects:
1. Final regulations under section 4051 regarding the definition of highway vehicle in
sections 145.4051 and 48.4061 (a)-1.
2. Guidance regarding the definition of highway tractors subject to the heavy truck tax
under section 4051.
3. Guidance under section 4051(a)(2) and (3) regarding suitability for use.
4. Guidance under section 4081 regarding the entry into the United States of taxable
fuel.
5. Final regulations under section 4252 regarding toll telephone services.
6. Guidance under section 4261 regarding resellers of air transportation.
7. Guidance under section 4291 regarding the duties of the collector of collected
excise taxes.
8. Proposed regulations under section 6416(a)(4) regarding claims for gasoline tax.
EXEMPT ORGANIZATIONS
Original PGP Projects:
1. Guidance on joint ventures between exempt organizations and for-profit
companies.
2. Guidance on low-income housing partnerships and 501(c)(3) participation.
3. Guidance on downpayment assistance organizations.
10
4.
Guidance on section 501 (c)(4) organizations.
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as REV. RUL. 2004-6
(released 12/23/2003)
5. Guidance concerning the internet and unrelated business income tax.
6. Regulations under section 529 regarding qualified tuition programs.
7. Guidance on reporting requirements applicable to Coverdell education savings
accounts.
• P U B L I S H E D 8/18/2003 in IRB 2003-33 as NOTICE 2003-53
(released 7/31/2003)
8. Guidance on split interest trusts.
• WILL B E P U B L I S H E D 5/10/2004 in IRB 2004-19 as N O T I C E 2004-35
(released 4/21/2004)
• WILL B E P U B L I S H E D 5/10/2004 in IRB 2004-19 as N O T I C E 2004-36
(released 4/21/2004)
Additional PGP Projects:
9. Announcement on suspension of tax exempt status.
• P U B L I S H E D 12/1/2003 in IRB 2003-48 as A N N . 2003-74
(released 11/14/2003)
FINANCIAL INSTITUTIONS AND PRODUCTS
Original PGP Projects:
1. Proposed regulations regarding accruals on sales of REMIC regular interests
between payment dates.
2. Guidance on system upgrade payments made to utilities.
3. Final regulations under section 263(g).
4. Guidance under section 265(a)(2).
5. Proposed regulations on notional principal contracts.
• P U B L I S H E D 2/26/2004 in FR as N P R M REG-166012-02
6. Revenue ruling under section 446 concerning the timing rules of hedging
transactions not identified under section 1.1221-2(f).
• P U B L I S H E D 12/29/2003 in IRB 2003-52 as REV. RUL. 2003-127
11
7. Final regulations addressing the treatment of inducement fees for REMIC residual
interests.
8. Proposed regulations addressing valuation under section 475.
9. Final regulations under section 475(e) and (f).
10. Guidance under section 851 on the treatment of certain obligations backed by
Treasury securities for RIC diversification purposes.
11. Revenue ruling under section 856 on customary services performed by REITs.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. RUL. 2004-24
12. Advance notice of proposed rulemaking on interest-only REMIC regular interests.
13. Final regulations on REMIC residual interests.
14. Guidance on credit card transactions.
15. Guidance under section 7872.
Additional PGP Projects:
16. Proposed regulations clarifying the application of the TEFRA audit procedures to
REMICs.
17. Guidance regarding the application of section 1(h) to capital gain dividends of RICs
and REITs.
18. Revenue ruling under sections 1233 and 1259 regarding the transfer of a short
sale position from one broker to another.
• P U B L I S H E D 2/23/2004 in IRB 2004-8 as REV. RUL. 2004-15
(released 1/28/2004)
19. Guidance on tax avoidance transactions using offsetting forward currency option
contracts.
• P U B L I S H E D 12/22/2003 in IRB 2003-51 as N O T I C E 2003-81
20. Guidance under section 853 regarding foreign tax credit reporting by regulated
investment companies.
12
GENERAL TAX ISSUES
Original PGP Projects:
1. Proposed regulations under section 21 regarding the credit for household and
dependent care expenses.
2. Final revenue procedure under section 23 regarding the credit for adoption
expenses.
3. Guidance under section 32.
4. Guidance under section 41 regarding the research credit.
• PUBLISHED 1/2/2004 in F R as T D 9104
• PUBLISHED 1/2/2004 in F R as A N P R M REG-153656-03
5. Final regulations under section 41 regarding the computation of the research credit
in a controlled group.
6. Guidance under section 42.
• P U B L I S H E D 11/24/2003 in IRB 2003-47 as REV. P R O C . 2003-82
7. Final regulations under sections 1.42-6 and 1.42-14 to conform to statutory
changes.
• P U B L I S H E D 1/6/2004 in F R as T D 9110
8. Guidance under section 45D regarding the new markets tax credit.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as NOTICE 2003-56
(released 7/22/2003)
• P U B L I S H E D 9/29/2003 in IRB 2003-39 as NOTICE 2003-64
(released 9/5/2003)
• P U B L I S H E D 10/14/2003 in IRB 2003-41 as NOTICE 2003-68
(released 9/23/2003)
• P U B L I S H E D 3/11/2004 in F R as T E M P 9116
9. Final regulations under sections 46 and 167 relating to normalization.
10. Guidance under sections 51 and 51A on qualified IV-A recipient.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. RUL. 2003-112
(released 10/17/2003)
11. Guidance regarding the section 59(e) election.
12. Revenue ruling regarding disaster relief payments to businesses.
13
13. Revenue ruling under sections 61 and 162 on the proper treatment of Medicaid
rebates paid by pharmaceutical companies.
14. Guidance regarding the treatment of employee relocation costs.
15. Final regulations under section 121(c) regarding the reduced maximum exclusion
for gain on the sale of a principal residence.
16. Revenue ruling under sections 121 and 1031 regarding like-kind exchange of a
principal residence.
17. Guidance under section 152 regarding the release of a claim for exemption for a
child of divorced or separated parents.
18. Guidance under section 165 regarding the deduction for worthless stock of
subsidiaries for which an election under the check-the-box regulations has been
made.
• P U B L I S H E D 12/24/2003 in IRB 2003-52 as REV. RUL. 2003-125
19. Final regulations under section 167 regarding the income forecast method.
20. Proposed and temporary regulations under section 168 relating to like-kind
exchanges.
• P U B L I S H E D 3/1/2004 in F R as T E M P 9115
21. Final regulations under section 168 regarding depreciation of property for which
the use changes.
22. Proposed and temporary regulations under sections 168 and 1400L regarding
special depreciation allowance.
• P U B L I S H E D 9/8/2003 in F R as T E M P 9091
23. Guidance under section 168 regarding changes in classification of property.
• P U B L I S H E D 1/2/2004 in F R as T E M P 9105
24. Guidance under section 168 on asset classes and activity classes under Rev.
Proc. 87-56.
25. Guidance under section 172 regarding specified liability losses.
26. Guidance under section 174 regarding the treatment of inventory property.
27. Guidance under section 179 on elections.
28. Final regulations under section 221 regarding interest on education loans.
14
29. Revenue procedure under section 274 regarding the use of statistical sampling.
30. Final regulations under section 280F regarding vans and light trucks.
31. Final regulations under section 465 regarding interest other than as a creditor.
32. Guidance under section 1031 regarding reverse like-kind exchanges of property.
33. Revenue ruling under section 1241 on cancellation of lease or distributor
agreements.
34. Guidance on corporations chartered under Indian tribal law.
Additional PGP Projects:
35. Revenue ruling under sections 61, 104, 130, and 139 regarding payments made
to claimants of the September 11th Victim Compensation Fund of 2001.
• P U B L I S H E D 11/17/2003 in IRB 2003-46 as REV. RUL. 2003-115
36. Notice regarding charitable contributions of patents and other intellectual property.
• P U B L I S H E D 1/20/2004 in IRB 2004-3 as N O T I C E 2004-7
37. Guidance under section 1031 regarding the use of SIC codes in like kind
exchanges of depreciable tangible property.
38. Notice under section 29 regarding chemical change.
• P U B L I S H E D 11/17/2003 in IRB 2003-46 as N O T I C E 2003-70
(released 10/29/2003)
39. Final regulations under section 42 removing a barrier to the electronic filing of
Form 8609 relating to the low-income housing credit.
• P U B L I S H E D 1/27/2004 in FR as T D 9112
40. Revenue procedure under section 446 regarding improper to proper depreciation
changes.
• P U B L I S H E D 1/20/2004 in IRB 2004-3 as REV. P R O C . 2004-11
(released 12/30/2003)
41. Revenue procedure under section 29 regarding when the credit can be claimed.
• WILL B E P U B L I S H E D 4/26/2004 in IRB 2004-17 as REV. P R O C . 2004-27
(released 4/5/2004)
42. Revenue ruling under section 126 regarding the Forest Land Enhancement
Program (FLEP) cost share payments.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. P R O C . 2004-8
15
43. Revenue procedure under section 611 regarding recoverable reserves for oil and
gas.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. P R O C . 2004-19
44. Notice on stock loss deductions.
• P U B L I S H E D 4/19/2004 in IRB 2004-16 as N O T I C E 2004-27
(released 3/25/2004)
GIFTS, ESTATES AND TRUSTS
Original PGP Projects:
1. Guidance under section 642(c) regarding the contribution of a qualified conservation
easement.
• P U B L I S H E D 12/15/2003 in IRB 2003-50 as REV. RUL. 2003-123
2. Final regulations under section 643 regarding state law definition of income for
trust purposes.
• P U B L I S H E D 1/2/2004 in F R as T D 9102
3. Update revenue procedures under section 664 containing sample charitable
remainder unitrust provisions.
4. Guidance under section 664 regarding dividends and capital gains for charitable
remainder trusts.
• P U B L I S H E D 11/20/2003 in FR as N P R M REG-110896-98
5. Final regulations under section 671 regarding reporting requirements for widelyheld fixed investment trusts.
6. Guidance under sections 671 and 2036 regarding tax reimbursement provisions in
grantor trusts.
7. Guidance under section 2032 regarding section 301.9100 relief.
• P U B L I S H E D 12/24/2003 in F R as N P R M REG-139845-02
8. Guidance under section 2053 regarding post-death events.
9. Guidance under section 2632 regarding the election out of the deemed allocation
of the generation-skipping transfer tax exemption.
10. Guidance under section 2642 regarding issues related to the generation-skipping
transfer tax exemption.
11. Guidance under section 2642 regarding qualified severance.
16
12. Guidance under section 2651 regarding the predeceased parent rule.
13. Guidance under section 2704 regarding the liquidation of an interest.
Additional PGP Projects:
14. Guidance under section 2702 regarding qualified interests.
• P U B L I S H E D 11/3/2003 in IRB 2003-44 as N O T I C E 2003-72
(released 10/15/2003)
15. Revenue ruling under section 642(c) regarding governing instrument requirements.
• P U B L I S H E D 1/20/2004 in IRB 2004-3 as REV. RUL. 2004-5
INSURANCE COMPANIES AND PRODUCTS
Original PGP Projects:
1. Revenue ruling concerning reserves used to calculate required interest under
section 812.
• P U B L I S H E D 12/1/2003 in IRB 2003-48 as REV. RUL. 2003-120
2. Guidance regarding substantially equal periodic payments under section 72(q).
• P U B L I S H E D 3/1/2004 in IRB 2004-9 as N O T I C E 2004-15
3. Guidance regarding the 2001 CSO mortality tables.
4. Guidance regarding split-dollar life insurance.
• P U B L I S H E D 9/17/2003 in F R as T D 9092
Additional PGP Projects:
5. Revenue ruling describing prior guidance on split-dollar life insurance that, due to
subsequent guidance, is obsolete.
• P U B L I S H E D 10/6/2003 in IRB 2003-40 as REV. RUL. 2003-105
6. Final regulations under section 817.
INTERNATIONAL ISSUES
A. Subpart F/Deferral
Original PGP Projects:
1. Regulations on the allocation of subpart F income.
2. Regulations under section 959 on previously taxed earnings and profits.
17
3. Guidance on the PFIC provisions.
B. Inbound Transactions
Original PGP Projects:
1. Guidance on cross-border pension distributions.
2. Guidance under section 1441.
• P U B L I S H E D 4/5/2004 in IRB 2004-14 as REV. P R O C . 2004-21
3. Guidance on securities lending.
4. Guidance on the treatment of certain financial products for withholding purposes.
5. Regulations under section 1446.
6. Regulations relating to the reporting of bank deposit interest.
C. Outbound Transactions
Original PGP Projects:
1. Guidance on international restructurings.
2. Guidance follow-up to Notice 2003-46.
• P U B L I S H E D 10/22/2003 in FR as T D 9093 and N P R M REG-110385-99
D. Foreign Tax Credits
Original PGP Projects:
1. Regulations on the allocation of foreign taxes under section 901.
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as NOTICE 2004-19
(released 2/17/2004)
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as NOTICE 2004-20
(released 2/17/2004)
2. Regulations under sections 902 and 904.
3. Regulations on look-through treatment for 10/50 company dividends (see Notice
2003-5).
4. Regulations on the change of taxable year and foreign tax credits.
18
E. Transfer Pricing
Original PGP Projects:
1. Regulations on the treatment of cross-border services.
2. Regulations on cost sharing under section 482.
3. Guidance on the APA process (Rev. Proc. 96-53).
4. Regulations on global dealing.
F. Sourcing and Expense Allocation
Original PGP Projects:
1. Guidance on interest expense apportionment.
• P U B L I S H E D 3/26/2004 in F R as T E M P 9120
2. Regulations on the allocation and apportionment of charitable contributions.
3. Regulations relating to the treatment of fringe benefits.
4. Guidance on the source of payments for cross-border use of property.
5. Regulations under sections 863(d) and (e).
G. Treaties
Original PGP Projects:
1. Treaty guidance on the determination of residence for dual resident companies.
2. Treaty guidance under the independent services article for nonresident partners.
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. RUL. 2004-3
(released 1/29/2004)
3. Guidance on the procedures for claiming treaty waiver of insurance excise tax.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. P R O C . 2003-78
(released 10/10/2003)
4. Guidance on reporting for Canadian RRSPs and other plans.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as N O T I C E 2003-57
(released 8/1/2003)
• P U B L I S H E D 12/8/2003 in IRB 2003-49 as N O T I C E 2003-75
(released 11/26/2003)
19
H.
Other
Original PGP Projects:
1. Guidance on the definition of "qualified foreign corporation" for purposes of taxation
of dividends received by individuals.
• P U B L I S H E D 10/20/2003 in IRB 2003-42 as NOTICE 2003-69
(released 9/30/2003)
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as NOTICE 2003-71
(released 10/3/2003)
• P U B L I S H E D 12/15/2003 in IRB 2003-50 as NOTICE 2003-79
(released 11/26/2003)
2. Regulations under section 269B.
3. Guidance on cross-border insurance issues.
4. Guidance on possessions issues.
5. Regulations concerning the treatment of currency gain or loss.
6. Regulations under section 1503(d).
Additional PGP Projects:
7. Revenue ruling relating to convention benefits under section 274(h).
• P U B L I S H E D 10/20/2003 in IRB 2003-42 as REV. RUL. 2003-109
(released 9/30/2003)
8. Announcement of agreement relating to the limitation on benefits article in the
U.S.-Swiss Income Tax Convention.
• P U B L I S H E D 10/6/2003 in IRB 2003-40 as A N N . 2003-59
9. Announcement of agreement relating to deferred compensation under the U.S.Austrian Income Tax Convention.
• P U B L I S H E D 10/6/2003 in IRB 2003-40 as A N N . 2003-58
10. Announcement of agreement implementing the mutual agreement procedures of
the U.S.-Dutch Income Tax Convention.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as A N N . 2003-63
11. Notice regarding information reporting with respect to foreign disregarded entities.
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as NOTICE 2004-4
(released 12/29/2003)
20
12. Regulations regarding electronic filing of duplicate forms 5472.
• P U B L I S H E D 2/9/2004 in F R as T E M P 9113
13. Announcement and Report Concerning Advance Pricing Agreements.
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as A N N . 2004-26
(released 3/30/2004)
PARTNERSHIPS
Original PGP Projects:
1. Guidance regarding partnership transactions under section 337(d).
2. Final regulations under section 460 regarding partnership transactions for longterm contracts.
3. Final regulations under section 704(b) regarding capital account book-up.
4. Guidance under section 704(b) regarding the allocation of foreign tax credits.
5. Guidance under section 704(c).
• P U B L I S H E D 11/24/2003 in F R as N P R M REG-160330-02
• WILL B E P U B L I S H E D 5/3/2004 in IRB 2004-18 as REV. RUL. 2004-43
(released 4/12/2004)
6. Guidance under section 707 regarding disguised sales.
7. Proposed regulations under section 721 regarding partnership interests issued for
services and the treatment of compensatory partnership options.
8. Update of the section 751 regulations.
9. Final regulations under section 752 regarding the assumption of partner liabilities.
10. Guidance under section 752 where a general partner is a disregarded entity.
11. Guidance on the application of section 1045 to certain partnership
transactions.
12. Guidance under section 6031 on the reporting requirements of tax-exempt bond
partnerships.
• P U B L I S H E D 11/10/2003 in F R as T E M P 9094
• P U B L I S H E D 12/1/2003 in IRB 2003-48 as REV. P R O C . 2003-84
(released 11/6/2003)
13. Guidance under section 7701 regarding Delaware Statutory Trusts.
21
14. Guidance under section 7701 regarding disregarded entities and collection issues.
• P U B L I S H E D 4/1/2004 in F R as N P R M REG-106681-02
Additional PGP Projects:
15. Notice under section 772 regarding dividends as a separately stated item.
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as N O T I C E 2004-5
(released 1/27/2004)
SUBCHAPTER S
Original PGP Projects:
1. Revenue ruling under section 1361 regarding QSub elections.
2. Guidance on the treatment of LIFO recapture under section 1363(d).
3. Guidance under section 7701 on deemed corporation entity elections for electing
S corporations.
Additional PGP Projects:
4. Revenue procedure under section 1362 regarding S corporation rollover to IRA.
• P U B L I S H E D 2/17/2004 in IRB 2004-7 as REV. P R O C . 2004-14
TAX ACCOUNTING
Original PGP Projects:
1. Final regulations under sections 162 and 263 regarding the deduction and
capitalization of expenditures for intangible assets.
• P U B L I S H E D 1/5/2004 in F R as T D 9107
2. Regulations under sections 162 and 263 regarding the deduction and capitalization
of expenditures for tangible assets.
• P U B L I S H E D 1/20/2004 in IRB 2004-3 as N O T I C E 2004-6
3. Guidance under sections 162 and 263 regarding the deduction and capitalization
of costs incurred to fertilize established timber stands.
4. Revenue ruling regarding the deduction and capitalization of costs incurred by
utilities to maintain assets used to generate power.
5. Guidance under sections 165 regarding the treatment of preproduction costs of
creative property.
22
6.
Regulations under section 263A regarding the simplified service cost and simplified
production methods.
7. Guidance under section 263A regarding "negative" additional section 263A costs.
8. Final regulations under sections 263A and 448 regarding adjustments under
section 481(a) for certain changes in accounting method.
9. Regulations under section 381 regarding changes in method of accounting.
10. Guidance under section 442 regarding the period for taking into account
adjustments resulting from certain changes in annual accounting period by passthrough entities.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. P R O C . 2003-79
11. Revenue procedure under section 446 regarding changes in method of accounting
for rotable spare parts.
12. Regulations under section 446 regarding methods of accounting.
13. Temporary regulations under section 448 regarding the nonaccrual experience
method.
• P U B L I S H E D 9/4/2003 in F R as T E M P 9090
14. Final revenue procedure under section 451 regarding the treatment of advance
payments.
15. Revenue ruling under section 461 regarding the proper year for the deduction of
payroll taxes on deferred compensation by accrual method taxpayers.
16. Regulations under section 468B regarding certain escrow funds.
17. Guidance on the tax treatment of vendor allowances involving buildouts and image
upgrades.
18. Revenue ruling under section 1341 regarding the claim of right.
• P U B L I S H E D 2/23/2004 in IRB 2004-8 as REV. RUL. 2004-17
(released 2/6/2004)
Additional PGP Projects:
19. Notice under section 263A regarding the simplified service cost and simplified
production methods.
• P U B L I S H E D 9/2/2003 in IRB 2003-35 as N O T I C E 2003-59
23
20. Revenue ruling under section 263A regarding the treatment of environmental
remediation expenses.
• P U B L I S H E D 2/23/2004 in IRB 2004-8 as REV. RUL. 2004-18
(released 2/6/2004)
21. Final, temporary and proposed regulations under section 461 (f) regarding transfers
to satisfy contested liabilities.
• P U B L I S H E D 11/21/2003 in F R as T D 9095 and N P R M REG-136890-02
22. Notice under section 461 (f) identifying certain transfers to trusts for contested
liabilities as listed transactions.
• P U B L I S H E D 12/8/2003 in IRB 2003-49 as N O T I C E 2003-77
(released 11/19/2003)
23. Guidance providing procedures under which taxpayers may obtain automatic
consent to change a method of accounting to comply with sections 1.263(a)-4 and
1.263(a)-5.
• P U B L I S H E D 4/19/2004 in IRB 2004-16 as REV. P R O C . 2004-23
(released 3/24/2004)
24. Guidance regarding the treatment of capitalized costs in certain transactions
involving the acquisition of a trade or business or a change in the capital structure
of a business entity.
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as N O T I C E 2004-18
(released 2/19/2004)
25. Final regulations under section 461(f) regarding transfers to satisfy contested
liabilities.
26. Revenue procedure regarding changes in methods of accounting for transfers to
trusts for contested liabilities under section 461(f).
27. Final, temporary, and proposed regulations regarding uniform capitalization of
interest expense under section 263A in safe harbor sale and leaseback
transactions.
28. Withdrawal of section 1.463-1T regarding a transitional rule election for accruing a
deduction for vacation pay under former section 463.
29. Guidance under section 468B regarding the tax treatment of a single-claimant
qualified settlement fund.
24
TAX ADMINISTRATION
Original PGP Projects:
1. Update Rev. Proc. 85-35 regarding claims for relief by victims of terrorism.
• WILL B E P U B L I S H E D 5/10/2004 in IRB 2004-19 as REV. P R O C . 2004-26
2. Final regulations under section 5891 regarding structured settlement factoring
transactions.
3. Annual compilation of Tax Shelter Listed Transactions under section 6011.
• P U B L I S H E D 12/8/2003 in IRB 2003-49 as N O T I C E 2003-76
(released 11/7/2003)
4. Final regulations regarding electronic payee statements.
• P U B L I S H E D 2/18/2004 in F R as T D 9114
5. Proposed regulations regarding what constitutes a return under section
6020(b) for purposes of applying the failure to pay penalty.
6. Guidance regarding information reporting under section 6041 for commissions paid
to insurance agents.
7. Revenue ruling regarding information reporting for royalty payments under sections
6041 and 6050N.
8. Final regulations regarding information reporting and backup withholding for
purchasing card transactions.
9. Revenue procedure regarding Qualified Payment Card Agents.
10. Guidance regarding information reporting with respect to payments in lieu of
dividends m a d e to individuals.
• P U B L I S H E D 10/6/2003 in IRB 2003-40 as N O T I C E 2003-67
(released 9/16/2003)
• P U B L I S H E D 12/29/2003 in F R as T D 9103
11. Final regulations under section 6045(f) regarding the reporting of gross proceeds
to attorneys.
12. Final regulations under section 6050P regarding information reporting for
cancellation of indebtedness.
25
13. Final regulations under section 6091 regarding hand carrying returns.
14. Proposed regulations under section 6103 regarding the disclosure of unrelated
third party tax information in tax proceedings.
15. Final regulations under section 6103 regarding the definition of "agent".
• P U B L I S H E D 1/6/2004 in F R as T D 9111
16. Revenue procedure under section 6103 regarding fees charged for furnishing
certain returns and return information.
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as REV. P R O C . 2003-74
17. Final regulations regarding the ability of a return preparer to furnish a completed
copy of an income tax return to the taxpayer using a medium other than paper.
• P U B L I S H E D 3/25/2004 in F R as T D 9119
18. Withdrawal of regulations under former section 6152 relating to the election by a
decedent's estate to pay income tax in installments.
• P U B L I S H E D 12/3/2003 in F R as T D 9096
19. Update Rev. Ruls. 75-365, 366, and 367 regarding interests in real estate held by
a decedent.
20. Guidance regarding the use of summary assessment procedures with respect to
claimed Black Reparations and similar credits.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-33
(released 3/1/2004)
21. Guidance under section 6213 regarding math error assessments based on a Form
W-2.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-34
(released 3/1/2004)
22. Revenue ruling regarding the classification of items and the statute of limitations
under the T E F R A partnership provisions.
23. Revenue ruling under section 6231 regarding the application of certain TEFRA
partnership provisions to disregarded entities.
24. Final regulations under section 6302 regarding the minimum threshold for
depositing F U T A taxes.
25. Proposed regulations under sections 6320 and 6330 regarding collection due
process.
26
26. Notice regarding collection issues relating to property held as a tenancy by the
entirety arising from the Supreme Court's opinion in United States v. Craft.
• P U B L I S H E D 9/29/2003 in IRB 2003-39 as N O T I C E 2003-60
(released 9/11/2003)
27. Revenue ruling regarding the limitations on setoff.
28. Revenue ruling regarding setoff with respect to a taxpayer in bankruptcy.
29. Proposed regulations under section 6655 regarding estimated tax payments by
corporations.
30. Final regulations under sections 6662 and 6664 regarding penalties relating to tax
shelters.
• P U B L I S H E D 12/30/2003 in F R as T D 9109
31. Revenue procedure regarding the submission and processing of offers-incompromise.
• P U B L I S H E D 9/8/2003 in IRB 2003-36 as REV. P R O C . 2003-71
(released 8/21/2003)
32. Final regulations imposing a user fee for offers-in-compromise.
• P U B L I S H E D 8/15/2003 in F R as T D 9086
33. Guidance necessary to facilitate electronic tax administration.
34. Final regulations under section 7430 regarding qualified offers.
• P U B L I S H E D 12/29/2003 in F R as T D 9106
35. Proposed regulations under section 7430 regarding miscellaneous changes made
by T R A 97 and R R A 98.
36. Update Rev. Proc. 87-24 regarding docketed Tax Court cases.
37. Proposed regulations regarding third party and John Doe summonses.
38. Revenue procedure regarding the early examination of questionable transactions.
39. Revisions to Circular 230 regarding practice before the IRS.
• P U B L I S H E D 12/30/2003 in F R as N P R M REG-122379-02
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as A N N . 2004-29
(released 3/24/2004)
40. Revenue procedure expanding the prefiling agreement program.
27
Additional P G P Projects:
41. Announcement regarding a delay of the implementation of the new rolling renewal
schedule for enrolled agents to renew their enrollment under Circular 230.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as A N N . 2003-68
(released 10/27/2003)
• WILL B E P U B L I S H E D 4/26/2004 in IRB 2004-17 as A N N . 2004-35
(released 4/2/2004)
42. Revenue ruling under section 6323 regarding the effect of actual knowledge of a
tax lien for priority purposes.
• P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. RUL. 2003-108
43. Final, temporary and proposed regulations under section 6011 to remove
impediments to electronic filing of certain business returns.
• P U B L I S H E D 12/19/2003 in F R as T D 9100 and N P R M REG-116664-01
44. Notice under section 6001 establishing a pilot program for entering into a record
keeping agreement relating to the research credit under section 41.
• P U B L I S H E D 2/9/2004 in IRB 2004-6 as N O T I C E 2004-11
(released 2/2/2004)
45. Revenue ruling under section 6402 regarding post-petition credits in chapter 13
bankruptcy cases.
• C L O S E D W I T H O U T PUBLICATION
46. Temporary regulations under sections 6043 and 6045 regarding information
reporting relating to taxable stock transactions.
• P U B L I S H E D 12/30/2003 in F R as T E M P 9101
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as N O T I C E 2004-9
(released 12/30/2003)
47. Guidance under section 6041 regarding information reporting relating to debit or
credit card payments of health expenses.
• P U B L I S H E D 3/1/2004 in IRB 2004-9 as N O T I C E 2004-16
(released 2/12/2004)
48. Notice providing relief to health insurance providers from the section 6050T
information reporting requirements.
49. Notice regarding changes to the ITIN application process.
• P U B L I S H E D 1/12/2004 in IRB 2004-2 as N O T I C E 2004-1
(released 12/18/2003)
50. Revenue ruling under section 6402 regarding offset under the community property
laws of various states.
28
51. Revenue ruling regarding the liability of multi-members of a limited liability
company for employment taxes.
• WILL B E P U B L I S H E D 5/3/2004 in IRB 2004-18 as REV. RUL. 2004-41
52. Notice regarding the use of signature stamps by practitioners.
53. Final regulations under section 6011 regarding confidential transactions.
• P U B L I S H E D 12/30/2003 in F R as T D 9108
54. Notice under section 6011 regarding S corporation tax shelters.
• WILL B E P U B L I S H E D 4/26/2004 in IRB 2004-17 as N O T I C E 2004-30
(released 4/1/2004)
55. Notice describing common mistakes that taxpayers make on their federal income
tax returns.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as N O T I C E 2004-13
(released 3/1/2004)
56. Notice describing common frivolous arguments used by taxpayers in an attempt to
avoid or evade tax.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as N O T I C E 2004-22
(released 3/1/2004)
57. Revenue ruling regarding frivolous arguments based on the improper use of a
purported "corporation sole" entity.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-27
(released 3/1/2004)
58. Revenue ruling regarding frivolous arguments relating to the foreign income
exclusion under section 911.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-28
(released 3/1/2004)
59. Revenue ruling regarding frivolous arguments" based on a meritless "claim of right".
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-29
(released 3/1/2004)
60. Revenue ruling regarding frivolous arguments under section 861 relating to income
from sources within the United States.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-30
(released 3/1/2004)
61. Revenue ruling regarding frivolous arguments relating to the purported "removal" of
the taxpayer from the federal tax system and meritless attempts to "chargeback"
debts purportedly owed to the taxpayer by the Government.
29
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-31
(released 3/1/2004)
62. Revenue ruling regarding frivolous arguments relating to personal, living or family
expenses that are claimed to be attributable to a home-based business that is
either nonexistent or is not a bona fide trade or business.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-32
(released 3/1/2004)
63. Notice soliciting suggestions for the 2004-2005 Guidance Priority List.
• P U B L I S H E D 4/19/2004 in IRB 2004-16 as N O T I C E 2004-26
(released 3/24/2004)
TAX EXEMPT BONDS
Original PGP Projects:
1. Guidance under section 141 regarding naming rights.
2. Guidance on correction alternatives and voluntary compliance for tax exempt bond
provisions.
3. Final regulations under section 141 on refundings.
4. Proposed regulations under section 141 regarding allocation and accounting
provisions.
5. Regulations under section 142 regarding solid waste disposal facilities.
6. Guidance under section 143 regarding mortgage insurance fees.
• P U B L I S H E D 11/5/2003 in F R as N P R M REG-146692-03
7. Guidance under section 143 regarding average area purchase price.
• P U B L I S H E D 3/1/2004 in IRB 2004-9 as REV. P R O C . 2004-18
(released 2/10/2004)
8. Final regulations under section 148 regarding brokers' commissions and similar
fees.
• P U B L I S H E D 12/11/2003 in F R as T D 9097
9. Guidance on arbitrage.
10. Guidance under section 150 regarding change in use provisions.
11. Guidance under section 1397E regarding qualified zone academy bonds.
• P U B L I S H E D 3/25/2004 in F R as N P R M REG-121475-03
30
Additional P G P Projects:
12. Revenue ruling under section 147(e) regarding helicopters.
• P U B L I S H E D 11/17/2003 in IRB 2003-46 as REV. RUL. 2003-116
(released 10/29/2003)
31
A P P E N D I X - Regularly Scheduled Publications
JULY 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 7/7/2003 in IRB 2003-27 as REV. RUL. 2003-71
2. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in July 2003.
• P U B L I S H E D 7/28/2003 in IRB 2003-30 as N O T I C E 2003-48
(released 7/3/2003)
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 7/21//2003 in IRB 2003-29 as REV. RUL. 2003-87
AUGUST 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 8/18/2003 in IRB 2003-33 as REV. RUL. 2003-94
2. Revenue procedure providing the amounts of unused housing credit carryover
allocated to qualified states under section 42(h)(3)(D) for the calendar year.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as REV. P R O C . 2003-67
3. Notice providing the inflation adjustment factor to be used in determining the
enhanced oil recovery credit under section 43 for tax years beginning in the
calendar year.
• P U B L I S H E D 7/14/2003 in IRB 2003-28 as N O T I C E 2003-43
4. Notice providing the applicable percentage to be used in determining percentage
depleting for marginal properties under section 613A for the calendar year.
• P U B L I S H E D 7/29/2003 in IRB 2003-30 as N O T I C E 2003-54
5. Revenue ruling setting forth the terminal charge and the standard industry fare
level (SIFL) cents-per-mile rates for the second half of 2003 for use in valuing
personal flights on employer-provided aircraft.
• P U B L I S H E D 9/15/2003 in IRB 2003-37 as REV. RUL. 2003-89
6. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in August 2003.
32
• P U B L I S H E D 9/2/2003 in IRB 2003-25 as N O T I C E 2003-58
(released 8/6/2003)
7. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• P U B L I S H E D 8/25/2003 in IRB 2003-34 as REV. RUL. 2003-100
SEPTEMBER 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 9/8/2003 in IRB 2003-36 as REV. RUL. 2003-101
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period July through September, 2003.
• P U B L I S H E D 8/18/2003 in IRB 2003-33 as REV. RUL. 2003-93
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period October through
December 2003.
• P U B L I S H E D 9/29/2003 in IRB 2003-39 as REV. RUL. 2003-104
4. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in September 2003.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as N O T I C E 2003-63
(released 9/4/2003)
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• P U B L I S H E D 9/22/2003 in IRB 2003-38 as REV. RUL. 2003-103
6. Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal standard mileage amounts.
• P U B L I S H E D 10/27/2003 in IRB 2003-43 as REV. P R O C . 2003-76
7. Revenue procedure under section 62 regarding the deduction and deemed
substantiation of federal travel per diem amounts.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. P R O C . 2003-80
8. Update Notice 2002-62 to add approved applicants for designated private delivery
service status under section 7502(f). Will be published only if any new applicants
are approved.
• C L O S E D W I T H O U T PUBLICATION
33
O C T O B E R 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 10/14/2003 in IRB 2003-41 as REV. RUL. 2003-107
(released 9/17/2003)
2. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in October 2003.
• P U B L I S H E D 10/20/2003 in IRB 2003-42 as N O T I C E 2003-61
(released 10/6/2003)
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores may use in valuing inventories.
• P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. RUL. 2003-113
4. Revenue procedure under section 1 and other sections of the Code regarding the
inflation adjusted items for 2004.
• P U B L I S H E D 12/8/2003 in IRB 2003-49 as REV. P R O C . 2003-85
5. Revenue procedure providing the loss payment patterns and discount factors for
the 2003 accident year to be used for computing unpaid losses under section 846.
• P U B L I S H E D 1/12/2004 in IRB 2004-2 as REV. P R O C . 2004-9
(released 12/17/2003)
6. Revenue procedure providing the salvage discount factors for the 2003 accident
year to be used for computing discounted estimated salvage recoverable under
section 832.
• P U B L I S H E D 1/12/2004 in IRB 2004-2 as REV. P R O C . 2004-10
(released 12/17/2003)
7. Update of Rev. Proc. 2002-71 listing the tax deadlines that may be extended by
the Commissioner under section 7508A in the event of a Presidentially-declared
disaster or terrorist attack.
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as REV. P R O C . 2004-13
NOVEMBER 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. RUL. 2003-114
(released 10/17/2003)
34
2.
Revenue ruling providing the "base period T-Bill rate" as required by section
995(f)(4).
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as REV. RUL. 2003-111
3. Revenue ruling setting forth covered compensation tables for the 2004 calendar
year for determining contributions to defined benefit plans and permitted disparity.
• P U B L I S H E D 12/8/2003 in IRB 2003-49 as REV. RUL. 2003-124
(released 11/21/2003)
4. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in November 2003.
• P U B L I S H E D 11/24/2003 in IRB 2003-47 as N O T I C E 2003-74
(released 11/7/2003)
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 12/1/2003 in IRB 2003-48 as REV. RUL. 2003-121
6. Update of Rev. Proc. 2002-66 regarding adequate disclosure for purposes of the
section 6662 substantial understatement penalty and the section 6694 preparer
penalty.
• P U B L I S H E D 11/3/2003 in IRB 2003-44 as REV. P R O C . 2003-77
7. News release setting forth cost-of living adjustments effective January 1, 2004,
applicable to the dollar limits on benefits under qualified defined benefit pension
plans and other provisions affecting certain plans of deferred compensation.
• P U B L I S H E D 11/10/2003 in IRB 2003-45 as N O T I C E 2003-73
(released 10/16/2003 as IR-2003-122)
DECEMBER 2003
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 12/8/2003 in IRB 2003-49 as REV. RUL. 2003-122
(released 11/18/2003)
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period October through December, 2003.
• P U B L I S H E D 11/17/2003 in IRB 2003-46 as REV. RUL. 2003-117
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period January through March
2004.
• P U B L I S H E D 12/29/2003 in IRB 2003-52 as REV. RUL. 2003-126
35
4.
Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in December 2003.
• P U B L I S H E D 12/22/2003 in IRB 2003-51 as N O T I C E 2003-80
5. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 12/29/2003 in IRB 2003-52 as REV. RUL. 2003-128
6. Revenue procedure setting forth, pursuant to section 1397E, the maximum face
amount of Qualified Zone Academy Bonds that m a y be issued for each state
during 2004.
7. Federal Register notice on Railroad Retirement Tier 2 tax rate.
• P U B L I S H E D 12/15/2003 in IRB 2003-50 as N O T I C E 2003-78
(released 11/25/2003) (also P U B L I S H E D 11/25/2003 in FR)
JANUARY 2004
1. Revenue procedure updating the procedures for issuing private letter rulings,
determination letters, and information letters on specific issues under the
jurisdiction of the Chief Counsel.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-1
2. Revenue procedure updating the procedures for furnishing technical advice to
certain IRS offices, in the areas under the jurisdiction of the Chief Counsel.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-2
3. Revenue procedure updating the previously published list of "no-rule" issues under
the jurisdiction of certain Associates Chief Counsel other than the Associate Chief
Counsel (International) on which advance letter rulings or determination letters will
not be issued.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-3
4. Revenue procedure updating the previously published list of "no-rule" issues under
the jurisdiction of the Associate Chief Counsel (International) on which advance
letter rulings or determination letters will not be issued.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-7
5. Revenue procedure updating procedures for furnishing letter rulings, general
information letters, etc. in employee plans and exempt organization matters
relating to sections of the Code under the jurisdiction of the Office of the
Commissioner, Tax Exempt and Government Entities Division.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-4
36
6.
Revenue procedure updating procedures for furnishing technical advice in
employee plans and exempt organization matters under the jurisdiction of the
Commissioner, Tax Exempt and Government Entities Division.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-5
7. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 1/12/2004 in IRB 2004-2 as REV. RUL. 2004-2
(released 12/19/2003)
8. Revenue ruling setting forth the prevailing state assumed interest rates provided
for the determination of reserves under section 807 for contracts issued in 2003
and 2004.
• P U B L I S H E D 2/23/2004 in IRB 2004-8 as REV. RUL. 2004-14
(released 1/28/2004)
9. Revenue ruling providing the dollar amounts, increased by the 2003 inflation
adjustment for section 1274A.
• P U B L I S H E D 11/24/2003 in IRB 2003-47 as REV. RUL. 2003-119
10. Revenue ruling setting forth the amount that section 7872 permits a taxpayer to
lend to a qualified continuing care facility without incurring imputed interest,
adjusted for inflation.
• P U B L I S H E D 11/24/2003 in IRB 2003-47 as REV. RUL. 2003-118
11. Revenue procedure providing procedures for limitations on depreciation
deductions for owners of passenger automobiles first placed in service during the
calendar year; amounts to be included in income by lessees of passenger
automobiles first leased during the calendar year; and the maximum allowable
value of employer-provided automobiles first m a d e available to employees for
personal use in the calendar year.
• P U B L I S H E D 3/29/2004 in IRB 2004-13 as REV. P R O C . 2004-20
12. Revenue procedure providing the domestic asset/liability percentages and the
domestic investment yield percentages for taxable years beginning after
December 31, 2003, for foreign companies conducting insurance business in the
U.S.
13. Revenue procedure updating procedures for issuing determination letters on the
qualified status of employee plans under sections 401(a), 403(a), 409, and 4975.
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-6
14. Revenue procedure updating the user fee program as it pertains to requests for
letter rulings, determination letters, etc. in employee plans and exempt
organizations matters under the jurisdiction of the Office of the Commissioner, Tax
Exempt and Government Entities Division.
37
• P U B L I S H E D 1/5/2004 in IRB 2004-1 as REV. P R O C . 2004-8
15. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in January 2004.
• P U B L I S H E D 2/2/2004 in IRB 2004-5 as N O T I C E 2004-3
(released 1/8/2004)
16. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 1/26/2004 in IRB 2004-4 as REV. RUL. 2004-7
FEBRUARY 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 2/9/2004 in IRB 2004-6 as REV. RUL. 2004-9
2. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 2/23/2004 in IRB 2004-8 as REV. RUL. 2004-19
3. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in February 2004.
• P U B L I S H E D 3/1/2004 in IRB 2004-9 as N O T I C E 2004-14
(released 2/4/2004)
MARCH 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as REV. RUL. 2004-25
(released 2/19/2004)
2. Notice providing resident population of the states for determining the calendar year
state housing credit ceiling under section 42(h), the private activity bond volume
cap under section 146, and the qualified public educational facility bond volume
cap under section 142(k).
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as N O T I C E 2004-21
• P U B L I S H E D 3/29/2004 in IRB 2004-13 as Rev. RUL. 2004-35
3. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period January through March, 2004.
• P U B L I S H E D 2/23/2004 in IRB 2004-8 as REV. RUL. 2004-16
38
4.
Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period April through June, 2004.
• P U B L I S H E D 3/15/2004 in IRB 2004-11 as REV. RUL. 2004-26
(released 3/1/2004)
5. Revenue ruling setting forth the terminal charge and the standard industry fare
level (SIFL) cents-per-mile rates for the first half of 2004 for use in valuing
personal flights on employer-provided aircraft.
• P U B L I S H E D 3/22/2004 in IRB 2004-12 as REV. RUL. 2004-36
6. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in March 2004.
• P U B L I S H E D 3/29/2004 in IRB 2004-13 as N O T I C E 2004-24
(released 3/3/2004)
7. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
• P U B L I S H E D 3/29/2004 in IRB 2004-13 as REV. RUL. 2004-35
APRIL 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
• P U B L I S H E D 4/5/2004 in IRB 2004-14 as REV. RUL. 2004-39
(released 3/17/2004)
2. Revenue ruling providing the average annual effective interest rates charged by
each Farm Credit Bank District.
3. Notice providing the inflation adjustment factor, nonconventional fuel source credit,
and reference price for the calendar year that determines the availability of the
credit for producing fuel from a nonconventional source under section 29.
• WILL B E P U B L I S H E D 5/3/2004 in IRB 2004-18 as N O T I C E 2004-33
4. Revenue procedure providing a current list of countries and the dates those
countries are subject to the section 911(d)(4) waiver and guidance to individuals
w h o fail to meet the eligibility requirements of section 911(d)(1) because of
adverse conditions in a foreign country.
• P U B L I S H E D 3/8/2004 in IRB 2004-10 as REV. P R O C . 2004-17
(released 2/23/2004)
5. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in April 2004.
39
• WILL B E P U B L I S H E D 5/3/2004 in IRB 2004-18 as N O T I C E 2004-32
(released 4/5/2004)
6. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
MAY 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in M a y 2004.
3. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
4. Revenue procedure providing guidance for use of the national and area median
gross income figures by issuers of qualified mortgage bonds and mortgage credit
certificates in determining the housing cost/income ratio under section 145.
JUNE 2004
1. Revenue ruling setting forth tables of the adjusted applicable federal rates for the
current month for purposes of sections 42, 382, 1274, 1288, and 7520.
2. Revenue ruling providing the monthly bond factor amounts to be used by
taxpayers w h o dispose of qualified low-income buildings or interests therein during
the period April through June, 2004.
• P U B L I S H E D 4/12/2004 in IRB 2004-15 as REV. RUL. 2004-40
3. Revenue ruling under section 6621 regarding the applicable interest rates for
overpayments and underpayments of tax for the period July through September
2004.
4. Notice providing the calendar year inflation adjustment factor and reference prices
for the renewable electricity production credit under section 45.
• WILL B E P U B L I S H E D 4/26/2004 in IRB 2004-17 as N O T I C E 2004-29
5. Notice setting forth the weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability for the purpose of the full
funding limitation of section 412(c)(7) for plan years beginning in June 2004.
6. Revenue ruling under section 472 providing the Bureau of Labor Statistics price
indexes that department stores m a y use in valuing inventories.
IS-1461: Statement by Treasury Secretary John S n o w Following Bilateral Meeting with Iraq
Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
April 23, 2004
JS-1461
Statement by Treasury Secretary John Snow Following Bilateral Meeting with
Iraq
Federal Reserve Chairman Alan Greenspan and I had a very positive and
constructive meeting with the Finance Minister of Iraq, Kamel al-Kaylani, and
Central Bank Governor Sinan Al-Shabibi this morning. Both Iraqi officials reported
that economic progress continues to take place in their country and I w a s pleased
to hear about the ongoing economic and financial reconstruction.
The Iraqi delegation underlined that their reforms are already bearing fruit, will
continue, and will last beyond the transition. S o m e of the most important
achievements include the introduction of a n e w and unified national currency,
increased transparency in economic policymaking, deregulation of interest rates,
and the creation of n e w and growing opportunities for foreign banking activity.
Work in progress for the creation of a T-bill market w a s also very welcome news. I
c o m m e n d e d Minister Kaylani and Governor Shabibi and the entire Iraqi people for
their excellent progress.
-30-
v.treas.gov/press/releases/is 1461 .htm
5/27/2005
IS-1462: Joint Statement on Combating Terrorist Financing
Page 1 of 2
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 23, 2004
JS-1462
Joint Statement on Combating Terrorist Financing
The fight against terrorism is our c o m m o n fight and w e encourage all nations to
participate fully in the international effort to choke off its financing. The recent
tragedies in Madrid and Riyadh show clearly that w e cannot relax our vigilance and
must not slacken our resolve or our efforts to combat this scourge. As international
financial leaders, w e have special responsibilities for the domestic and multilateral
fight against terrorist financing and for protecting the integrity of the global financial
system. W e have m a d e significant progress in this struggle, but much more needs
to be done.
We met here today to review progress, advance priorities, and pledge our
continuing cooperation to deny terrorists access to our financial systems. [1]
We welcome the recent decisions by the IMF and World Bank to make
comprehensive assessments of country compliance with the recognized antiterrorist financing/anti-money laundering standard a regular part of their activities.
W e urge more capacity building through technical assistance to shore up identified
gaps in the regimes to fight terrorism finance and money laundering. W e also note
with satisfaction the FATF's decision to expand dialogue with non-members and its
February 2004 terrorist financing conference.
We will continue our efforts to achieve the worldwide implementation of the
international standards to combat terrorist financing. W e will work to ensure that our
asset freezing regimes are effective and requests to take asset freezing action are
communicated, implemented, and enforced in our jurisdictions fully and without
delay. W e will support efforts to make the formal financial sector more accessible
and less costly while seeking to enhance the transparency of existing informal
financial systems. W e will work with our charitable sectors to promote awareness
of terrorist financing and to develop and implement effective measures to protect
charities from potential abuse. W e recognize the danger posed by terrorist
financiers using cash couriers or transferring cash across borders and undertake to
combat this growing threat by strengthening the control of cross-border cash
movements.
We pledge our best efforts to keep terrorists from raising, holding, transferring, or
using financial assets to carry out their inhumane acts. W e will work quickly and
decisively to implement measures that the United Nations has identified as
essential to combating terrorist financing. W e will work with the international
financial institutions, FATF, and other multilateral bodies to implement
internationally recognized standards pertaining to terrorist financing, money
laundering and financial sector regulation and supervision.
[1] G-7 Finance Ministers and Central Bank Governors met today with Ministers or
Governors from China, India, Indonesia, Malaysia, Morocco, Pakistan, Philippines,
Russia, Saudi Arabia, Singapore, Spain, and United Arab Emirates, the heads of
the IMF and the World Bank, the European Commission, and the President of the
Financial Action Task Force on Money Laundering (FATF) to intensify the fight
•eas.gov/Dress/releases/isl462.htm
5/27/2005
JS-1462: Joint Statement on Combating Terrorist Financing
Page 2 of 2
against terrorist financing. The Ministers and Governors have met with non-G7
colleagues on this issue twice before, in Washington in April 2002 and in Dubai in
September 2003, in addition to having their own regular discussions since
September 2001.
7www.treas.gov/press/releases/jsl462.htm
5/27/2005
JS-1463: Statement of G-7 Finance Ministers and Central Bank Governors - April 24, 2004
Page 1 of 2
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 24, 2004
JS-1463
Statement of G-7 Finance Ministers and Central Bank Governors - April 24,
2004
The global economic recovery continued to strengthen and broaden since we met
in February. Prospects are favorable, and although risks remain, such as energy
prices, overall the balance of risks to the outlook has improved. Additional progrowth reforms are essential to deliver stronger and more balanced global growth,
boost employment, and raise incomes. As part of the Agenda for Growth, w e
discussed our priorities for tax and labor market reform. W e reaffirmed our
commitment to sound public finances and monitored implementation of strategies
for sustained medium term fiscal consolidation as economies recover. Progress in
these fiscal areas and in the Agenda for Growth are key to addressing current
global imbalances. To deliver faster and more widespread global growth, and to
fight global poverty, rapid progress on and early conclusion of the Doha Round is
imperative and will require action by all parties to resolve key outstanding issues.
We reaffirm that exchange rates should reflect economic fundamentals. Excess
volatility and disorderly movements in exchange rates are undesirable for economic
growth. W e continue to monitor exchange markets closely and cooperate as
appropriate. In this context, w e emphasize that more flexibility in exchange rates is
desirable for major countries or economic areas that lack such flexibility to promote
smooth and widespread adjustments in the international financial system, based on
market mechanisms.
Economic fundamentals have improved in many emerging market countries. Yet,
sustained and sound policies are essential to support lasting growth and reduce
external vulnerabilities. In the case of Argentina, progress has been made, but
further progress is required.
In developing countries, the private sector is key to growth and poverty reduction.
Small businesses play a critical role, but unfavorable business climates are often a
constraint. W e call on M D B s to accelerate the development of joint action plans
with governments to improve investment climate and to scale up their support for
small businesses with specific measurable results. The G-7 met entrepreneurs from
developing countries and reiterated support for their efforts. W e urge private sector
views to be consistently included in M D B assistance plans. O n remittances, w e will
continue to work on our initiatives to reduce barriers that raise the cost of sending
them and to integrate remittance services in the formal financial sector. W e are
committed to working with governments, the private sector, and M D B s to broaden
the access for families and entrepreneurs to financial services.
Official development assistance, including more effective use of grants, will remain
key. W e reaffirm our commitment to fight global poverty and to help countries
achieve the international development goals of the Millennium Declaration through
our work on debt sustainability, aid effectiveness, absorption capacity, and
financing facilities.
As part of the preparation for the Sea Island Summit and to mark the 60th
anniversary of the Bretton W o o d s Institutions, w e continued our Strategic Review of
these institutions. Our focus is on giving clarity to official sector policy and
objectives, increasing accountability, and country ownership. W e are committed to
improving the delivery and results of their programs and policies.
Vwww.treas.gov/Dress/releases/i s 1463 .htm
5/27/2005
JS-1463: Statement of G-7 Finance Ministers and Central Bank Governors - April 24, 2004
Page 2 of 2
W e met again with Ministers from key countries to strengthen the fight against
terrorist financing. W e call on all countries to meet their commitments to tighten
asset freezing regimes, to prevent abuse of non profit organizations, and to stop
cash transfers used to finance terror. W e strongly welcomed the IMF/World Bank
commitment to comprehensive assessments. W e reaffirmed our commitment to
further enhance transparency and supervisory standards in financial markets, in
particular non-compliant off-shore centers.
Economic growth and job creation in the greater Middle East are a shared priority.
W e will meet with regional Ministers this evening to discuss their reform efforts and
regional economic integration including through financial reform and private sector
growth. W e stand ready to assist Iraq, Afghanistan, and West Bank and G a z a in
their development efforts. W e reviewed progress on the Afghanistan Action Plan,
including the positive results of the Berlin conference. W e call on others to join us in
reducing the debt burdens of Iraq and Afghanistan.
^/www.treas.gov/press/releases/jsl463.htm
5/27/2005
JS-1464: Statement by U.S. Treasury Secretary John Snow<br>following the G-7 Finance Ministers' Me... Page 1 of 3
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 24, 2004
JS-1464
Statement by U.S. Treasury Secretary John Snow
following the G-7 Finance Ministers' Meeting
Saturday, April 24, 2004
Good morning. I was very pleased to host fellow G7 Ministers and Governors here
in Washington.
The unifying theme of our discussions was economic growth. The
strengthening global recovery provided an upbeat backdrop. The United
States is leading the way, thanks to President Bush's jobs and growth tax
relief program. Last month, 308,000 jobs were created. Growth accelerated to 6.2
percent in the second half of 2003 - the fastest in almost 20 years.
Business investment posted double-digit increases in the same period.
Manufacturing activity is increasing. Productivity growth remains
exceptionally high. Homeownership is at an all-time high, the economy is
generating jobs, and unemployment has declined.
Growth in the first quarter of this year is expected to be in the 4 to 5% range,
according to private sector estimates. What's more, in m y view, there is still a lot of
headroom for this economy to grow and expand in a non-inflationary way.
Beyond the United States, there is also good news. Japan has turned in
several good quarters, as has the United Kingdom. In continental Europe,
there are s o m e encouraging initial signs of an upturn, but growth still lags
in too many areas and thus needs to be more broad-based.
We all agreed today that now is the time to redouble our efforts to
strengthen and broaden growth for the future. W e reviewed the progress m a d e
under the Agenda for Growth, including, key steps on tax reform, and labor markets
flexibility. But w e also agreed that additional pro-growth reforms are essential to
boost employment and raise incomes. W e focused in particular on the importance
of low marginal tax rates in encouraging job
creation and income growth.
Of course, sound fiscal policies are also fundamental to sustained growth,
and w e underscored the need for fiscal consolidation during times of
expansion. In the United States, w e are operating with an unwelcome, but
manageable and understandable, short-term deficit which w e are taking action to
reduce dramatically. I reiterated President Bush's commitment to deficit reduction,
which will cut the deficit in half over five years, restoring it
to a level below the 40-year average in terms of the size of our economy.
Economic fundamentals are also strengthening in many emerging markets
countries and higher global growth will reinforce the gains from stronger
policies. Countries should take advantage of current favorable
circumstances to implement reforms that will help achieve lasting stability.
Turning to development, the Bush Administration has consistently emphasized the
powerful role that the private sector can play in promoting growth.
//www.treas.gov/press/releases/jsl464.htm
JS-1464: Statement by U.S. Treasury Secretary John Snow<br>following the G-7 Finance Ministers' Me... Page 2 of 3
This w a s a key driver of discussions over the last two days. W e urged the
M D B s to step up their efforts to and promote more financing for small
businesses - which can play a key role in creating jobs and growth. And w e took
the unprecedented step, along with other m e m b e r s of the Development
Committee, of meeting with entrepreneurs from developing countries. Their
stories were compelling and should help inform work in this area going
forward.
We also stepped up our work on remittances. Remittance flows, at nearly
$100 billion globally, exceed total official development assistance and are
critical sources of income for millions of households in m a n y developing
countries. Yet, m a n y barriers exist that m a k e sending m o n e y expensive and
limit the potential development impact of the funds. W e are each working
to address these barriers in our o w n countries. Today, w e committed
together to work with other governments, the private sector, and the M D B s to
broaden access to financial services in developing countries. This m e a n s
facilitating greater competition in remittance services, encouraging
increased participation in the formal financial system, and promoting
financial deepening in the recipient economies.
As part of our Strategic Review of the international financial institutions,
w e agreed this weekend to build on recent reforms - including collective
action clauses, transparent limits on large scale assistance, and the
increased use of grants by the World Bank - and to explore n e w directions
toward a modern international financial policy framework. This includes
improving IMF assessments of economic policies and potential risks and
refocusing the IMF and World Bank on their core mandates. W e want
institutions that deliver results based on modern management principles and
that contribute to stronger growth and higher incomes for people throughout
the world. W e will develop these themes further as w e prepare for Sea
Island.
I had a very positive and constructive meeting with the Finance Minister of
Iraq, Kamel al-Kaylani, and Central Bank Governor Sinan Al-Shabibi
yesterday. They are making considerable progress - enacting a n e w central bank
law based on international best practices and liberalizing interest
rates. Significant progress has also been m a d e on licensing foreign banks
and they are working on a T-bill market. Both Iraqi officials reported that
economic progress continues to take place in their country and I w a s pleased to
hear about the ongoing economic and financial reconstruction. Our commitment
to support Iraq is unwavering.
The recent tragic events in Madrid and Riyadh underscore that combating the
financing of terrorism remains a priority. Ministers and Governors met
with senior officials from key countries, the World Bank, the IMF, the
European Commission, and the Financial Action Task Force to discuss h o w to
improve our asset freezing regimes, stop cross-border transfers of cash to
terrorists, and provide attractive alternatives to underground m o n e y
transfers. W e strongly welcomed the IMF/World Bank commitment to
comprehensive assessments of the entire anti-money laundering and terrorist
financing standard.
The economic challenges in the greater Middle East are a key focus.
Regional ministers will join us for dinner this evening to discuss economic
reform - notably h o w to work together to advance financial sector reform and
private sector growth. I expect strong support for economic reform efforts in the
region, as well as for the needs of Iraq and Afghanistan.
The G-7 Action Plan released in February demonstrated the international
community's stalwart commitment to Afghanistan. The recent donors'
conference in Berlin, which raised pledges of $8.2 billion over three years,
further stressed that commitment. The Afghan authorities have entered into
a staff-monitored program with the IMF, providing a detailed framework for
their policies.
//www.treas.gov/press/releases/jsl464.htm
5/27/2005
IS-1466: Statement by the Honorable John W . Snow<br>Secretary of the Treasury of the United States ... Page 1 of 3
PRCSS R O O M
FROM THE OFFICE OF PUBLIC AFFAIRS
April 24, 2004
JS-1466
Statement by the Honorable John W. Snow
Secretary of the Treasury of the United States of America
International Monetary and Financial Committee Meeting
Washington, D.C., April 24, 2004
I join others in thanking Horst Kohler for his leadership of the IMF over the past
years as we have dealt with the critical challenges facing the Fund and the global
economy.
Global Outlook
Since we last met in Dubai, the global recovery has strengthened further, with the
United States leading the way and with good growth in many emerging markets.
But global growth still relies too heavily on the United States as the engine for the
world economy.
With cyclical recovery more firmly underway, the major industrial economies in
particular must now increase attention to raising economic potential. The G-7
countries, for example, are pursuing an Agenda for Growth - a critical initiative
aimed at encouraging major countries to focus on structural policy reforms to
increase flexibility, raise productivity and employment, and achieve higher,
sustained growth. The U.S. calls for progress on W T O negotiations and an
ambitious outcome, focusing on agriculture, industrial and consumer goods, and
services, and welcomes the IMF's support for these efforts, including its recent
approval of the Trade Integration Mechanism.
Emerging markets continue to benefit from benign external financing conditions,
and I urge countries to consolidate reform and improve debt dynamics while
conditions are favorable.
Promoting Growth and Stability
In the last few years, we have seen real progress in enhancing the IMF's
effectiveness. The Fund has refocused on its core areas of expertise. But this
process is not complete. IMF work on subjects not directly related to fiscal,
monetary, exchange rate, and financial sector reforms should be clearly justified, in
surveillance and program design. Explicit justification will enable the Board to
monitor more effectively the streamlining of the IMF's focus.
More work is also needed to sharpen surveillance further and ensure it is
sufficiently independent and objective. W e need a better system for surveillance
that places responsibility directly on members to assure the consistency of their
policies with the objectives of promoting growth and stability. The IMF's various
country, regional, global, financial markets, and regulatory analyses need to be
better integrated to provide a unified assessment of a country's policies and their
impact on the international system. I am open to innovative institutional reform
approaches to ensure that country surveillance gets a second look, for example by
ensuring that debt sustainability analysis for a country is developed by separate
staff teams. I also welcome the IMF's work in the financial sector, including on
Financial Soundness Indicators and the Financial Sector Assessment Program, and
//www.treas.gov/press/releases/jsl466.htm
JS-1466: Statement by the Honorable John W . Snow<br>Secretary of the Treasury of the United States ... Page 2 of 3
encourage further institutionalization of the balance sheet approach and attention to
currency mismatch issues.
I applaud the recent decision to make assessments of the entire anti-money
laundering and terrorist financing standard a permanent and comprehensive part of
IMF work. Protecting the integrity of the international financial system is an
essential IMF duty. W e look forward to rapid implementation of this program.
Further, the Fund's work on regulatory frameworks for informal funds transfer
systems is important to reduce impediments to cost-effective cross-border financial
services, including remittances.
I welcome the increase in publication rates of IMF surveillance and lending papers
and reiterate m y hope that all countries will agree to publish their IMF documents.
The benefits of transparency, for the IMF and for each m e m b e r country, are
compelling.
Turning to lending, the IMF's success should not be measured by how many
programs it carries out. The goal for countries and the IMF alike should be to put in
place strong, pro-growth policies and to avoid imbalances that require substantial
financing from the IMF W h e n countries do turn to the IMF for financial support, w e
favor a targeted set of program conditions, focused on the core macroeconomic
challenges, and more rigorous implementation of program commitments. It goes
without saying that all programs must meet high standards and deliver sound
results. W e need to raise the bar.
My view on programs is informed by the belief that the IMF's particular strength is in
effectively promoting sound policies in all our m e m b e r countries. The IMF does this
through its provision of technical assistance, surveillance, and lending programs
w h e n financing is needed. To strengthen its policy role, w e favor the development
of a n e w form of engagement for countries that do not have a financing need.
Under this proposal, the IMF could assess an economic program prepared by the
country itself and, signal its view to donors, M D B s , and markets. Such a nonborrowing vehicle for close engagement should benefit both poor countries and
emerging market countries, as it will show that a country has clear ownership of its
policies and is strong enough to stand on its own feet.
Strengthening the framework for addressing crises remains a priority. It is vital to
maintain clear limits on official sector finance, with the IMF as the primary source of
official resources for countries facing acute financial crises. I w a s pleased to see
the Board recently uphold the standards for access to large scale IMF lending.
Further, I c o m m e n d the IMF's active role in encouraging countries to include
collective action clauses in external sovereign bonds. Our efforts to m a k e C A C s
the market standard under N e w York law are succeeding.
Making the IMF More Effective in Low Income Countries
The IMF's macroeconomic advice and technical assistance is a unique and muchneeded asset for low income countries. IMF oversight has helped m a n y developing
countries achieve macroeconomic stability- benefiting all people, improving
effectiveness of donor inflows, and helping lay the foundation for a growing private
sector.
The time has come for a positive, new vision for the IMF's role in low-income
countries. For too long, IMF engagement with low-income countries has meant a
series of programs, with no strategy for an exit from IMF borrowing. N o w that HIPC
debt reduction provides lasting relief aimed at helping countries achieve debt
sustainability, w e no longer need to recycle P R G F exposure. The IMF needs to
stand ready to provide financial assistance to its poor country m e m b e r s with
balance of payment needs. But where assistance is required for ongoing
development needs, that assistance should c o m e from the development banks and
bilateral donors, not the IMF The IMF should marshal grants to support strong
performers and to assist those facing macroeconomic setbacks. O n the other
hand, low-income countries with strong fundamentals in place should m o v e beyond
P R G F borrowing and look instead to non-borrowing engagement.
//www. treas.gov/press/releases/js 1466.htm
5/27/2005
JS-1466: Statement by the Honorable John W . Snow<br>Secretary of the Treasury of the United States ... Page 3 of 3
More broadly, the IMF needs to play a greater role in ensuring that lending to poor
countries - including concessional lending - does not exceed the country's capacity
to repay. The IMF should be clear w h e n additional grants or an increased
concessionality of lending is required.
Before closing, let me touch on the issue of voice in the IMF. The United States
supports a strong role for developing countries and emerging market countries in
the international financial system. W e also believe that the IMF is a shareholder
institution and that quotas should reflect economic weight and the ability to
contribute to the financing of the IMF
The United States is committed to making the IMF effective in our modern world.
W e look forward to continuing our work with other m e m b e r s and the institution
going forward.
/www.treas.gov/press/releases/js 1466.htm
5/27/2005
JS-1467: Statement by U.S. Treasury Secretary John Snow<br>following the G-7 Finance Ministers' Me... Page 1 of 3
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 24, 2004
JS-1467
Statement by U.S. Treasury Secretary John Snow
following the G-7 Finance Ministers' Meeting
Saturday, April 24, 2004
Good morning. I was very pleased to host fellow G7 Ministers and Governors here
in Washington.
The unifying theme of our discussions was economic growth. The
strengthening global recovery provided an upbeat backdrop. The United
States is leading the way, thanks to President Bush's jobs and growth tax
relief program. Last month, 308,000 jobs were created. Growth accelerated to 6.2
percent in the second half of 2003 - the fastest in almost 20 years.
Business investment posted double-digit increases in the same period.
Manufacturing activity is increasing. Productivity growth remains
exceptionally high. Homeownership is at an all-time high, the economy is
generating jobs, and unemployment has declined.
Growth in the first quarter of this year is expected to be in the 4 to 5% range,
according to private sector estimates. What's more, in m y view, there is still a lot of
headroom for this economy to grow and expand in a non-inflationary way.
Beyond the United States, there is also good news. Japan has turned in
several good quarters, as has the United Kingdom. In continental Europe,
there are some encouraging initial signs of an upturn, but growth still lags
in too many areas and thus needs to be more broad-based.
We all agreed today that now is the time to redouble our efforts to
strengthen and broaden growth for the future. W e reviewed the progress m a d e
under the Agenda for Growth, including, key steps on tax reform, and labor markets
flexibility. But w e also agreed that additional pro-growth reforms are essential to
boost employment and raise incomes. W e focused in particular on the importance
of low marginal tax rates in encouraging job
creation and income growth.
Of course, sound fiscal policies are also fundamental to sustained growth,
and w e underscored the need for fiscal consolidation during times of
expansion. In the United States, w e are operating with an unwelcome, but
manageable and understandable, short-term deficit which w e are taking action to
reduce dramatically. I reiterated President Bush's commitment to deficit reduction,
which will cut the deficit in half over five years, restoring it
to a level below the 40-year average in terms of the size of our economy.
Economic fundamentals are also strengthening in many emerging markets
countries and higher global growth will reinforce the gains from stronger
policies. Countries should take advantage of current favorable
circumstances to implement reforms that will help achieve lasting stability.
Turning to development, the Bush Administration has consistently emphasized the
powerful role that the private sector can play in promoting growth.
www.treas.gov/press/releases/jsl467.htm
JS-1467: Statement by U.S. Treasury Secretary John Snow<br>following the G-7 Finance Ministers' Me... Page 2 of 3
This w a s a key driver of discussions over the last two days. W e urged the
M D B s to step up their efforts to and promote more financing for small
businesses - which can play a key role in creating jobs and growth. And w e took
the unprecedented step, along with other m e m b e r s of the Development
Committee, of meeting with entrepreneurs from developing countries. Their
stories were compelling and should help inform work in this area going
forward.
We also stepped up our work on remittances. Remittance flows, at nearly
$100 billion globally, exceed total official development assistance and are
critical sources of income for millions of households in m a n y developing
countries. Yet, m a n y barriers exist that m a k e sending m o n e y expensive and
limit the potential development impact of the funds. W e are each working
to address these barriers in our o w n countries. Today, w e committed
together to work with other governments, the private sector, and the M D B s to
broaden access to financial services in developing countries. This m e a n s
facilitating greater competition in remittance services, encouraging
increased participation in the formal financial system, and promoting
financial deepening in the recipient economies.
As part of our Strategic Review of the international financial institutions,
w e agreed this weekend to build on recent reforms - including collective
action clauses, transparent limits on large scale assistance, and the
increased use of grants by the World Bank - and to explore n e w directions
toward a modern international financial policy framework. This includes
improving IMF assessments of economic policies and potential risks and
refocusing the IMF and World Bank on their core mandates. W e want
institutions that deliver results based on modern management principles and
that contribute to stronger growth and higher incomes for people throughout
the world. W e will develop these themes further as w e prepare for Sea
Island.
I had a very positive and constructive meeting with the Finance Minister of
Iraq, Kamel al-Kaylani, and Central Bank Governor Sinan Al-Shabibi
yesterday. They are making considerable progress - enacting a n e w central bank
law based on international best practices and liberalizing interest
rates. Significant progress has also been m a d e on licensing foreign banks
and they are working on a T-bill market. Both Iraqi officials reported that
economic progress continues to take place in their country and I w a s pleased to
hear about the ongoing economic and financial reconstruction. Our commitment
to support Iraq is unwavering.
The recent tragic events in Madrid and Riyadh underscore that combating the
financing of terrorism remains a priority. Ministers and Governors met
with senior officials from key countries, the World Bank, the IMF, the
European Commission, and the Financial Action Task Force to discuss h o w to
improve our asset freezing regimes, stop cross-border transfers of cash to
terrorists, and provide attractive alternatives to underground m o n e y
transfers. W e strongly welcomed the IMF/World Bank commitment to
comprehensive assessments of the entire anti-money laundering and terrorist
financing standard.
The economic challenges in the greater Middle East are a key focus.
Regional ministers will join us for dinner this evening to discuss economic
reform - notably h o w to work together to advance financial sector reform and
private sector growth. I expect strong support for economic reform efforts in the
region, as well as for the needs of Iraq and Afghanistan.
The G-7 Action Plan released in February demonstrated the international
community's stalwart commitment to Afghanistan. The recent donors'
conference in Berlin, which raised pledges of $8.2 billion over three years,
further stressed that commitment. The Afghan authorities have entered into
a staff-monitored program with the IMF, providing a detailed framework for
their policies.
Vwww.treas.gov/press/releases/jsl467.htm
5/31/2005
JS-1467: Statement by U.S. Treasury Secretary John Snow<br>following the G-7 Finance Ministers' Me... Page 3 of 3
www.treas gov/™
,-, Icases/isl467.htm
5/31/2005
JS-1469: Statement by Secretary S n o w and Minister Gil Diaz following their <br>bilateral meeting toda... Page 1 of 1
F R O M T H E OFFICE O F PUBLIC A F F A I R S
To view or print the Microsoft Word content on this page, download the free Microsoft Word
Viewer.
April 24, 2004
JS-1469
Statement by Secretary Snow and Minister Gil Diaz following their
bilateral meeting today
Saturday, April 24, 2004
"Taking advantage of the scheduled IMF World Bank spring meetings, we
discussed the recent breach of the bilateral agreement on exchange of financial
information.
"We agree that information sharing between the United States and Mexico is very
important to combating money laundering, terrorism and organized crime.
"We agree that this matter needs to be addressed immediately and we pledge to
work together to resume this important exchange of information as soon as
possible."
REPORTS
• DECLARACION CONJUNTA DE LOS SENORES
www.treas.gov/press/releases/jsl469.htm
5/27/2005
DECLARACION CONJUNTA DE LOS SENORES
FRANCISCO GIL DIAZ, SECRETARIO DE HACIENDA Y CREDITO
PUBLICO DE MEXICO Y JOHN SNOW, SECRETARIO DEL TESORO
DE LOS ESTADOS UNIDOS DE AMERICA
Washington, D.C.
24 de abril de 2004
En el marco de las reuniones de primavera del Fondo Monetario
International y el Banco Mundial, comentamos la reciente violation al
acuerdo bilateral sobre intercambio de information financiera.
Coincidimos en que el intercambio de information entre Mexico y
Estados Unidos es esencial para combatir el lavado de dinero, el
terrorismo y el crimen organizado.
Acordamos que este asunto debe resolverse de inmediato y nos
comprometemos a trabajar juntos para poder reanudar cuanto antes
este importante intercambio de information.
JS-1471: Greater Middle East Finance Ministers' Dinner<br>U.S. Treasury Secretary John Snow<br>Su... Page 1 of 1
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 25, 2004
JS-1471
Greater Middle East Finance Ministers' Dinner
U.S. Treasury Secretary John S n o w
Summary
I believe this meeting demonstrates the value of a strong dialogue among the
finance ministers of the Greater Middle East region and their partners in Europe,
Japan and North America. I also believe that it can provide a basis for future
engagement. Participants emphasized the importance of working together to
ensure coordinated and complementary approaches to stimulate economic growth
and job creation in the region. Ministers from the region particularly stressed the
importance of peace and stability for economic growth and reform.
There was broad sentiment expressed in the meeting to work together in
partnership to:
• Examine initial proposals from ministers in the region;
• Examine the priority economic reforms to stimulate economic growth and
job creation in the region;
• Ensure that external support for reform is more effective, recognizing that
many good initiatives are already underway in the economic sphere, both
from inside the region and from its partners;
• Explore developing a cohesive framework for existing and proposed
measures ranging across improved policy dialogue, technical assistance
and financing;
• Use opportunities, including the Sea Island G8 Summit, to build on existing
efforts and develop proposals for discussion with the countries of the
Greater Middle East on how to more effectively support and promote
economic reform;
• Promote private investment - both domestic and foreign - in the Greater
Middle East, with a focus on improving investment climates in the region.
Strengthening the financial sector was a specific focus of discussion. Following on
from a meeting between U.S. and Middle Eastern and North African Finance
Ministers held in Dubai in September 2003, I outlined the U.S. Partnership for
Financial Excellence (as part of the Middle East Partnership Initiative) to help
countries in the region to strengthen their financial sectors. Other participants
described their extensive efforts in the region, including the EU's Euro-Med
partnership.
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F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 25, 2004
JS-1472
United States Treasury Secretary John W. Snow
Development Committee Statement
April 25, 2004
This meeting takes place at a time of great opportunity for the global community, as
w e witness an improvement of economic growth and stability. Nonetheless, there
remain considerable challenges, particularly with regard to the need to undertake
the actions necessary to achieve lasting growth and poverty reduction in areas such
as Sub-Saharan Africa.
The United States is implementing policies which have led to a strengthening
recovery in our own country. W e are implementing the commitments of the
Monterrey Consensus through a substantial increase in our development
assistance, most notably through the newly established Millennium Challenge
Corporation and President Bush's Emergency Plan for AIDS relief. And as the chair
of the G-7 this year, w e are leading an ambitious international agenda that will help
promote growth beyond our own economies.
Private Sector-Led Growth
Economic growth, led by the private sector, is the most effective means of
promoting sustainable development and reducing poverty. W e c o m m e n d the
increased emphasis that the World Bank Group has placed on private sector
development - through analytical work, policy dialogue and direct lending.
Innovative programs such as the IDA/IFC initiative to promote small and medium
enterprise development in Africa help create jobs and a more robust financial
sector. They should be replicated in other parts of the world. As w e seek to improve
the environment for private sector development, it is important to have the views of
the private sector. The recent meeting that Development Committee ministers had
with private entrepreneurs was an important new step in this process.
Grants
The IDA grants program is becoming well established and strongly welcomed by
the recipient countries. The immediate need for grant assistance is highlighted by
the continued debt sustainability challenges of many poor countries that are unable
to take on even highly concessional IDA debt. The welcome emergence of several
countries from years of conflict poses a further challenge - let us ensure that they
do not start the process of consolidating peace, handicapped by new debt. And the
continuing threat of HIV/AIDS and other diseases is but one of the critical needs
best addressed by grants. For all these reasons, the IDA grant program can and
must be expanded significantly.
Remittances
Remittance flows can be a critical contributor to poverty reduction and enable more
locally-driven private sector-led growth, yet most remittance channels are
expensive to use and difficult to access in developing countries. The World Bank
Group can and should continue to lead efforts to address the impediments in this
area through (1) promoting greater competition in and transparency of financial
services to better inform consumers, (2) working with m e m b e r clients to understand
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specific impediments to cross-border financial transfers, (3) promoting more
efficient financial intermediation, and (4) funding projects that are designed to
extend financial services and financial literacy in underserved communities. The
World Bank has already accomplished much, and w e urge it to continue to work
closely with m e m b e r clients, other M D B s and the private sector on this important
cross-cutting issue.
Results Measurement/Performance Allocation/Transparency
Strong results management systems are critical to the effectiveness of loans and
grants. More importantly, results are important to achieve real development
outcomes. The World Bank has m a d e considerable progress in establishing such
systems at the project, country, and institutional levels. More progress is needed to
ensure that all projects and programs, including country assistance strategies have
concrete, monitorable and measurable output and outcome goals.
A strong and transparent performance allocation system is a necessary corollary to
a robust results management system. It is essential that the CPIA be m a d e fully
transparent by next year. W e urge the Bank to be more ambitious in making
transparent other aspects of its operations, including the Board's o w n deliberations
and progress on projects during implementation. Greater transparency will go a
long way in promoting greater public trust in the Bank and ensuring shareholder
financial support.
Trade
We must get the Doha Development Agenda back on track again, and to do this we
should focus on the areas that have the greatest potential to promote economic
growth - agriculture, industrial and consumer goods, services and trade facilitation
W e welcome the concrete steps undertaken by the international financial
institutions to address the effects of adjusting to multilateral trade liberalization
including the Trade Integration Mechanism recently approved by the IMF T h e '
continued World Bank commitment to "behind the border" trade-related assistance
will help developing countries realize the benefits of trade liberalization. To attain
these benefits, however, developing countries need to reduce their o w n trade
barriers substantially. The efficiency gains from trade liberalization in financial
services would also be beneficial for m a n y emerging markets.
Combating Terrorist Financing/Anti-Money Laundering
We applaud the decisions by the World Bank (and IMF) to make comprehensive
assessments of countries' compliance with the anti-money laundering and terrorist
financing standards a permanent part of their work. This very positive step reflects
the close collaboration and hard work of the World Bank, the IMF and the Financial
Action Task Force (FATF). The next step is to m o v e forward in implementing the
program to assess country compliance and help countries identify and address
shortcomings in their terrorist financing and m o n e y laundering regimes. This is
critical to winning the war against terrorism and to help anchor the foundations of
sustainable growth and development. The United States is ready to join
international efforts to provide further technical assistance to help countries build
capacity in the areas identified.
Middle East
The Greater Middle East Initiative will be a key component of the Sea Island
Summit in June. M y colleagues and I will be working with our partners in the region
to develop a c o m m o n approach to support economic reform, growth and job
creation. W e took a big step in that process in a meeting I hosted this week of the
finance ministers from the region and Europe, Japan and North America. M u c h is
already underway; the task is to create a cohesive framework of engagement to
enhance existing efforts. A key emphasis should be on attracting investment to the
region, through transforming the investment climate, strengthening financial sectors
and promoting financing for small and medium enterprises.
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Iraq
We welcome the progress made by Iraq in laying the foundation for economic
growth, guided by principles of openness, transparency and private sector
development. The World Bank has played a key role in supporting Iraq through its
leadership of the International Reconstruction Fund Facility (IRFF) and successful
donors conferences in October and February. The Bank has also been working
diligently and creatively to build Iraqi institutional capacity, preparing and beginning
to implement emergency operations under the IRFF to address urgent needs, and
to lay the groundwork for a medium term program in Iraq once sovereignty has
been transferred. W e also c o m m e n d the IFC's work to establish a Small Business
Financing Facility, which will m a k e it possible for small businesses in Iraq to
establish or grow, supporting critically needed job creation.
Afghanistan
Afghanistan continues to make progress, with the support of the Bank and the rest
of the international community. Most recently Afghanistan has adopted a n e w
constitution, with elections to c o m e in September and is building infrastructure that
will lay the foundations for a market economy. By any measure, the recent Berlin
donors' conference w a s a success, although the hard work - making sure that
pledges are disbursed and projects implemented successfully - is yet to come.
There will be a key role for the Bank and the rest of the international community to
play for a long time.
Administrative Budget
The staff and administrative budget of the bank have increased significantly during
the last two years. In order to ensure that as m a n y development dollars as possible
actually reach the world's poor, and to ensure the domestic political support in
donor countries necessary for adequate financing of development, it is important
that the Bank demonstrate efficiency, discipline and prudence in its o w n operations.
For that reason, w e c o m m e n d the recent budgetary discipline demonstrated by the
IMF and propose that the Bank's administrative budget follow a similar course.
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F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 16,2004
js-1473
Under Secretary Taylor Remarks to the IMF
Conference in honor of Guillermo Calvo
It is a pleasure for me to be here today to join in honoring Guillermo Calvo.
Guillermo has been a close friend for over thirty years. W e first met at Columbia
University in January 1973. H e and I had just arrived as newly minted Ph.D.s, from
Yale and from Stanford, respectively, looking forward to doing basic economic
research and teaching economics.
We were colleagues at Columbia for the rest of the 1970s before we went our
separate ways. I have wonderful memories of those days at Columbia. I recall that
w e did nothing but economics, all day, every day, but I'm sure that's an
exaggeration. W e had great colleagues, and w e had great students. I a m happy to
see many of them at this conference.
And it was a great time and place to be doing basic research in the field of
macroeconomics. So much was changing as serious dynamic quantitative
techniques to model expectations under uncertainty entered the field. Broadly
speaking, much of what w e did then was work through the economic policy
implications of this new "forward looking" or "rational expectations" way of thinking.
W e were working on new models in which w e could systematically examine how
people would anticipate policy changes, a big difference from the old "Keynesian"
models. This led to such things as: the time inconsistency problem, because
expectations of policy had their own predictable effects in the new models;
staggered price and wage setting models, because the Phillips curve lost all its
traction when rational expectations replaced adaptive expectations; and a focus on
"policy regimes" rather than one time changes in the policy instruments, because
thinking about future contingency plans became a necessary part of policy analysis.
All that was 30 years ago, and much has changed. Guillermo and I are back in the
s a m e town, though it is D.C. not N e w York, and I have again benefited from
conversations over lunch or dinner. And much of macroeconomic policy - especially
monetary policy has changed for the better. The ideas that Guillermo was
developing at Columbia at that time and that he would continue to develop in his
remarkable and still very active career - have had a huge impact on this positive
change.
Three Recent Policy Reforms at the International Financial Institutions
Today I would like to talk about some very recent policy changes: reforms of the
international financial institutions and their policies toward emerging markets and
developing countries. The policy changes I will discuss are significant and, in m y
view, closer to what economists call "policy regime changes" than to one time
adjustments in the settings of policy instruments. I will try to offer s o m e personal
insights about their implementation, but m y main purpose in this talk is to relate
these changes to the s a m e expectations issues that Guillermo started working on
long ago at Columbia and which continue to be very relevant today.
The three policy reforms that I will highlight are: (1) the use of collective action
clauses in sovereign debt; (2) the development of clearer limits and criteria for
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exceptional borrowing by countries from the official sector; and (3) the greater use
of grants rather than loans from the international financial institutions to poor
countries. To be sure, there have been other policy changes, including increased
transparency which has been part of a global trend at central banks and other
financial institutions for a number of years. There has also been a significant
streamlining of conditionality in IMF programs and a noticeable increase in the use
of measurable results in World Bank projects. But I will focus on these three
reforms today, as they closely relate to the expectations issues. All three of these
reforms have been proposed, analyzed, and debated for a number of years, but it is
only recently that they have actually been implemented.
Changing Market Environments, Financial Crises, and the Need for Policy
Reform
An important motivation for these reforms is that international financial markets
have undergone fundamental changes in the past decade and a half.
First, securities are a much bigger percentage of cross-border financial flows than
in earlier years w h e n bank loans were a larger percentage. This trend began in the
late 1980s and is continuing today. A n important implication of this change is that
restructuring government debt-with literally hundreds of thousands of bond holders
in m a n y different countries-became much more difficult and uncertain than w h e n
debt had been in the form of bank loans to a few banks or syndicates.
A second change is the increase in the volume of private capital flows. Private debt
and equity flows grew to be much larger than official lending from the international
financial institutions. Even cross-border transfer payments are n o w predominantly
private with remittances alone much larger than transfers of resources from the
international financial institutions and other aid agencies.
A third change is that financial markets are more interconnected than in the past,
which is one of the reasons for the concerns about contagion. The cross-border
capital flows seemed to be more volatile as well: sudden-stops - to use Guillermo's
phrase - and reversals of flows became more frequent.
Other things being equal, I believe that these changes in the cross-border
environment led the emerging markets to become more crisis-prone. In fact, both
the number and severity of financial market crises increased in the 1990s compared
with the 1980s. By the late 1990s, the emerging markets were perceived by
investors as so crisis-prone that net private capital flows to emerging markets as a
whole fell sharply-a sudden stop for the whole emerging market class.
The initial responses to these crises by the official community in the 1990s were
understandable. A s in the case of Mexico, the responses had to be developed from
scratch in a very short period of time, and they had to be implemented
immediately. In a number of cases, and in the Mexican case in particular, s o m e
argued that there should have been no special response by the international
community, or that the response w a s wrong. But the point I emphasize is that
these crises were providing clearer and clearer evidence that the systemic changes
in the world's financial markets required systematic changes in the policy
framework underlying the international financial system.
However, the responses of the international community to crises in the 1990s
continued in the roughly s a m e fashion as the response to Mexico. They tended to
concentrate on tactics rather than strategy. They were designed around
discretionary changes in the policy instruments rather than systematic changes in
the policy regime. They tended to be government-focused rather than marketfocused, emphasizing large loans by the official sector and, later, governmentinduced bail-ins by the private sector.
Many observers became concerned that the increasing use of very large financial
packages and the bail-ins were having adverse effects on expectations or
incentives.
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A related problem w a s that loans from the official sector-including from the IMF and
the World Bank-to the very poor developing countries in Latin America, Africa, and
Asia were building up to clearly unsustainable levels. This led to understandable
calls for debt relief. Again the responses, in m y view, were more tactical than
strategic. They dealt with the current serious need for debt relief, but not with the
expectations effects and the incentive problems that would continue to cause the
international institutions to lend too m u c h and the poor countries to borrow too
much, leading to future debt sustainability problems.
Toward a Policy Regime Change
In sum, something important was missing from the international financial policy
framework, namely more predictability, more accountability, and more systematic
behavior on the part of the official sector. More focus needed to be placed on what
public sector actions were likely to be in a given circumstance, on what
accountability there would be for those actions, and on what the strategy and the
principles behind the actions were. This is exactly what research on expectations,
policy regimes, and time inconsistency - of the kind that Guillermo contributed so
m u c h to - would recommend. S o let m e n o w explain h o w these three policy reforms
are doing just this.
Collective Action Clauses
The very essence of these clauses is to provide greater predictability. They
describe, as a contingency plan, what would happen if a debt restructuring is
needed. They state, for example that 75 percent, rather than 100 percent of
bondholders have to agree with the restructuring. I emphasize that the aim is not to
m a k e restructurings more desirable, but rather to m a k e them more predictable in
cases w h e n a country has no real alternative. In the absence of such clauses,
fears and uncertainties about what would happen if a country had to begin a
restructuring of its debt can interfere with effective decision-making, especially in a
charged political environment. A n advantage of such clauses is that they are a
decentralized, market-based approach with a minimum of direction or discretion by
the official sector. In this w a y too, the clauses reduce the uncertainty that
accompanies a non-sustainable debt situation.
Importantly, the clauses also help the official sector to be more credible about both
the likelihood and likely size of its o w n response, and this in turn has favorable
effects on market expectations, which can reduce the need for large responses by
the official sector. In a recent article in the Journal of Economic Perspectives (Fall,
2003), Barry Eichengreen emphasizes this point and links it to the time
inconsistency problem stating, "Reducing the frequency and magnitude of IMF
rescue operations requires creating an environment where a commitment by the
official community to stand aside is time consistent. O n e motivation for n e w
approaches to sovereign debt restructurings is thus to open up less costly avenues
for debt reorganization, thereby reducing the pressures on the IMF to lend and
removing the incentive for investors to engage in additional lending in anticipation of
official intervention."
These clauses have been actively promoted by the United States. After intensive
legal and economic research at the U.S. Treasury in late 2001 and early 2002, w e
concluded that collective action clauses were the most promising and feasible w a y
to introduce more predictability into the system. I then gave a speech in April 2002,
calling for implementation of such clauses as fast as possible. Several useful
enhancements and additions to the clauses that had been suggested earlier were
part of this proposal, but I emphasized principles rather than details recognizing that
the borrowing countries and their creditors would have to work out the details. The
clauses then b e c a m e part of the April 2002 G 7 Action Plan. That the clauses could
help with the time consistency problem w a s implicit in this Action Plan because they
were paired up with the endeavor to clarify and adhere to limits on large scale
lending.
I must say I am very pleased with the dramatic progress that has been made in
implementing these proposals in a very short period. Mexico included clauses for
the first time in its N e w York law-governed bonds just about a year ago. And n o w
,
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clauses are well on their w a y to becoming standard in internationally-issued
sovereign bonds. A range of countries, including the early clause-issuers Mexico,
Brazil, Korea, South Africa and Turkey, have demonstrated that including these
clauses in their issues has had no adverse impact on pricing. Just since January,
the Philippines, Panama, Colombia, Costa Rica, Indonesia and Israel have all
included these clauses for the first time in their N e w York-issued bonds. W o r k
continues to educate potential issuers about the benefits of these clauses, as w e
advance this important trend in strengthening market practices. T h e n e w clauses
are n o w the market standard in N e w York.
Some argue that collective action clauses do not solve all the problems about the
uncertainty surrounding debt restructurings, and they are right. Aggregation is still a
problem, and future crises m a y not be as closely associated with debt problems as
past crises have been. But the clauses and the debate surrounding them last year
have helped to change perceptions about emerging market debt. T h e debt is n o w
being held by a more diverse class of investors as an important part of their
portfolios. Moreover, I believe that because the reform w a s implemented so
successfully it has bolstered confidence in the reform process. People see that
financial reform is possible even if it is very complex and involves changes in the
policies for scores of countries and thousands of lawyers, advisors, investors, and
financial institutions. For example, private creditors and borrowing countries n o w
are working on a code of conduct, which could add more predictability and order
into the system.
Clarifying Limits and Criteria for Large-Scale Official Sector Lending
There, are several components of this reform.
First is the presumption based on recent practice since the resolution of the
Turkey financial crises of 2000-2001 and in particular the assistance package of
early 2001 - that the IMF rather than the official creditor governments is responsible
for providing large scale loan financing. This provides an overall budget constraint
and thereby an overall limit on loan assistance, recognizing that IMF resources are
limited.
Second, within the context of this overall limit there has been an endeavor by IMF
shareholders and m a n a g e m e n t to signal in advance of a decision not to provide
additional IMF loans w h e n it appears that the limits of sustainability m a y be reached
in the near future. Signaling policy changes in advance - even in broad outline form
- can lead to smoother adjustments and provide investors with time to obtain
information about fundamentals. This reduces greatly the chances of contagion,
because surprise increases or decreases in official financing can lead to runs for
the exits and sudden stops. Also part of the principal of limiting funding w h e n
countries continue to follow unsustainable policies is to assist countries that are
following good policies but m a y be hit by a crisis in the nearby country that is not
following good policies. This too will help to reduce contagion in the event that the
near-crisis country does in fact go into financial crisis. The clearest example of this
is the case of Argentina where additional IMF resources were not suddenly stopped
in 2001, but rather continued with signals - including restructuring funds built into
the August 2001 program that additional funding in the face of the ongoing debt
sustainability problem would not continue. In addition a financial assistance
package w a s provided to Uruguay which had been following good policies - to
deal with the monetary crisis brought on by the bank runs of its close neighbor
around the time of the default in December 2002.
The third component of this reform adds specificity and accountability to the first
two components. This is the agreement by the IMF Board in March 2003 on four
specific criteria that should be met before large scale lending above certain limits
can take place. T h e criteria are: (1) balance of payments pressures on capital
account, (2) high probability of debt sustainability, (3) good prospects of regaining
access to private markets so that IMF financing provides a bridge, and (4) good
economic policies in place. In addition the IMF Board adopted the requirement that,
in cases of exceptional access, a n e w exceptional access report has to be prepared
and published by the IMF management. T h e aim of the exceptional access report
is to provide accountability in the s a m e w a y that monetary policy reports or inflation
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reports provide s o m e accountability at central banks.
Because these criteria must be interpreted in each case, it is clear that the limits
themselves are not rigid. The reality of the market and policy environment is that
the IMF m a n a g e m e n t and the IMF m e m b e r governments should use the criteria
judiciously rather than rigidly. O n e cannot plan for all contingencies and so the
criteria are closer to policy principles or guidelines. Nevertheless, the specific
criteria represent a marked change in the direction of a more systematic and
predictable policy regime.
The purpose of limits is to reduce the uncertainty and the perverse disincentives in
the markets due to lack of clarity about h o w m u c h funding will be provided from the
IMF and under what circumstances. The clearer limits help define the policy regime
under which market participants and borrowing countries can operate. A s part of
the policy framework defined by the clearer access limits, the general presumption
is that the official sector will avoid arm-twisting the private sector to do bail-ins,
because this can lead to uncertainty about future applications and encourage early
runs for the exits.
With these criteria in place, the question is frequently asked about how they were
applied last year in the cases of Argentina and Brazil. In both of these cases,
however, the countries were already in exceptional access territory and the goal is
to exit from this exceptional access over time. The Argentina program is n o w
focused on a complex debt restructuring. And a goal of the Brazil program is to exit
from the exceptional access.
Grants Rather Than Loans to Very Poor Countries
Providing more grants to poor heavily indebted countries is necessary to deal with
their long run debt sustainability problems. Debt forgiveness through the H I P C
process in a w a y that deals with their debts to the international financial institutions
is essential for the countries with unsustainable debt situations. But if the
international financial institutions return to their heavy emphasis on lending, then
there are perverse incentives for these countries to get into an unsustainable
situation again, which will lead to the debt relief cycle all over again.
This is more than a simple financial issue. Unsustainable government debt not only
requires large budget resources, it reduces private sector investment needed for
economic growth and poverty reduction. Using grants rather than loans, therefore,
avoids leading these countries down the path of heavy indebtedness.
Of course, this is a fundamental and difficult reform. Since their founding 60 years
ago, the m a n a g e m e n t s and shareholders of the Bretton W o o d s Institutions have
thought of them primarily as lending institutions. Nevertheless, remarkably good
progress has been m a d e in implementing this reform. In 2002 an international
agreement w a s reached to use up to 21 percent of the World Banks' IDA window
for grants. This agreement allows substantially larger percentages in the heavily
indebted IDA countries.
The grants have proved very popular in the countries that have received them thus
far, but work needs to be done to further increase grant funding for the very poorest
and heavily indebted countries and to integrate this more systematically into the
debt relief process.
Market Developments Around the Policy Changes
Let me conclude by looking at recent developments in emerging markets that have
accompanied these reform changes. I a m happy to say that there has been a big
improvement in performance. For one thing, the number of major financial market
crises is fortunately w a y down. I a m sure that the policy changes have not been a
force against improved performance, and I have argued here that improved
performance is consistent with the policy changes. But economics being the
inexact science that it is, complete empirical proof of the benefits of the reforms is a
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ways off.
I offer three of my favorite figures to illustrate different aspects of the improved
performance.
High Points and Saddle Points in the Policy Reform Process
Of the many conversations I had with Guillermo, I would like to conclude with one
that I remember well. I w a s telling him about a back packing trip I had just m a d e to
the Sawtooth Mountains of Idaho. I w a s describing the rugged terrain and a
particularly tough climb up to what appeared in the mountain mist to be a high point,
but w h e n I got there I s a w that it w a s a saddle point and I had to turn right or left
and continue the tough climb. W e joked that life w a s like "one saddle point after
another."
I think the same can be said of the policy reform process. In this talk I have tried to
explain h o w a recent series of policy reforms at the international financial
institutions can be interpreted as a high point, as a policy regime change of the kind
recommended by the work on expectations in macroeconomics-from time
inconsistency to sudden stops-wnich Guillermo Calvo has contributed so m u c h too.
Because of his influential work over the years, w e are all in better shape to keep
making progress as w e m o v e on from one policy reform saddle point to another.
Thank you.
REPORTS
• Figure 1: Net Cross Border Capital Flows to Emerging Markets
• Figure 2: Blue Chip Index vs. E M B I
• Figure 3: Sovereign Risk Spreads After the Russian and Argentine Defaults
//www.treas.gov/press/releases/j s 1473 .htm
5/27/2005
Page 1 of 1
Figure 1: Emerging Markets from 1990 to 2003
Figure 1 shows net capital flows to emerging markets from 1990 to 2003. Note that the flows fell from an average of
$150 billion per year during 1992-1997 to near zero on average from 1998-2002. This "sudden stop" in the late 1990s
reflected, a m o n g other things, the increased volatility and damaged business environment brought about by the crises.
Note, however, that in 2003 that there was a noticeable recovery; and so far that recovery appears to be continuing in
2004.
Figure 1: Net Cross Border Capital Flows to
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//www.treas.gov/press/figure 1 .htm
5/27/2005
Page 1 of 1
Figure 2: Emerging Market Spreads during the past 2 years
Figure 2 shows the time-series pattern of the emerging market spreads during the past two years. Note that there has
been a welcome decline in the risk spread in the last year. The other line in Figure 2 is called the blue chip index. Note
that the blue chip has tracked the broad movements in the emerging market spread fairly well. W e developed the blue
chip index at Treasury in 2001. It is constructed from five separate risk assessments from five different institutions. The
blue chip incorporates variables such as the real exchange rate, domestic credit growth, M2/reserves, gross external
financing requirements, global liquidity, as well as other measures. T o the extent that the indicator is based on policy
fundamentals, it gives an estimate of the amount by which the large recent decline in emerging market spreads is due to
fundamentals. M a n y analysts have been concerned in recent months that there has been overshooting of the spreads.
Figure 2 does indicate some overshooting, but the real news is that it is small relative to the decline in fundamentals, at
least as measured by the blue chip index.
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^/www.treas.gov/press/figure2.htm
5/27/2005
Page 1 of 1
Figure 3: Sovereign Risk Spreads After the Russian and Argentine Defaults
Figure 3 illustrates the w a y in which contagion has changed recently. Note h o w different the impact of the Argentine
default in 2001 was compared with the Russian default in 1998. The impact of Russian default in other parts of the
world was m u c h larger than the impact of Argentina in other parts of the world. There appears to have been a marked
decline in contagion. T o the extent that this persists it represents a major change in the operation of these markets.
Figure 3: Sovereign Risk Spreads After the Russian and Argentine Defaults
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5/27/2005
IS-1474: The Honorable John W . Snow<br>Prepared Remarks<br>Unveiling of N e w $50 Note<br>Ft....
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 26, 2004
JS-1474
The Honorable John W . S n o w
Prepared Remarks
Unveiling of N e w $50 Note
Ft. Worth, T X
Thank you, Tom.
It's great to be here today for this exciting event.
I've been Secretary for a little more than a year, but this is already my second
opportunity to unveil our new currency design, this time for the $50 note. The n e w
design is more secure than ever before; w e believe it will be extremely effective in
discouraging counterfeiters. As you will soon see, it's also a lovely piece of
currency, maintaining the historic look and feel of a greenback while incorporating
the elements of other colors that are very important to us in this country: red, white,
and blue.
I am humbled to have my signature on this note, on this great nation's currency,
knowing it represents the strongest economy in the world.
We are the world's leader in economic growth, and other countries are in awe of our
ability to lead even when we've gone through hard times so recently.
Just one year ago, the American economy was in a very different position than it is
today. Then there was talk of a double-dip recession, with some commentators
holding out the specter of deflation. Even those w h o saw the economy in pretty
good shape characterized the recovery as at best wobbly, weak or anemic.
Today the economy is in a strong recovery, with a GDP growth rate of 6.2 percent
in the last half of 2003 - the fastest six-month growth rate in nearly 20 years.
Leading private forecasts are projecting growth of four percent plus for the 2004
year, well above historical growth rates. The latest Blue Chip report forecast G D P
would grow 4.6 percent in 2004, the highest in 20 years.
Exports are up. The manufacturing sector is beginning to come back. The housing
industry remains strong. Business confidence is up and business spending has
rebounded. W e are beginning to see some come-back in the labor markets.
Unemployment is down and the economy has created 759,000 jobs in the last
seven months... 308,000 in March alone.
Layoffs are down, unemployment is down, and help wanted ads are up. Initial
claims for unemployment insurance have fallen substantially: down 2 0 % over the
last year.
We're on very solid footing, our upward trend is strong, and there can be no doubt
that President Bush's leadership on tax cuts has m a d e the decisive difference.
W h e n combined with low interest rates, the Bush tax cuts are having precisely the
impact w e intended.
://www.treas.gov/nress/re1eases/is 1474.htm
Page 1 of 2
JS-1474: The Honorable John W . Snow<br>Prepared Remarks<br>Unveiling of N e w $50 Note<br>Ft. ... Page 2 of 2
The President was, and is, dedicated to making sure that you, the American people,
were able to keep more of your hard-earned money in your o w n pocket!
He knows that when people are taxed less, the economy grows more.
And if Congress makes those tax cuts permanent, everyone will have a chance to
have more of these new $50 notes in their wallets!
So I'm proud to be unveiling this note, and proud to serve a country where our
currency is a symbol of economic freedom and strength.
Securing that currency against counterfeiting is an ongoing responsibility shared by
everyone here today: government officials, the media and the American public.
People all over the world rely on the strength and stability of U.S. currency. I take
that responsibility seriously, and I know all of you do so as well.
Thanks to the changes we made to the currency in the late 1990s, thanks to the
n e w $20 note that went into circulation last year, and thanks to the aggressive law
enforcement effort led by the Secret Service, we've been able to stay ahead of
counterfeiters. The public has also played an important role. The more people know
about their currency and h o w to tell if a note is real, the better off w e are.
Our efforts have helped build a record of success against counterfeiters. It's a
record w e can all be proud of. And it's a record w e pledge to build upon with our
newly designed $50 note.
New designs allow us to enhance the security of our notes so they continue to
inspire trust and confidence in people here and around the world. Because
technology changes so quickly and counterfeiters get new tools, we're going to
introduce n e w currency designs every 7 to 10 years. It's going to take that kind of
ongoing commitment to protect everyone's hard earned money.
But as you'll see momentarily, even with a new design, the world will still recognize
the n e w notes as distinctly American. There's a wonderful balance between the
traditional and the new. Everyone w h o sees the new $50 note will know instantly
what it is and what it stands for.
And everyone should know this as well: The new $50 note, like the new $20 note
you all use every day, will be safer, smarter and more secure than ever before.
Safer for consumers because they'll be harder to fake and easier to check. Smarter
to stay ahead of counterfeiters. And more secure to protect the integrity of our
currency and our economy.
Thank you very much.
>://www.treas.eov/nress/re1eases/isl474.htm
5/27/2005
;-1475: Deputy Assistant Secretary D a n Iannicola, Jr. Joins the Jump Start Coalition <br> in Mississippi Page 1 of 2
PRLSS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 26, 2004
js-1475
Deputy Assistant Secretary Dan Iannicola, Jr. Joins the Jump Start Coalition
in Mississippi to A n n o u n c e State Specific Results
of the J u m p Start Personal Finance Survey
Deputy Assistant Secretary for Financial Education Dan Iannicola, Jr. today joined
the Mississippi Jump$tart Coalition for Personal Financial Literacy (Mississippi
Jump$tart) at a press conference to announce the results of Jump$tart's personal
finance survey. The survey, administered to 12th graders in random high schools
around the country, measured levels of personal finance knowledge and compared
results from similar surveys conducted in 2002, 2000, and 1997.
The survey's results reveal that students nationwide and in Mississippi are showing
an increased aptitude and ability to manage financial resources. The nationwide
results of the J u m p $tart survey showed that seniors have improved since the last
survey conducted in 2002. Students answered 52.3 percent of the questions
correctly compared to 50.2 percent in 2002. Students in Mississippi answered 53.3
percent of the questions correctly. Also, there w a s a positive impact on students
nationwide attending required money management courses in high school (54.1
percent).
Deputy Assistant Secretary Iannicola commended efforts for continued
improvement in financial education at the national, state, and local level. "Always
remember that you've helped kids you'll never meet in ways they'll never know,"
said Iannicola. "On behalf of President Bush, Secretary Snow, and the U.S.
Department of the Treasury, I want to c o m m e n d Mississippi Jump$tart on how it
has served the country, and I want to encourage all of you to keep up the fight to
m a k e every child in Mississippi financially literate."
Today's press conference took place in the Rotunda of the Capitol in Jackson,
Mississippi. Participants in the press conference included Eric Clark, Secretary of
State; Jim Hood, Attorney General; Tate Reeves, State Treasurer; David Barrentine
and Evelyn Edwards, Bankcorp South; Steffani Jenkins, Union Planters; Julie
McAdory, Mississippi Jump$tart Coalition President; and William Cheeks, Eastern
States Coordinator for Jump$tart.
The Jump$tart Coalition for Personal Financial Literacy is a non-profit organization
that seeks to improve the personal financial literacy of young adults. Jump$tart's
purpose is to evaluate the financial literacy of young adults; develop, disseminate,
and encourage the use of standards for grades K-12; and promote the teaching of
personal finance.
The Department of the Treasury established the Office of Financial Education
(OFE) in M a y 2002. The O F E coordinates the Department's interdisciplinary
financial education efforts to raise awareness and ensure consumers have access
to resources that can help all Americans m a k e wiser personal finance
management, spending, saving, and investing choices. The OFE's role to promote
financial education through its policymaking function, its outreach efforts, and by
working with public and private sector entities remains focused on furthering
individual financial success and the country's ongoing economic growth. The O F E
also coordinates the efforts of the Financial Literacy and Education Commission, a
group chaired by the Secretary of Treasury and composed of representatives from
20 federal departments, agencies, and commissions, which works to .mprove
•//www.treas.gov/nrp.Qs/rp1pasps/is1475.htm
5/27/2005
js-1475: Deputy Assistant Secretary D a n Iannicola, Jr. Joins the J u m p Start Coalition <br> in Mississipp... Page 2 of 2
financial literacy and education for people throughout the United States. For more
information about the Office of Financial Education visit:
www.treas.gov/financialeducation.
-30-
!L//www.treas.gov/nress/rfi1eases/is 1475.htm
5/27/2005
js-1476: John B. Taylor<br>Under Secretary of Treasury for International Affairs<br>Fitch Ratings' Lat... Page 1 of 5
F R O M T H E OFFICE O F PUBLIC A F F A I R S
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
April 27, 2004
js-1476
John B. Taylor
Under Secretary of Treasury for International Affairs
Fitch Ratings' Latin America Conference
N e w York City
April 27, 2004
Supporting Economic Growth in Latin America
Thank you very much to Fitch Ratings for inviting me to speak at this conference. I
traveled to the region last week, and it is a pleasure to be here today to talk about
Latin America's economic performance and prospects, including recent positive
developments. I'd like to begin by discussing those improvements and outlining
s o m e of the factors that I think underlie them. I would also like to discuss U.S.
efforts to reinforce the region's economic recovery and help the countries of Latin
America lay the foundation for sustained growth.
Recent Improvements and the Causes
As you know, financial conditions have firmed substantially during the last year and
a half. Average risk spreads for Latin American countries have come down
dramatically, from over 1,300 basis points above U.S. Treasuries in the fall of 2002
to under 600 basis points today. Capital flows, which fell during 2002, bounced
back in 2003. Several Latin American governments have already successfully
completed a large portion of their planned external issuance for this year at
attractive interest rates. Many currencies in the region have stabilized or, in the
cases of Brazil and Argentina, strengthened substantially. And equity markets in
major economies turned in strong performances in 2003.
Stronger fundamentals and better economic policies have underpinned the stronger
financial indicators. The ratings agencies have taken note of these changes. Three
of the seven largest economies—Brazil, Chile, and Ecuador—received ratings
upgrades during 2003 and 2004.
First, economic growth in the region is picking up along with the recovery in the
global economy. Following flat real G D P in 2002, the region grew 1.7 percent in
2003 and is expected to grow 3.5-4.0 percent in 2004. Brazil grew at over 6
percent in the fourth quarter.
Growth rates in Mexico, Chile, most of Central America are expected to rise by
more than a percentage point this year. And economic recovery in Argentina and
Uruguay accelerated to annual rates in excess of 10 percent in the fourth quarter of
2003.
Second, countries' external balances are strengthening. In 2003 the current
account as a share of G D P for the region swung into surplus in 2003 for the first
time in decades. This improvement was powered in several countries by strong
growth in exports, with exports increasing 21 percent in Brazil and 17 percent in
Peru in 2003. Central banks in the region have used the opportunity to increase
their accumulation of foreign reserves to provide a cushion against future market
turbulence.
'^/www.treas.gov/nress/releases/is 1476.htm
js-1476: John B. Taylor<br>Under Secretary of Treasury for International Affairs<br>Fitch Ratings' Lat... Page 2 of 5
Third, authorities in the region have pursued good fiscal and monetary policies. Six
of the seven largest economies—Brazil, Argentina, Colombia, Ecuador, Chile, and
Peru—successfully increased primary budget surpluses to bring d o w n debt levels
over time and reduced or maintained low inflation in 2003.
Venezuela is the exception. It is remarkable—and tragic—to consider that per
capita income in Venezuela is 25 percent lower than it w a s in 1998, even though oil
prices have increased markedly over that s a m e period of time.
Achievements in monetary policy in Brazil and Argentina merit particular attention.
Both countries experienced large currency depreciations in 2002. Yet sound
monetary m a n a g e m e n t prevented these depreciations from turning into inflationary
spirals. W e s a w a bulge in inflation in both countries as the effects of the
depreciation worked their w a y into consumer prices, followed by a rapid and
sustained reduction in inflation resulting from effective monetary restraint. These
prudent policies enabled Brazil's central bank to achieve inflation of 9.3 percent in
2003 w h e n market inflation expectations at the beginning of that year exceeded 13
percent. And they enabled Argentina to reduce inflation from 41 percent in 2002 to
less than 4 percent in 2003.
In Brazil, improved confidence in fiscal policy and the downward trend in inflationary
expectations have enabled the central bank to aggressively cut interest rates over
the last 10 months. Real interest rates are n o w less than 10 percent, helping to
spur faster economic growth and higher levels of investment.
Fourth, while debt levels in the region remain high, countries are taking steps to
strengthen their debt profiles and deepen their domestic capital markets. Brazil has
substantially cut the portion of its debt that is linked to the exchange rate and
increased the portion of fixed-rate, rea/-denominated debt. Brazil's consolidated
interest expense has declined from 13.9 percent of G D P during the first two months
of 2003 to 8.2 percent for the s a m e period this year. Mexico issued its first 20-year
fixed-rate, peso-denominated bond in last year. Latin American countries have
played a leading role in making bonds with collective action clauses the market
standard, with Brazil, Colombia, Peru, Panama, Costa Rica, Uruguay, and
Venezuela following Mexico's pioneering issuance in February 2003.
Finally, countries have made progress on important structural fiscal reforms aimed
at locking-in improvements in macroeconomic policy. Argentina and Peru have
taken steps to fight tax evasion and improve tax compliance needed to avoid the
pattern of ever-increasing tax rates chasing ever-lower collections. Brazil and
Colombia have m o v e d forward with reforms of public pensions, freeing up savings
that can be used to reduce public debt or increase key infrastructure investments.
Colombia, Ecuador, and Peru have passed fiscal responsibility laws that improve
their control and capacity to implement spending and budget targets. Peru has
m a d e progress implementing a framework for fiscally-prudent decentralization, and
Honduras has passed legislation that establishes executive control over the growth
of public wages.
More remains to be done in the region to lock in sound public finances, which is the
single most important defense against the financial crises that have periodically set
Latin America back. M a n y of the leaders around the region w h o w e talk to clearly
understand that imperative.
Some observers have attributed the improvements in Latin American markets to
excess global liquidity and the search for yield; they predict that an increase in
industrialized country interest rates will cause a sharp fall in the region's financial
markets. Liquidity in global markets m a y be a factor, but I do not think it is the
predominant one. I see fundamentals and policies as the most important factors in
these changes. Moderate increases in interest rates driven by the acceleration in
global growth are anticipated and should not surprise markets. Faster global
growth itself will be an overriding positive for the region. Countries that maintain
good policies are positioned to benefit from stronger global economic conditions, as
prices for their commodities and d e m a n d for their exports in industrialized countries
increase further.
li^ww.treas^
5/27/2005
js-1476: John B. Taylor<br>Under Secretary of Treasury for International Affairs<br>Fitch Ratings' Lat... Page 3 of 5
The Microeconomic A g e n d a
As economies stabilize, the agenda for the region is clearly broadening to focus on
microeconomic barriers to growth. By that I m e a n factors that constrain
entrepreneurs and the formation of capital, both physical capacity and h u m a n
capital. This is a region with enormous scope for faster growth and higher living
standards based on rising productivity growth.
What are the elements of the microeconomic agenda? They boil down to making
markets for inputs and output work better. Banks have to be sound and do a better,
more efficient job of intermediating capital and broadening access to new,
productive entrepreneurs. Labor markets have to operate efficiently and flexibly so
that labor moves from the informal to formal sector. The tax, legal, and regulatory
environment has to provide a basis for risking capital, especially in large, multi-year
infrastructure projects. The judicial system has to enforce contracts predictably and
fairly. Governments have to invest productively in health and education for their
people. Markets for tradable goods and services have to be open to competition,
especially given the vast potential for all economies in the region to benefit from
further integration. And businesses need a simple, efficient regulatory system. It
takes an average of over 70 days to start a business in Latin America.
Peru has made steady progress improving the financial system's regulatory
framework and banking supervision, helping to underpin a deepening of domestic
capital markets and the gradual reduction in the level of financial dollarization.
Colombia completed a labor market reform aimed at helping draw jobs into the
formal sector by reducing severance payments, cutting overtime pay, and reducing
nonwage labor costs. Brazil's government is embarking on an important program to
streamline and simplify the process of business registration, which ultimately will
require a business to register only once, and has m a d e judicial reform a top priority
for this year. In short progress is being made. But a great deal remains to be done.
U.S. Economic and Financial Policies Toward Latin America
The Bush administration has acted consistently and quickly to support countries
that are doing the right thing on economic policy. Pro-growth policies work and
deserve our support. W e put the emphasis on accountability and ownership.
This has guided our approach to IMF engagement in the region. U.S. support for
IMF programs for Colombia and Brazil in 2002 are two good examples. In both
instances, the governments themselves articulated strong policy programs aimed at
restoring stability through fiscal discipline and other reforms. International support
w a s effective because it reinforced these policies. In Colombia, President Uribe's
reforms helped the country re-access international capital markets within months
after its sovereign spreads rose to over 1,100 basis points over U.S. Treasuries. In
Brazil, this combination allowed the country to overcome pre-election market jitters
and facilitate a smooth transition to President Lula's administration. With Brazil's
continued strong policy performance, the United States supported a 12-month
extension of Brazil's IMF program that is allowing the country to graduate from
reliance on official financing in a market confidence-enhancing way.
Let me say a few words in this context about Argentina. The United States
supported Argentina's transitional IMF program and the launch of Argentina's threeyear IMF program in September 2003 to strengthen the current economic recovery
and lay the basis for sustained economic growth. The program is designed to
address Argentina's chronic fiscal problems, restore the health of the banking
sector, and resolve the country's defaulted debt. W e have emphasized that debt
negotiations between Argentina and its private creditors must be transparent and
have the give-and-take needed to encourage creditors to participate in the debt
exchange.
The IMF program was designed specifically to give Argentina the flexibility it needs
to negotiate a debt restructuring with its creditors. The program leaves Argentina's
primary surplus targets for 2005 and beyond unspecified above a 3 percent of G D P
floor, so that the increment to this floor can be decided upon as Argentina
Vwww.treas.gov/press/releases/jsl476.htm
5/27/2005
s-1476: John B. Taylor<br>Under Secretary of Treasury for International Affairs<br>Fitch Ratings' Lat... Page 4 of 5
determines the level that will be needed to achieve a debt exchange that achieves
broad creditor support. O n c e the amount of resources from the international
financial institutions is determined, specification of a primary surplus path in the IMF
program would have largely determined the amount that private creditors got paid.
It would not be appropriate for the IMF to be in the middle of negotiations between
Argentina and its creditors in this way. The amount of IMF exposure is to be held
constant during the current three year program and should then decline
significantly. There is no need for exposure to the World Bank and Inter-American
Development Bank to decline in this way if viable projects and programs continue to
merit n e w lending.
The difference between Argentina and Brazil regarding the manner in which the
primary surplus is set in the IMF program reflects that Brazil's debt is not the
subject of an ongoing negotiation. Moreover, in Brazil, where debt is not in default
and payments to private creditors are clearly defined, one can calculate a primary
surplus target needed for debt sustainability. The Lula Administration's 4.25
percent of G D P primary surplus policy has enabled Brazil to honor its debt
obligations, retain access to the international capital markets, and avoid a deep
output contraction.
We have also stressed the importance of understanding and dealing appropriately
with contagion. Early on in the Bush administration w e talked a lot about the
dangers of overemphasizing contagion as a phenomenon, since it could lead to
support for countries that m a y not be following good policies. W e have sought to
concentrate support on countries hit by external shocks that have a direct impact on
their economies, but which are also pursuing strong adjustment efforts. S o for
example, w h e n Uruguay's banking system w a s hit by deposit withdrawals
associated with the Argentine crisis, the United States extended a very short-term
$1.5 billion loan to help Uruguay end the deposit run until additional assistance from
the IMF, World Bank, and Inter-American Development Bank could be mobilized.
The emphasis on accountability and ownership is guiding our approach to U.S.
development assistance, as evidenced in President Bush's Millennium Challenge
Account (MCA), targeted at countries that invest in people, pursue good
governance and rule of law, and promote economic freedom. For fiscal year 2004,
Congress appropriated $1 billion to the M C A . In 2005 the Bush administration is
requesting $2.5 billion as the program ramps up to the $5 billion target in 2006.
The poorest countries in the Western Hemisphere will be eligible to compete for
M C A funds this year. Within a few weeks, the Board of the Millennium Challenge
Corporation will determine which countries m a y apply to be beneficiaries of the
M C A funds for FY2004.
We are emphasizing initiatives aimed at increasing economic growth, promoting job
creation, and raising standards of living in Latin America. The most obvious is the
Bush Administration's ambitious trade agenda for the region. The U.S.-Chile Free
Trade Agreement has already been completed, and an agreement with five Central
American countries and the Dominican Republic has been negotiated (CAFTA).
W e have also announced our intent to negotiate an agreement with the Andean
countries, aimed at eventually including Colombia, Peru, Ecuador, and Bolivia, and
to launch negotiations with P a n a m a . A successful trade capacity-building exercise
will continue under C A F T A and be replicated in negotiations for the Andean FTA.
Our efforts also continue toward a Free Trade Area of the Americas that would
encompass all countries in the Hemisphere in an integrated market.
A growing focus is encouraging entrepreneurs and promoting access to credit for
small businesses. Small businesses are the engine of job creation in Latin America
and throughout the world. At the Summit of the Americas, the United States led the
effort to establish the goals of cutting the time and expense to start a n e w business
and tripling bank lending to small and medium enterprises, with the help of the IDB,
by 2007
Finally, the United States is working to facilitate access to a powerful and largely
untapped source of funds for economic development: remittances from workers in
the United States to their families back home. Annual remittance flows to the
region are more than five times the annual flow of official development assistance
/www.treas.eov/nress/re1eases/isl476.htm
5/27/2005
js-1476: John B. Taylor<br>Under Secretary of Treasury for International Affairs<br>Fitch Ratings' Lat... Page 5 of 5
from all sources and account for a substantial portion of G D P for m a n y countries in
the region. The United States is committed to working with the countries of the
region to achieve the Summit of the America's goal of halving the average cost of
remittance transfers in the region by 2008.
In sum, I am optimistic about the region's prospects. Perhaps cautiously optimistic
is the best w a y to put it. To be sure there are risks. Sustaining the positive trends
that I have discussed today will take political will and persuasion. Microeconomic
reforms of the kind mentioned earlier are central to increasing rates of growth that
have been historically disappointing. The United States stands ready to work with
the countries of the region on these continuing challenges.
Thank you and I am happy to take questions.
REPORTS
• Brazil and Argentina Graphs
://www.treas.gov/Dress/releases/isl476.htm
5/27/2005
Achievements in monetary policy in Brazil and Argentina merit particular attention. Both countries
experienced large currency depreciations in 2002. Yet sound monetary m a n a g e m e n t prevented
these depreciations from turning into inflationary spirals. W e saw a bulge in inflation in both
countries as the effects of the depreciation worked their w a y into consumer prices, followed by a
rapid and sustained reduction in inflation resulting from effective monetary restraint. These
prudent policies enabled Brazil's central bank to achieve inflation of 9.3 percent in 2003 w h e n
market inflation expectations at the beginning of that year exceeded 13 percent. And they
enabled Argentina to reduce inflation from 41 percent in 2002 to less than 4 percent in 2003.
S e e the charts for Brazil and Argentina reflecting the Consumer Price Inflation below:
Brazil: C o n s u m e r Price Inflation
Monthly Rate (LHS)
#N
^
<& - ^
&
Annual Rate (RHS)
<& <& <& <& jP jf
"In Brazil, improved confidence in fiscal policy and the downward trend in inflationary
expectations have enabled the central bank to aggressively cut interest rates over the last 10
months. Real interest rates are n o w less than 10 percent, helping to spur faster economic growth
and higher levels of investment. Brazil's consolidated interest expense has declined from 13.9
percent of G D P during the first two months of 2003 to 8.2 percent for the s a m e period this year."
Argentina: C o n s u m e r Price Inflation
percent
10
percent
Monthly Rate (LHS)
Annual Rate (RHS)
T50
T
--40
6 "
--30
4 --
-20
2 --
-- 10
ip
r
j,|r- l MT? M
liii
-2 -1-
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^
^
^
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" W e s a w a bulge in inflation in both countries as the effects of the depreciation worked their w a y
into consumer prices, followed by a rapid and sustained reduction in inflation resulting from
effective monetary restraint." These prudent policies enabled Argentina to reduce inflation from
41 percent in 2002 to less than 4 percent in 2003.
JS-1477: John B. Taylor<br>Under Secretary of Treasury for International Affairs<br>Brazilian-Americ... Page 1 of 4
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 27, 2004
JS-1477
John B. Taylor
Under Secretary of Treasury for International Affairs
Brazilian-American Chamber of C o m m e r c e - 2004 Brazil Summit
Waldorf Astoria Hotel
N e w York, N e w York
April 27, 2004
United States-Brazil Cooperation to Increase Economic Growth
It is a pleasure to be part of this important gathering this year. The timing for the
Summit could not be better from m y perspective. I returned late last week from
Brazil where along with Joaquim Levy and Marcos Lisboa of Minister Antonio
Palocci's team, w e convened the second meeting of the U.S.-Brazil Group for
Growth.
As many of you may know, the Group for Growth was announced by President
Bush and President Lula last June as a forum to discuss strategies for economic
growth and job creation in both countries. The Group for Growth is a "two-way,"
candid, substantive exchange. I reviewed strategies in the United States to
promote economic growth, including President Bush's marginal tax rate cuts and
his tort reform proposal. Joaquim Levy and Marcos Lisboa reviewed progress on
President Lula's efforts to raise growth in Brazil. The positive impact of a strong
and growing U.S. economy on the global economy, particularly the Western
Hemisphere, is evident. And there is no question that the tremendous potential of
the Brazilian economy, with its vast size and resources, can be an engine of growth
for Latin America and the world.
The Group's first meeting was held in Washington last August. That meeting
focused on productivity growth—how it is measured and what factors support
higher rates of productivity growth and rising living standards. At last week's
meeting, w e focused on the foundations for higher productivity growth. These
include sound fiscal and monetary policies, investment, and an environment where
small and medium businesses can flourish. Let m e start with a few words about the
macroeconomic policies that constitute the bedrock of the foundation of productivity
growth.
Macroeconomic Policies under the Lula Administration
Before assuming office, President Lula announced his commitment to a fiscal policy
that would honor Brazil's obligations and keep Brazil on a fiscally sustainable path.
This commitment to fiscal responsibility—including an increase of the primary
surplus to 4.25 percent of G D P for 2 0 0 3 — w a s m a d e at the height of market
uncertainty about the direction of economic policy under the new Administration.
During the first year in office, President Lula's government went on to beat that
2003 primary surplus target. President Lula also presided over passage of a
politically difficult but highly necessary reform of the public employee pension
system and the first stage of a tax reform. His government has moved to reduce
the indexation of government securities to the exchange rate, thereby limiting the
debt stock's sensitivity to the external environment. All of these efforts demonstrate
the government's firm resolve to bring down Brazil's debt to G D P ratio.
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Sound fiscal policy has been complemented by strong monetary policy. A low
inflation environment lowers uncertainty and reduces borrowing costs. L o w inflation
also protects the poorest segments of Brazilian society, w h o are most vulnerable to
inflation.
When President Lula was inaugurated in January 2003, inflation expectations for
the upcoming year were running in excess of 13 percent, following the 35 percent
real depreciation and 12.5 percent inflation in 2002. Thanks to careful monetary
m a n a g e m e n t by Brazil's central bank within the inflation-targeting framework, actual
inflation in 2003 w a s 9.3 percent and inflation expectations for 2004 have fallen to
about 6 percent (well within the target band of 5.5 percent ± 2.5 percent).
The result of these good fiscal and monetary policies has been a dramatic
improvement in financial markets. Brazil's sovereign risk spread has fallen from a
high of 2,400 basis points over U.S. Treasuries in the fall of 2002 to about 600
basis points today. After falling to 4.0 reais per U.S. dollar in the fall of 2002, the
real n o w stands at around 2.9 per dollar and has been stable for the past year.
The impact of greater stability on Brazil's fiscal position is already apparent:
consolidated interest expense has declined from 13.9 percent of G D P during the
first two months of 2003 to 8.2 percent for the s a m e period in 2004. It is expected
to decline further over the course of the year, improving the overall fiscal balance
and reducing Brazil's need for additional borrowing.
More importantly, improved confidence in fiscal policy and the downward trend in
inflationary expectations have enabled the central bank to cut interest rates over the
last 10 months. Real interest rates are n o w less than 10 percent. Indeed, the
positive impact of lower rates on investment and production is already being felt;
they were certainly a key factor driving growth in the fourth quarter of 2003 to an
annualized rate of 6.1 percent.
Another key contributor was strong export growth. Brazil's exports grew 21 percent
last year, and the monthly data so far this year have continued to beat
expectations.. A significant portion of export growth has been driven by n e w
markets, with China being a prominent destination. Importantly, key export sectors
have boosted investment in response to increased d e m a n d and have developed
n e w markets around the world.
In addition to driving economic growth, the expansion of Brazilian exports also
helps reduce the country's external vulnerability by building foreign exchange
earnings. Along with the Brazilian central bank's efforts to boost reserves, the
growth of exports helps to cushion Brazil from unexpected shocks in international
capital markets.
Perhaps the most striking aspect of the current macroeconomic environment is that
it has been fostered by the party that for so m a n y years w a s the opposition in
Brazilian politics. This represents an important turning point in Brazil: there is
broad consensus on the centrality of sound macroeconomic policies as a
prerequisite to sustainable, robust economic growth.
Microeconomic Reforms for Achieving Higher Economic Growth
Building on the bedrock of improved macroeconomic stability, Brazilians have
m o v e d microeconomic reform to the fore of the policy agenda for increasing
economic growth. The Group for Growth is proving to be an excellent venue for
advancing discussions about these issues. Let m e provide a few examples from
our recent meeting.
Reducing the Cost of Credit
Most Brazilian businesses must pay high interest rates to borrow locally.
Macroeconomic factors are an important part of the explanation for this
p h e n o m e n o n High levels of government borrowing in the past have meant that
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public debt—rather than loans to the private sector—have c o m e to represent a high
proportion of bank assets. High real interest rates and macroeconomic instability
have also discouraged private borrowing. This is w h y the Lula Administration's
emphasis on lowering public debt and reducing real interest rates is an essential
foundation for expanding bank credit to businesses for investment.
But macroeconomic policy alone is not sufficient. Intermediation spreads—the
difference between banks' cost of funds and their lending rates—are also extremely
high, due to microeconomic factors that impede financial intermediation. A s a
result, Brazil has a relatively low level of financial intermediation—domestic bank
credit to the private sector constitutes just 35 percent of G D P compared to 66
percent in Chile and even higher levels in the fast-growing economies of East Asia.
Reducing these spreads and expanding business lending is a major objective of
President Lula's economic team. The Administration's proposed bankruptcy reform
is designed to enhance creditor rights by facilitating the reorganization of bankrupt
entities. A s a result, a company can continue to operate, while servicing its
obligations to creditors. Additional reforms call for broader access to credit records
and seek the application of anti-trust laws to the financial sector. These measures
will boost transparency and increase access to information, critical components to a
more competitive and deeper financial sector. Emphasizing the legal security of
contracts and fostering the development of new financial products, in mortgage and
insurance markets for instance, will also contribute to the deepening of credit in
Brazil.
Expanding Credit to Small Businesses
The government is giving particular attention to the challenge of expanding access
to credit for small businesses. At last week's Group for Growth meeting, w e
discussed h o w the successful experiences of the European Bank for
Reconstruction and Development ( E B R D ) and transition economies in promoting
bank lending to small businesses can inform the Brazilian government's efforts in
this area. The EBRD's programs provide technical assistance and n e w techniques
to lending institutions in order to train staff on best practices in small business
lending. These techniques streamline lending procedures, lowering transaction
costs and replacing collateral-based and/or directed lending with proper credit
analysis. Loans under these programs are profitable, market-based, and they are
repaid at a rate of 99.7 percent. At the Summit of the Americas in Monterrey, the
United States led the effort to establish the goal of tripling lending to small and
medium businesses using these techniques.
Reducing Time to Start a Business
In addition to promoting access to credit, Brazil can help encourage entrepreneurs
by reducing the time and cost it takes to start a business. Currently, it takes 158
days to start a business in Brazil, in large part because of the need to gain
numerous approvals at every level of government—federal, state, and municipal.
The Lula government is n o w embarking on a program to streamline and simplify the
process of business registration, which ultimately will require a business to register
only once. The aim is to have federal, state and municipal governments all use the
s a m e registration form, saving the business and the government considerable time,
effort and money.
Increasing Investment
The clear message from Brazil's leadership is that higher levels of investment are
needed for Brazil to realize its growth potential. Evaluating Brazil's economic
performance over the long term, one sees a strong relationship between capital
accumulation and productivity growth. Capital accumulation declined in the
beginning of the 1980s, and although economic reforms in the early 1990s helped
increase investment rates and productivity growth, the level of investment as a
percentage of G D P remains low at 19 percent.
The government has outlined a series of measures to help increase investment.
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For instance, the government plans to exempt n e w investment accounts from
distortive financial transaction taxes to encourage domestic savings that can be
used to fund productive investment. It also plans to reduce the tax burden on
capital goods, thereby encouraging firms to invest and expand their productive
capacity.
The government also clearly places a priority on public infrastructure spending. It is
considering measures to increase public investment within a framework of reduced
spending in other areas. Recent trends support the view that priority be given to
productive infrastructure investment. At the s a m e time, fiscal accounting should
include all expenditures, current as well as capital, while not penalizing growthenhancing public investment
The government's role in establishing the right environment for investment is
central. Clear and predictable regulatory and legal environments will be absolutely
critical to attracting the private investment that Brazil will need in areas such as
energy and transportation.
Conclusion
I have focused on a few elements of the microeconomic reform agenda discussed
in last week's Group for Growth, but these are only part of the agenda. Additional
efforts are underway on labor, judicial, and tax reform—all of which are important to
establishing an environment that encourages investment and job creation.
This clearly is not a short-term project. It is one that will require considerable focus
and patience. Adherence to sound macroeconomic policy will continue to provide
the necessary foundation on which the success of these reforms rests. M y
discussions in the Group for Growth convince m e that President Lula and his
economic team are determined to achieve this success.
I would like to thank Minister Palocci for his support of the Group for Growth. It has
provided a great opportunity for our two governments to work together more
closely, share experiences, and craft policies for promoting higher economic growth
and more jobs in both of our countries. W e share a c o m m o n view of the foundation
for growth and poverty reduction: sound public finances and low inflation,
investment in people, and support for entrepreneurship. I look forward to our next
meeting of the Group later this year.
^'//Www.treas (Tnv/nrpcc/rplpaQPQ/isI 4 7 7 . h t m
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[S-1478: Treasury Secretary John W . S n o w Applauds The Unveiling of the n e w $50 Bill
Page 1 of 1
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 26, 2004
JS-1478
Treasury Secretary John W . S n o w Applauds The Unveiling of the new $50 Bill
Treasury Secretary John W . Snow applauds the unveiling of the new $50 bill in
Forth Worth, Texas, Monday, April 26, 2004. The redesigned $50 is the same size
and still features Ulysses S. Grant on the front and the U.S. Capitol on the back.
But the borders around both Grant and the Capitol have been removed.
(AP Photo/LM Otero)
All media queries should be directed to
The Press Office at (202) 622-2960.
Only call this number if you are a member of the media.
)j//www.treas.gov/press/releases/jsl478.htm
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S-1479: Zarate Discusses the Financial W a r on Terror During <br>Swiss Banking Panel<BR>Major Fi... Page 1 of 1
FROM THE OFFICE OF PUBLIC AFFAIRS
April 27, 2004
JS-1479
Zarate Discusses the Financial War on Terror During
Swiss Banking Panel
Major Financial Hubs, like Switzerland, are Fundamental
to Winning the Battle
NEW YORK - Juan C. Zarate, the Treasury Department's Deputy Assistant
Secretary for the Executive Office for Terrorist Financing and Financial Crimes,
spoke M o n d a y on a terror financing panel held by the American Swiss Foundation
in collaboration with the Swiss Bankers Association.
The panel, entitled Financial Privacy, Economic Freedom and the War on
Terrorism, brought together professionals from the banking, financial and business
sector, as well as diplomats and scholars, to discuss global efforts to halt terrorist
financing and specifically the role Switzerland plays in that charge.
"The real terrorist threats of the post-September 11th world require the international
community to tackle terrorist financing in an aggressive manner. The tightening of
the international financial net requires the proactive cooperation of not only
governments around the world, but also the private sector," said Zarate.
"Armed with critical resources like the USA PATRIOT Act, we are able to balance
the principles of financial privacy with our obligation to obtain, analyze and apply
financial information to attack the monetary inroads of terror, as well as better
understand h o w terrorist networks fund themselves.
"The unrelenting and active participation of the world's leading financial centers and
financial communities, like Switzerland, play a crucial role in countering terror
financing. Their cooperation is instrumental in freezing existing assets and
prohibiting future funding caches from being tunneled through the financial system
in support of nefarious acts.
"Switzerland is an instrumental partner in the financial war on terror and in the
protection of the international financial system. It is crucial that w e continue to work
together and strengthen our relationship to stave off terrorists that corrupt our
financial system in support of their deadly schemes," Zarate said.
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fS-1480: Deputy Assistant Secretary D a n Iannicola, Jr. Visits Historic Little R o c k Central High School t... Page 2 of 2
[2] Tami Luhby, "For Students, A New Math / High School Program Shows Youth
9 h nnT ISCal R e s p o n s i b i l i t y is M o r e T h a n A d d i n 9 and Subtracting," Newsday, May 18,
-30-
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s-1481: Testimony of<BR>Wayne A. Abernathy<BR>Assistant Secretary for Financial Institutions<BR... Page 1 of 6
••
PRLSS ROOM
FROM THE OFFICE OF PUBLIC AFFAIRS
April 28, 2004
js-1481
Testimony of
W a y n e A. Abernathy
Assistant Secretary for Financial Institutions
Department of the Treasury
Before the
Subcommittee on Capital Markets, Insurance and
Government Sponsored Enterprises
and the
Subcommittee on Oversight and Investigations
Committee on Financial Services
United States H o u s e of Representatives
Thank you, Chairman Baker and Chairwoman Kelly, Ranking Members Kanjorski
and Gutierrez, and m e m b e r s of the Capital Markets and Oversight subcommittees
for this opportunity to testify today on the implementation of the Terrorism Risk
Insurance Act (TRIA) of 2002.
The market for property and casualty terrorism risk insurance was significantly
affected by the terrorist attacks of September 11, 2001. In the aftermath of
September 11, reinsurers by and large refrained from offering cover for property
and casualty terrorism risk or offered reinsurance coverage at costs that were
generally considered prohibitive. This then caused property and casualty insurers
in general to respond by excluding terrorism coverage from commercial property
and casualty insurance policies, leaving m a n y American businesses exposed and
uninsured. Perhaps the most notably negative impact of this development w a s the
drag it created on businesses' ability to finance new job-creating economic activity
in the midst of our economic downturn caused in part by the events of September
11.
To address this condition, Congress enacted TRIA in the fall of 2002. TRIA
establishes a temporary Federal program of shared public and private
compensation for insured commercial property and casualty losses resulting from
acts of terrorism covered by the Act. TRIA in effect places the Federal government
in the property and casualty terrorism risk reinsurance business through December
31,2005.
By most indications TRIA has been successful in achieving the fundamental goal of
enhancing the availability and affordability of property and casualty terrorism risk
insurance, particularly for economic development purposes. N o longer are heard
the s a m e level of concerns from real estate developers, for example, that n e w
projects are on hold because financing has been frozen by a lack of terrorism risk
insurance. In terms of affordability, while the information is still somewhat
preliminary, accounts that w e have seen indicate that premiums for terrorism risk
insurance have decreased significantly throughout the early stages of TRIA and
continue to do so.
There have been widespread reports that the "take up" rates for TRIA coverage
have been low, or in other words, the demand for this coverage has been low. That
is despite the fact that the "make available" provisions of the Act require property
and casualty insurers to offer terrorism risk coverage to all of their customers,
meaning that coverage is available and business and property owners that desire
coverage for terrorism risk have been able to obtain such coverage. Whether this
fc^treas.gov/press/releases/is 1481 .htm
s-1481: Testimony o f < B R > W a y n e A. Abernathy<BR>Assistant Secretary for Financial Institutions<BR... Page 2 of 6
reflects a lack of interest in terrorism risk coverage at current prices even with the
Federal backstop (prior to September 11, terrorism risk coverage w a s often
provided at little or no additional cost to policyholders, while today in m a n y cases it
is being priced at a higher cost), a lack of awareness of the availability of coverage,
an assessment by businesses of low terrorism loss risk, or s o m e combination of the
above will require careful study and analysis.
Treasury's Implementation of TRIA
Treasury has the chief responsibility for implementing the Federal reinsurance
backstop that w a s established under TRIA. In broad terms, as Treasury has
undertaken the overall implementation of TRIA, w e have focused on five main
administrative goals:
First, to ensure that the program was operable and ready for use from the
m o m e n t that it w a s signed into law by President Bush;
Second, to implement TRIA in a transparent and effective manner that is fair
and easily understood by all parties;
Third, to rely as much as possible on the State insurance laws and regulatory
structure by closely coordinating with the National Association of Insurance
Commissioners (NAIC) in implementing the program;
Fourth, to allow insurers to participate in the program in a manner consistent
with their normal course of business by implementing TRIA's mandated
requirements in the most efficient way and as most like standard reinsurance
arrangements—consistent with the particular mandates of the law and its nature as
a Federal government program that must be answerable to taxpayers; and
Fifth, to ensure that in the event of insured losses, insurance benefits can be
provided in the most expedited manner so as to relieve suffering and deny terrorists
the achievement of their goals of economic disruption.
Perhaps the most daunting, immediate administrative task was to prioritize and
undertake the actions needed to m a k e the program operational right away. O n e of
the key factors in this regard w a s that TRIA became effective immediately on
November 26, 2002, w h e n the President signed the Act into law. The immediate
effective date of TRIA meant that terrorism exclusions on existing insurance policies
were removed and all policyholders had the ability to secure coverage for terrorism
risk. A s I have often reflected, implementing TRIA has been like building a house
by starting with the roof—the coverage c a m e first.
In addition to the immediate effective date, Treasury also had to address the wide
range of businesses, insurance companies, and types of policies that are affected
by TRIA. The types of policyholders that fall under TRIA range from small
businesses in rural America to large businesses that operate internationally.
Likewise, the range of insurance companies that serve these policyholders is just
as diverse, and m a n y have unique characteristics that do not fit neatly under TRIA.
To address the immediate effective date of TRIA and provide the necessary
guidance to the insurance industry to m a k e the program operational, Treasury's first
action w a s to issue promptly a series of three interim guidance notices. The first
interim guidance notices were issued on December 3, 2002, about one w e e k after
TRIA w a s signed into law. Other interim guidance notices were issued on
December 18, 2002, and January 22, 2003. Treasury relied on the process of
issuing interim guidance notices because it provided us with the ability to respond
quickly to implementation issues, and to prevent confusion prior to the issuance of
formal regulations. These interim guidance notices, which were publicly released on
Treasury's TRIA program website as well as published in the Federal Register,
addressed the following implementation matters:
First Interim Guidance Notice - December 3, 2002: How insurers could comply with
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the required disclosures to policyholders, h o w the "make available" requirement
could be met, and which lines of insurance are covered.
Second Interim Guidance Notice - December 18, 2002: Which entities must
participate in the program and what the applicable requirements are, h o w affiliates
would be treated, the scope of geographic coverage, h o w participating insurers
could estimate their deductible, and additional guidance on complying with
disclosure requirements.
Third Interim Guidance Notice January 22, 2003: The timing and method of
satisfying the required disclosures, further clarification on disclosure requirements,
and questions concerning non-U.S. insurer participation.
This interim guidance provided the basis for insurance companies to proceed with
offering coverage, the most immediate economic need. While there were m a n y
w h o participated in developing this guidance in such an expedited and effective
way, particular mention should be m a d e of Mario Ugoletti and Roy Woodall of the
Treasury staff, w h o provided singularly dedicated and professional service in this
effort.
Even while the interim guidance process went forward we began the next step in
the implementation process, namely to m o v e forward with formal rulemakings that
would incorporate and supercede our interim guidance. The first rules were issued
as interim final rules, as authorized in the statute, because of the immediate
operational needs. The first interim final rule w a s issued on February 28, 2003.
That rule took m a n y of the issues that were addressed in interim guidance notices
and transformed them into formal implementing regulations. Thus far, Treasury has
published two interim final rules, and two proposed rules, and three of these
rulemakings have been finalized. These can be summarized as follows:
First Interim Final Rule - February 28, 2003: This rule was effective immediately
and set forth the purpose and scope of the program, key definitions, and certain
other general provisions. W e received over 40 comments on this rule from
insurers, industry trade associations, the NAIC, and others. After review and
careful consideration of the comments, Treasury revised the interim final rule and
published it as a final regulation on July 11, 2003. A technical revision dealing with
the definition of direct earned premium w a s subsequently published on August 13,
2003.
Second Interim Final Rule - April 18, 2003: This rule was effective immediately and
addressed the requirements governing disclosures insurers must m a k e to
policyholders and the "make available" requirements. Treasury received 12
comments on this interim final rule and, after making appropriate revisions,
published it as a final regulation on October 17, 2003.
First Proposed Rule April 18, 2003: This proposed rule addressed issues
involving State residual market insurance entities and State workers compensation
funds. Treasury received 4 comments on this proposed rule and, after reviewing the
c o m m e n t s submitted, revised the proposed rule and published it as a final rule on
October 17, 2003.
Second Proposed Rule - December 1, 2003: This proposed rule set forth
procedures for filing claims for payment of the Federal share of compensation for
insured losses under the program. W e have been reviewing comments submitted
on the proposal, and w e anticipate issuing the final rule in the very near future.
I believe that it is important to stress that while we have been moving progressively
through the rule making process, the program from the beginning has been and
continues to be fully operational. These rules have been put forward as
refinements to and improvements on practices and operations, but from the earliest
days of the program, w e have had procedures and resources at the ready to
respond to any covered insurable event that might arise.
^//www.treas.gov/Dress/releases/i s 1481 .htm
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In addition to the regulatory actions outlined above, Treasury has also created and
staffed a Terrorism Risk Insurance Program (TRIP) office to administer the Act. W e
were very fortunate to bring on board as Director of the TRIP office, Jeffrey Bragg,
w h o brings deep experience from the property and casualty insurance markets as
well as experience as a former administrator of the Federal flood insurance, riot
insurance, and crime insurance programs. Director Bragg in almost no time has
assembled an outstanding team of insurance professionals, several of w h o m have
been willing at s o m e sacrifice to interrupt successful private careers to help
administer this important program.
Among their accomplishments, the TRIP office has developed systems to handle
claims processing, payment, and auditing of claims should a covered event occur.
In addition to the December 1, 2003, proposed rule on the claims process, the TRIP
office has also been hard at work providing detailed operating procedures for claims
filing, processing and payment that are separate from the regulation.
For example, these operating procedures include developing actual claims forms,
providing specific contacts for submitting forms and obtaining assistance, and
providing information on the required account information for the payments to the
insurers. In addition, the TRIP office has been consistently responding to requests
for interpretation of the Act and its regulations from insurers; m a n y of those
interpretations have been m a d e available to the general public on the TRIP website
(www.treas.gov/trip).
TRIA is an interesting hybrid program jurisdictional^; it provides a Federal
reinsurance backstop to insurance programs that are regulated almost exclusively
at the State level. This type of program would likely be unmanageable without the
cooperation of the State insurance regulators, both a m o n g themselves and with the
Federal government. Throughout the implementation process, Treasury consulted
and worked closely with the NAIC, and the NAIC's assistance has been invaluable
in implementing TRIA. The NAIC's input w a s especially important in assisting
Treasury with the interim guidance notices that w e issued soon after TRIA w a s
signed into law. W e look forward to continuing to work closely with the NAIC
regarding Treasury's remaining responsibilities under TRIA.
Comprehensive Market Information and Analysis Requirement
An important requirement of TRIA is to implement the Act with a careful eye on
market conditions and developments, and report to Congress. In particular,
Treasury is required to report to Congress by June 30, 2005, on specific issues
associated with the Act and its purposes. Specifically, Treasury is required to
assess—
The "effectiveness of the Program;"
The "likely capacity of the property and casualty insurance industry to offer
insurance for terrorism risk after termination of the Program;" and
The "availability and affordability of such insurance for various policyholders,
ncluding railroads, trucking, and public transit."
Together with this analysis, Treasury is also required under TRIA to compile
information on premium rates for property and casualty terrorism risk insurance.
To assist in the evaluation of the Act's effectiveness and to meet TRIA's premium
information collection requirement—and to ensure that w e do so with as
comprehensive a view of the markets as possible-Treasury has contracted with an
outside survey research firm to conduct a comprehensive survey with a nationally
representative sample of policyholders and insurers. In the process of developing
the survey instruments, Treasury's Office of Economic Policy has worked closely
with policyholder and insurer representatives. The Office of Economic Policy is also
in the process of developing a separate survey instrument for reinsurers.
Vwww.treas.gov/nress/releases/is 1481 .htm
5/27/2005
1: Testimony of<BR>Wayne A. Abernathy<BR>Assistant Secretary for Financial Institutions<BR... Page 5 of 6
Some of the information being collected through the surveys includes the cost of
terrorism risk insurance as compared to total insurance within eligible lines, basic
financial data, insurance deductibles and limits for terrorism as compared to nonterrorism insurance, use of reinsurance and self insurance, and the types of risk
management programs.
Each company that is chosen for the survey will be contacted at least twice and
possibly three times (depending on their policy renewal dates) to capture effects of
changes in TRIA's insurer deductibles in successive program years. The first
survey w a v e collected data from 2002 and 2003. Surveys for the first wave were
mailed out late in 2003 and early 2004 to over 30,000 policyholders and almost 500
insurers. A second survey wave to collect 2004 data is planned for early this fall,
and the last survey w a v e is planned for January and February of 2005. This
phased structure will allow us to m o v e beyond snapshots and anecdotal evidence
to obtain a broader and more dynamic view of the conditions in the market place.
W e believe that anything less would not provide to the Secretary the full and
reliable information basis needed to m a k e the sort of careful, trustworthy, and
responsible evaluation called for by Congress in the statute.
To safeguard the confidentiality of the business information requested in these
surveys, Treasury has taken great care to ensure that the data are assembled at
arm's length from the government. All identifying information will be removed,
transformed to ratios, or otherwise masked prior to analysis by Treasury officials.
Treasury has also tried to minimize respondent burden by merging publiclyavailable financial data and data filed with NAIC sources.
In addition to the formal surveys that Treasury is undertaking, Treasury also
continues to consult with the NAIC, and a broad range of experts representing the
insurance industry, policyholders, taxpayer groups, and with Members of Congress.
Indeed, Secretary S n o w has been insistent that w e draw upon as m a n y sources of
information and input as possible. The completed survey results, as well as these
consultations, will form the basis for Treasury completing its report to Congress on
the effectiveness of TRIA and the capacity of the property and casualty insurance
industry to offer insurance for terrorism risk after termination of the program, by the
June 30, 2005, deadline set by Congress in the 2002 legislation.
Determination on Extending the "Make Available" Requirement
The Secretary of the Treasury is required to determine by September 1, 2004,
whether to extend TRIA's "make available" provisions into the third year of the
program (i.e., through December 31, 2005). The "make available" provisions of
TRIA require that, from the date of enactment (November 26, 2002) through the last
day of the second year of the program (December 31, 2004), each insurer must
m a k e available, in all of its commercial property and casualty insurance policies,
coverage for insured losses under the Act. In this regard, TRIA also requires that
such insurance coverage must not differ materially from the terms, amounts and
other coverage limitations applicable to losses arising from events other than acts
of terrorism.
TRIA requires that Treasury's determination on whether to extend the "make
available" requirements through the third year of the program is to be based on the
s a m e factors described above regarding Treasury's overall study of the
effectiveness of TRIA.
Treasury is now developing a base of information from which the Secretary can
m a k e this required determination, consistent with the terms of the Act. Various
trade groups and other interested parties have contacted Treasury regarding the
"make available" decision. W e encourage any w h o have views on this question to
share those views with Treasury as soon as they can, with as much detail as they
can provide.
In making this determination, however, while examining similar issues as those
outlined for the larger examination due by June 2005, Treasury will be looking at
those issues with the specific, narrow focus of the "make available question, and
S^.treas.gov/press/releases/is 1481 .htm 5/27/2005
js-1481: Testimony o f < B R > W a y n e A. Abernathy<BR>Assistant Secretary for Financial Institutions<BR... Page
with the use of m u c h less information than will be available for the larger, broader
study. Therefore, each examination will be conducted independently of the other.
Conclusion
We must all remember that the basic of goal of TRIA was to develop a temporary
backstop for property and casualty terrorism risk insurance so that private markets
would have a chance to adjust. W e would encourage insurance companies, state
insurance regulators, other financial services providers, and other interested parties
to think creatively in this regard, and to consider what methods can be employed to
allow for broader private sector involvement in the market for managing property
and casualty terrorism risk. Treasury looks forward to completing our review of the
effectiveness of TRIA and considering the m a n y complicated issues presented to
us in a thorough manner with the best information that can be obtained. Our
obligations to the taxpayers, and the need for the long-term health and vitality of our
financial markets, require nothing less.
In summary, while we hope that we will never be called upon to trigger coverage
under TRIA, the program stands ready today—as it has from its earliest days—to
meet its responsibilities. The extensive work done by Treasury in developing the
basic framework of TRIA through interim guidance notices and regulations, the
proposed claims regulations, the drafting of claims forms and review with industry
organizations and the NAIC, and contingency procurement plans, all have
contributed to an effective program that the Treasury will continue to refine over the
life of the program. W e look forward to moving forward with the implementation
process and evaluating the effectiveness of the program in the weeks and months
ahead.
5/27/2005
ytreas.gov/press/releases/is 1481 .htm
JS-1483: Statement by Treasury Secretary John W . Snow<br>on U.S.-China Trade Relationship
Page 1 of 2
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 28, 2004
JS-1483
Statement by Treasury Secretary John W. Snow
on U.S.-China Trade Relationship
The Bush Administration maintains that the international trading system works best
with free trade, with the free flow of capital and with currency values set in open,
competitive markets. China now holds a significant place in the international
trading system. It is best for the global system, for the United States, and for China
itself, for China to m o v e to a flexible exchange rate regime. Importantly, China
acknowledges this and is making progress toward this goal. The Chinese are
actively taking steps to modernize their financial infrastructure with the goal of
achieving a flexible currency. For example, the Chinese have recently taken
measures to liberalize certain capital flows, they are recapitalizing their banks, and
they are working to develop a currency derivatives market.
The Bush Administration has been actively engaged in promoting these steps with
the Chinese. I have held extensive meetings and consultations with the Chinese
economic team both here in Washington and in Beijing. O n e outcome has been the
establishment of the Technical Cooperation Program between the U.S. and China.
This program is specifically created to cooperate on issues that will facilitate a move
to a market-based exchange rate regime in China. Furthermore, I have recently
appointed Ambassador Paul Speltz as m y direct emissary to Beijing to maintain
regular engagement on this issue. In accordance with prior plans, Ambassador
Speltz and Treasury Under Secretary John Taylor will travel to China early next
month to continue these discussions.
An important component of our efforts has also been to build international support
for our policy. W e have worked with the finance ministers in the Group of Seven
nations to promote a c o m m o n view that major economies like China should adopt
flexible exchange rates. This view is clearly articulated in the communiques that
have c o m e out of our recent meetings.
With steady progress clearly being made, the most effective way at this time to
achieve the goal of a flexible, market-based exchange rate in China is to maintain
the persistent engagement w e have established rather than through a trade
petition. Economic isolationism does not work and it's a path w e will not follow.
|://www.treas.ffov/nrpSs/rp.1pa«ps/isl483.htm
5/27/2005
JS-1484: Press Statement<BR>India-United States Economic and Financial Forum<BR>Third Sub-Cabi... Page 1 of 2
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 27, 2004
JS-1484
Press Statement
India-United States Economic and Financial Forum
Third Sub-Cabinet Level Meeting
April 27,2004
Washington D C
As part of the Enhanced U.S. - India Economic Dialogue, senior U.S. and Indian
policymakers discussed economic and financial development and global efforts to
combat terrorist financing. India's Finance Secretary D.C. Gupta led the Indian
delegation, which included officials from the Ministry of Finance, The Reserve Bank
of India, and the Securities Exchange Board of India. The U.S. was led by
Treasury's Assistant Secretary for International Affairs Randal Quarles; the U.S.
delegation included officials from the Treasury Department, the Federal Reserve
Board, the Office of the Comptroller of Currency and the Securities and Exchange
Commission, the Commodities Futures and the State Department.
The discussions focused on:
Macroeconomic policy: The two delegations discussed the importance of
appropriate tax policies and expenditure management for macroeconomic stability
and sustained economic growth. Emphasis was also placed on monetary policies
that maintain price stability, and inter-governmental fiscal relations that are
structured to give both central and state governments incentives to maintain fiscal
discipline. The two sides had fruitful discussion about appropriate exchange rate
policies.
Financial sector issues: Both sides agreed that a strong financial sector is
essential for sustained growth and macroeconomic stability. They discussed the
role of the public sector as a regulator and supervisor, and noted the growing
presence of private investment in the banking sector. They discussed ways to
deepen trade in financial services for mutual benefit. They underlined the
importance of transparency in financial regulation. They discussed the U.S.
experience in encouraging bank lending to underserved regions without weakening
asset quality. Both sides stressed the need to adequately provision for and
restructure non-performing loans.
Terrorist Financing Issues: The two sides pledged to continue close cooperation
in the fight against terrorist finance and to protect charitable non-profit organizations
from terrorist abuse. They noted that alternative remittance systems were
particularly vulnerable to abuse by terrorists and agreed to enhance information
exchange on such systems, their weaknesses, and ways to deal with such
transactions. To prevent abuse of the formal financial sector, both sides
acknowledged the importance of financial intelligence units (FIU) to monitor
suspicious financial activity and to record and share financial information in
accordance with international standards promoted by the Financial Action Task
Force (FATF) and the Egmont Group. Towards this end, the Indian government's
ongoing efforts to implement appropriate policies were applauded.
Next Steps: Both sides agreed that the discussions laid a solid foundation for
continued engagement. The delegations agreed to continue discussions on the
following areas:
^^.treas.gov/Dress/releases/isl484.htm
JS-1484: Press Statement<BR>India-United States Economic and Financial F o r u m < B R > T h i r d Sub-Cabi... Page
• Strengthening tax administration.
• Examining experiences in Asset Reconstruction Companies.
• Continuing cooperative information exchange, especially on financing of
terrorist groups and establishing Financial Intelligence Units.
• Sharing experiences on pension reform and promoting efficiency through
increased competition.
• Sharing experience on capital market and commodity market regulations
and on convergence issues.
• Strengthening the legal framework for investor protection, investigation and
enforcement procedures and codes for corporate governance.
• Considering the views of the U.S. and Indian private sectors.
tt
P://www.treas.gov/press/releases/isl484.htm
5/27/2005
js-1485: Treasury Secretary Snow Statement on House Passage to <br>Make Marriage Penalty Tax Reli... Page 1 of 1
!>x.z2c: Jaaez&jaOii caaaa.
PRLSS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 28, 2004
js-1485
Treasury Secretary Snow Statement on House Passage to
M a k e Marriage Penalty Tax Relief Permanent
Today the House of Representatives acted on a measure that is both sound fiscal
policy and solid c o m m o n sense. Their vote to prevent a tax increase on more than
28 million married couples is one on which the Senate should quickly follow suit.
Making the marriage penalty tax relief permanent will benefit married couples of all
income levels, especially those in the lower brackets. Our tax code should not
penalize marriage. Hard-working married couples should be able to keep, more of
their o w n money to help pay for their children's education, invest for retirement, and
spend as they see fit. This action brings us one step closer to fairness and
simplicity in our tax code.
-30H.R. 4181 permanently extends the increased standard deduction and the 15percent individual income tax bracket expansion for married taxpayers filing joint
returns.
5/27/2005
Jfcl^gov/press/releases/js 1485.htm
JS-1486: The Honorable John W . Snow<br>Prepared Remarks for the Export-Import Bank Annual Conf... Page 1 of 3
PRESS ROOM
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 29, 2004
JS-1486
The Honorable John W . S n o w
Prepared Remarks for the Export-Import Bank Annual Conference
Washington, D C
April 29, 2004
Thank you so much for having me here today.
I can't think of a better time for your meeting than now, as we are in the midst of a
global economic recovery, with the U.S. leading the way. Your work plays a critical
role in national as well as global economic growth.
As those of you in this room know well, the world is our marketplace and we should
always take advantage of that opportunity. Only 5 % of the global population lives in
the U.S. That means that 9 5 % of our potential market is outside the U.S. This is
important for all American businesses - large and small - to know and to remember
when they are making decisions about new markets for their products.
I want to let the exporters in this room know how much your work is appreciated,
because you create and sustain jobs - the most important part of our ongoing
recovery and strong economic growth. Exports support millions of American jobs.
The resilience and strength of our economy, particularly when given the proper
stimulus of tax relief and low interest rates, has been proven once again in recent
months.
Our economy is on very solid footing, our upward trend is strong, and there can be
no doubt that President Bush's leadership on tax cuts m a d e the decisive difference.
We are unique in the world in terms of our ability to rebound. Just one year ago,
there w a s a very different economic picture, and some forecasters were
pessimistic. State budgets were struggling to achieve balance and even those w h o
saw the economy in pretty good shape characterized the recovery as at best
wobbly, weak or anemic.
Today, more than half of the states are projecting budget surpluses for this fiscal
year. Our economy is running on all four cylinders, thanks in large part to the fact
that Americans are keeping more of their hard-earned money - after-tax incomes
are up 10 percent since December of 2000 and are substantially above levels
following the last recession.
As you know, exports are up, and that's good for jobs.
It's great to see that the manufacturing sector is coming back - another important
job creator. We've seen new orders for durable goods jump in recent months - 3.4
percent in March and 3.8 percent in February. A manufacturing activity index was
up in March - near the 20-year high reached in January - showing broad-based
strength.
The housing industry remains very strong, with homeownership at an all-time high,
yw.treas.gov/press/releases/isl486.htm
JS-1486: The Honorable John W . Snow<br>Prepared Remarks for the Export-Import Bank Annual Conf... Page 2 of 3
and this is something to be very proud of, as a nation. New home sales surged in
March, rising 8.9 percent to reach a new record high. Also worth noting, housing
starts were up in March, as well as building permits, which are a forward-looking
measure of housing activity.
Business spending has rebounded. Business and consumer confidence is up.
C o n s u m e r confidence increased 4.4 points in April. This m e a n s that American
households sense that the job market is strengthening.
And now I'd like to talk specifically about the job market. Because jobs are the most
important thing - any of us w h o have ever looked for work and couldn't find it for
any period of time know this well - and jobs are what follows all of these other
indicators that I've just mentioned.
The news on jobs is good. Our economy has created 759,000 jobs in the last seven
months... 308,000 in March alone. Layoffs are down, unemployment is down. At
5.7 percent, the unemployment rate remains lower than the average of the 1970s,
80s and 90s, and far below its peak of 6.3 percent in June of 2003. Over the past
year, the unemployment rate has fallen in 45 of the 50 states. Initial claims for
unemployment insurance have fallen substantially: down 2 0 % over the last year.
I anticipate that this economy will be creating a lot more jobs in the coming months.
I'm often asked to make a prediction about how many jobs will be created going
forward. I don't know exactly, of course, and I don't m a k e personal predictions or
estimates. But what I a m confident of, what I do know, is that jobs will follow
economic recovery, and jobs will follow economic growth. History tells us that and
history will repeat itself today.
So I am optimistic, but I carry a word of caution: if the President's tax cuts aren't
m a d e permanent, the U.S. economy, in our view, will lose its current m o m e n t u m .
The tax relief is the key stimulus for increased capital formation, entrepreneurship
and investment that causes sustained, long-term economic growth.
The continuation of that growth is important to our country, and it is important to the
world.
I was reminded of that fact during my conversation with the G7 Ministers and
Governors here in Washington over the weekend.
The unifying theme of our discussions was economic growth, and the strengthening
global recovery provided an upbeat backdrop.
There is good news beyond the United States. Japan has turned in several good
quarters, as has the United Kingdom. In continental Europe, there are s o m e
encouraging initial signs of an upturn, but growth still lags in too m a n y areas and
thus needs to be more broad-based.
My fellow G7 ministers and I agreed that this is the time to redouble our efforts to
strengthen and broaden growth for the future. W e reviewed the progress m a d e
under the G 7 Agenda for Growth, including, key steps on tax reform, and labor
markets flexibility.
But we also agreed that additional pro-growth reforms are essential to boost
employment and raise incomes. W e focused in particular on the importance of low
marginal tax rates in encouraging job creation and income growth.
Of course sound fiscal policies are also fundamental to sustained growth, and we
underscored the need for fiscal consolidation during times of expansion.
In the United States, we are operating with an unwelcome, but manageable and
understandable, short-term deficit which w e are taking action to reduce
l^/www.treas.eov/nress/releases/is 1486.htm 5/27/2005
JS-1486: The Honorable John W . Snow<br>Prepared Remarks for the Export-Import Bank Annual Conf... Page 3
dramatically. I reiterated to the G 7 ministers President Bush's commitment to deficit
reduction, which will cut the deficit in half over five years, restoring it to a level
below the 40-year average in terms of the size of our economy.
And now a word about our partnership.
Working with other nations to grow the global economy is a modern challenge with
great rewards. Y o u are part of this historic effort, and the Treasury Department is
pleased to have you as a partner.
Over the last quarter of a century, Treasury and Ex-lm Bank have worked together
successfully in the Organization for Economic Cooperation and Development
( O E C D ) to reduce foreign financing subsidies to level the playing field for U.S.
exporters. This work has been and remains a high priority at Treasury. It has kept
U.S. exporters competitive, while at the s a m e time saving U.S. taxpayers hundreds
of millions of dollars each year, a win-win outcome.
Today we have strong OECD agreements in place requiring market-based interest
rates, and exposure fees, and rules on tied aid. These agreements set rules for
official financing that averages around $50 billion a year.
Our next priority in the effort to reduce export subsidies and level the playing field is
to secure an agreement on the other major source of aid-financed subsidies disguised tied aid, officially referred to as 'untied aid."
I look forward to continuing to work with Ex-lm to achieve our shared priorities, and
to advance the agenda of national and global economic growth.
Thank you again for your contributions to the prosperity of the American people,
and to the people of the world.
And thank you for having me here today.
5/27/2005
!?P^WWW.treas.gov/nrpQQ/rp1pa^es/is 1 4 8 6 . h t m
ijS-1487: Statement of Secretary John S n o w on the 2004 First <br>Quarter Gross Domestic Product Rep... Page
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 29, 2004
JS-1487
Statement of Secretary John Snow on the 2004 First
Quarter Gross Domestic Product Report
Today's report on GDP growth illustrates the sustained strength of the economic
recovery. In the first quarter of this year the economy grew 4.2 percent, combining
with the last half of 2003 for the strongest three-quarter growth rate in almost 20
years. The President's tax relief measures have boosted economic growth and are
leading to job creation. In the past seven months, American employers have added
more than three-quarters of a million workers to their payrolls.
Today's numbers suggest that America's economy is poised for long-term growth.
The continued economic leadership of the President will keep the U.S. economy on
this upward path and provide for growing strength and job creation.
!Jp^^
5/27/2005
js4488: Nebraska Makes Federal Health Coverage Tax Credit Available
Pa
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lo fl
PRESS R O O M
FROM THE OFFICE OF PUBLIC AFFAIRS
April 29, 2004
js-1488
Nebraska Makes Federal Health Coverage Tax Credit Available
Today, Treasury Secretary John Snow applauded Governor Johanns for signing
legislation that m a k e s the state's Comprehensive Health Insurance Pool available
to those eligible for the Health Coverage Tax Credit Program (HCTC). The program
will help cover the cost of health insurance premiums for many Nebraska residents.
"I would like to thank the Republicans and Democrats in the legislature who voted
for this legislation and Governor Johanns for signing it," stated Treasury Secretary
John Snow. "I would also like to thank Insurance Commissioner Wagner, Labor
Commissioner Lecouna and other interested parties in Nebraska w h o have worked
so hard to m a k e the Health Coverage Tax Credit program available to over 450
workers and their families. I c o m m e n d them for their leadership in enacting
legislation that m a k e s the state's high risk pool available to those eligible for T A A
benefits. The H C T C program is a real innovation in tax policy, one that w e hope will
lead the w a y for other innovations that help real people obtain the health care
coverage that they need in a flexible and reliable way. W e want to ensure that those
w h o qualify for the credit get the help they need as quickly as possible."
The Trade Adjustment Assistance Act President Bush signed into law in 2002
included the n e w Health Coverage Tax Credit (HCTC). Recipients can receive the
H C T C either in advance, to help pay qualified health plan premiums as they c o m e
due, or in a lump s u m w h e n they file their federal tax returns. The H C T C advance
payments program began nationally in August 2003. This program provides an
advanced payment of 6 5 % of the premium cost for a qualified health plan for
individuals w h o are eligible to receive Trade Adjustment Assistance (TAA) benefits
or certain individuals w h o receive pension benefit payments from the Pension
Benefit Guaranty Corporation (PBGC).
In order to receive the credit, eligible individuals must enroll in qualified health
insurance, such as a C O B R A health plan or State Qualified Health Plan (SQHP).
Nebraska had previously designated its state continuation coverage for H C T C , but
the qualification of the high risk pool provides an opportunity for many more people
eliqible for H C T C in the state. Currently, thirty-three states and the District of
Columbia have S Q H P s that enable more than 197,000 of those potentially eligible
for the H C T C to purchase health coverage. Nationwide, there are nearly 250,000
individuals potentially eligible for the H C T C .
For more information on a particular state and the health insurance programs that
qualify, please visit the H C T C website at www.irs.gov and enter IRS Keyword:
HCTC.
30-
l
fc^.treas.gov/press/releases/i s 148 8 .htm
5/27/2005
$
PRESSROOM
F R O M T H E OFFICE O F PUBLIC AFFAIRS
April 29, 2004
2004-4-29-14-1-34-4206
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets
totaled $83,643 million as of the end of that week, compared to $83,345 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
TOTAL
April 9, 2004
Aoril 16,2004
83,345
83,643
1. Foreign Currency Reserves 1
Euro
Yen
TOTAL
Euro
Yen
TOTAL
a. Securities
9,315
14,776
24,091
9,236
14,606
23,842
0
0
Of which, issuer headquartered in the U.S.
b. Total deposits with:
b.i. Other central banks and BIS
12,191
2,969
15,160
12,118
2,935
15,053
bl Banks headquartered in the U.S.
0
0
b.ii. Of which, banks located abroad
0
0
bli. Banks headquartered outside the U.S.
0
0
b.iii Of which, banks located in the U.S.
0
0
21,463
21,245
12,586
12,458
11,045
11,045
0
0
2. IMF Reserve Position 2
3. Special Drawing Rights (SDRs)
4. Gold Stock3
5. Other Reserve Assets
II. Predetermined Short-Term Drains on Foreign Currency Assets
April 9. 2004
Euro
Yen
April 16, 2004
TOTAL
Euro
0
Yen
TOTAL
°
1. Foreign currency loans and securities
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
o
o
0
0
2.a. Short positions
2.5. Long positions
3. Other
U
III. Contingent Short-Term Net Drains on Foreign Currency Assets
April 9. 2004
Euro
1. Contingent liabilities in foreign currency
Yen
April 16, 2004
TOTAL
0
Euro
Yen
TOTAL
0
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
0
0
3. Undrawn, unconditional credit lines
0
0
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U. S.
3.c. With banks and other financial institutions
Headquartered outside the U.S.
4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
0
0
A.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
Notes:
1/Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
pRCSS R O O M
F R O M T H E OFFICE O F PUBLIC A F F A I R S
April 29, 2004
2Q04-4-29-14-4-46-4255
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assets data for the latest week. A s indicated in this table, U.S. reserve assets
totaled $82,944 million as of the end of that week, compared to $83,643 million as of the end of the prior week.
I. Official U.S. Reserve Assets (in US millions)
TOTAL
April 16,2004
April 23, 2004
83,643
82,944
1. Foreign Currency Reserves 1
Euro
Yen
TOTAL
Euro
Yen
TOTAL
a. Securities
9,236
14,606
23,842
9,070
14,380
23,450
0
0
Of which, issuer headquartered in the U.S.
b. Total deposits with:
bi Other central banks and BIS
12,118
2,935
15,053
11,898
2,889
14,787
b.ii. Banks headquartered in the U.S.
0
0
bi. Of which, banks located abroad
0
0
b.iii. Banks headquartered outside the U.S.
0
0
biiL Of which, banks located in the U.S.
0
0
21,245
21,219
12,458
12,443
11,045
11,045
0
0
2. IMF Reserve Position 2
3. Special Drawing Rights (SDRs)
4. Gold Stock3
5. Other Reserve Assets
II. Predetermined Short-Term Drains on Foreign Currency Assets
April 16,2004
Euro
Yen
April 23, 2004
TOTAL
0
Euro
Yen
TOTAL
0
1. Foreign currency loans and securities
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the U.S. dollar:
0
2.a. Short positions
0
2.b. Long positions
3. Other
0
°
III. Contingent Short-Term Net Drains on Foreign Currency Assets
April 16.2004
Euro
Yen
April 23, 2004
TOTAL
Euro
Yen
TOTAL
1. Contingent liabilities in foreign currency
La. Collateral guarantees on debt due within 1 year
Lb. Other contingent liabilities
2. Foreign currency securities with e m b e d d e d options
n
3. Undrawn, unconditional credit lines
n
3.a. With other central banks
3.b. With banks and other financial institutions
Headquartered in the U.S.
3.c. With banks and other financial institutions
Headquartered outside the U.S.
4. Aggregate short and long positions of options in
foreign
Currencies vis-a-vis the U.S. dollar
n
0
4.a. Short positions
4.a.L Bought puts
4.a.2. Written calls
4.b. Long positions
•4.b.1. Bought calls
4.b.2. Written puts
Notes:
1/Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values. Foreign Currency Reserves for the latest week m a y be subject to revision. Foreign Currency
Reserves for the prior week are final.
2/The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF and are
valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest week reflect any
necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month end.
Gold stock is valued monthly at $42.2222 per fine troy ounce.
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TREASURY LIBRARY,
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