[Congressional Record Volume 149, Number 172 (Sunday, November 23, 2003)]
[Extensions of Remarks]
[Pages E2440-E2441]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       INTRODUCING THE AUDITOR INDEPENDENCE AND TAX SHELTERS ACT

                                 ______
                                 

                           HON. RAHM EMANUEL

                              of illinois

                    in the house of representatives

                       Friday, November 21, 2003

  Mr. EMANUEL. Mr. Speaker, today, I am proud to introduce bipartisan 
legislation to stop the unethical, and in certain cases, criminal 
conduct by some of our Nation's most respected accounting firms that 
market abusive tax shelters under the guise of ``non-audit services'' 
to the public companies whose books they audit--in effect auditing 
their own work. The Auditor Independence and Tax Shelters Act, 
cosponsored by Representatives Mark Foley, Bart Stupak, Dave Camp, and

[[Page E2441]]

Tom Lantos, will eliminate this irreconcilable conflict of interest 
that fuels the engine of an ever-expanding tax shelter industry.
  Ongoing Senate hearings and the General Accounting Office 
investigations reveal that tax revenue lost from known shelters totaled 
$33 billion over the past decade, and that losses from undetected 
shelters could total another $52 billion. Last year, for example, an 
abusive tax shelter known as ``Slapshot'' was expected to produce tax 
breaks exceeding $120 million for Enron. It was based on a $1 billion 
loan and concealed by a highly intricate combination of loans and stock 
transactions occurring within minutes of each other that were designed 
to prevent tax regulators and authorities from discovering what really 
happened.
  As William McDonough, Chairman of the Public Company Accounting 
Oversight Board recently said, major accounting firms have suffered a 
``complete ethical collapse.'' Chairman McDonough added during recent 
testimony before Congress that the willingness to sell faulty tax 
shelters and hide them from the IRS is ``immensely and immorally 
repugnant.'' Moreover, David Clay Johnston of the New York Times and 
author of Perfectly Legal, reports that tax avoidance among 
corporations and upper-income individuals is far outrunning the audit 
capacity of the IRS. He estimates that a $113 billion gap exists 
between what corporations should be paying and what they actually pay. 
Clearly, the burden of this gap in tax receipts is being shouldered by 
middle-class families.
  In response to this costly and unethical practice, our legislation 
prohibits auditors from providing those tax shelter services for which 
a significant purpose is the avoidance or evasion of federal income tax 
to the publicly traded corporations they audit. The bill also prohibits 
auditors from offering tax shelter services to the corporation's 
officers and directors. Additionally, guiding principles under this 
bill will clarify how audit committees decide whether the corporation's 
auditor may provide certain non-audit services to the corporation. If 
the audit committee finds that a proposed service would reasonably 
result in an impairment of the auditor's independence by violating one 
of these principles, the audit committee would be unable to approve the 
proposed service.
  Under our legislation, auditors would still be able to market tax 
reduction strategies to other companies and individuals, but not to the 
companies that they are responsible for auditing. This is a common 
sense approach to protecting our investors and American middle-class 
families from the increasing cost and the expanding prevalence of tax 
shelters, which should be exposed for what they really are--unfair and 
unpatriotic corporate behavior, and which should be stopped once and 
for all.

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