Tax Shelter Transparency and Enforcement Act

Mr. President, I am pleased to join my colleague Senator Inhofe, and my other Senate colleagues in introducing the Brownfield Revitalization Act of 2003. Given the nature of this legislation-- establishing tax incentives to encourage cleanup of environmentally contaminated property across the country--it is appropriate that this be a joint introduction between the Chairman of the Senate Environment and Public Works Committee and the Ranking Member of the Senate Finance Committee. This legislation is bipartisan, but it is also bicameral. A companion bill was introduced earlier this week in the House of Representatives by Congresswoman Nancy Johnson and Congressman Xavier Becerra.

Across the United States, environmentally contaminated sites endanger public health, impede economic development, and negatively impact tax rolls. The United States has an estimated 1,000,000 such properties scattered across our inner cities and rural areas alike.

In my own State of Montana, there are well over 5,000 such sites. This may seem surprising for a state like Montana that is relatively undeveloped and pristine. But we are by no means unaffected by the scourge of environmental contamination. In addition to contamination caused by leaking underground storage tanks and contamination caused by other light industries, Montana also has been impacted by significant contamination left behind by some of the very industries that built our great state.

Contaminated sediments can be found along the Clark Fork River from Butte, MT, downstream for 140 miles to Missoula and on into Idaho--a legacy of the copper mining and smelting operations at Butte and Anaconda.

Tremolite asbestos contamination is prevalent at numerous sites around Libby, MT, including the local high school and middle school tracks--a legacy from the Zonlite Mine that began operating in the 1920s and produced 80 percent of the world's supply of vermiculite. These industries created wealth and jobs for generations of Montanans. Today, however, contamination from wood processing facilities, abandoned mines, and numerous other activities have harmed human health and the environment and continue to stifle the development of new business in Montana. These sites are well known to Montanans: Sites such as Missoula Sawmill site and the White Pine Sash site in Missoula, the Missouri River Corridor site in Great Falls, and sites in Helena, Bozeman, Billings and numerous other communities all across Montana. We can and must do more to help revitalize these important areas.

Congress has undertaken a number of initiatives to address the brownfield problem in this country. I am proud to have been able to play a leadership role in passing the Brownfields Revitalization and Reinvestment Act of 2001. That bill has helped provide new Federal funds for evaluation and remediation of brownfield sites and has helped to resolve some of the liability issues that were inhibiting remediation of these contaminated properties.

But, We must do more. The U.S. Chamber of Commerce has estimated that at the current rate of cleanup, it will take 10,000 years for us to remediate all of the contaminated sites in America. The United States Environmental Protection Agency, in an analysis conducted with George Washington University, concluded that the remediation ``costs for all of the brownfields located within the United States have been estimated to exceed $650 billion,'' and that, consequently, ``it is imperative that private capital be attracted to the redevelopment of brownfields.''

Late last year, Senator Grassley and I entered a colloquy in the Congressional Record expressing our concern that certain provisions in the tax code are having the unintended consequence of discouraging investment in the remediation and redevelopment of our nation's polluted sites. In that colloquy, we pledged to get our arms around this issue and to draft legislation to correct this problem. I am pleased that we are standing here today to introduce legislation to do just that.

Let me briefly describe the basis for this bill and the means by which this legislation will dramatically accelerate the remediation of contaminated lands in America.

Today, tax-exempt investors such as university endowments, private pension funds, and charitable foundations can invest their capital in the stock market and certain real estate transactions that do not clean the environment without fear of incurring an Unrelated Business Income Tax, or UBIT, on any gains they make from their investments.

Because UBIT-sensitive entities hold over $6 trillion dollars in financial assets and routinely deploy more capital in real estate projects than any other category of investor, the unintended consequence of UBIT has been to drive our nation's biggest and most active real estate investors away from projects focused on the remediation and redevelopment of polluted properties.

This bill seeks to address this problem by allowing eligible tax- exempt entities to invest in the cleanup and redevelopment of qualified contaminated properties without incurring unrelated business income tax at the time they sell the property.

The legislation accomplishes this goal by concentrating on three basic tasks: 1. focus investment on moderately and heavily polluted properties, 2. require taxpayers to work with the State authorities and the public to ensure adequate clean up, and 3. ensure that the legislation is tightly crafted to prevent abuse.

First, this bill focuses on moderately and heavily polluted properties.

Section 198 of the tax code contains a structure under which designated state environmental agencies certify contaminated property that is eligible for special rules concerning deductions of remediation costs. This bill uses this existing structure to identify and certify contaminated sites that are eligible for inclusion within this bill. Prior to requesting certification from a state agency, the taxpayer is required to provide the agency with site characterizations, assessments and other documentation illustrating the scope and character of the pollution problem at the target site.

The legislation maintains its focus on moderately and heavily contaminated properties by requiring taxpayers to expend on remediation of each site the greater of $550,000 or 12 percent of the fair market value of the site, assessed as though the site were not contaminated. These remediation thresholds have intentionally been set higher than he typical range of costs reported to the Environmental Protection Agency to clean up brownfield sites nationwide. By establishing such high remediation thresholds, the legislation excludes incidentally or trivially contaminated property and focuses new capital investment on those sites most in need of additional assistance.

Second, this bill requires taxpayers to work with affected states and the public to ensure adequate clean up.

In addition to requiring high levels of remediation expenditures on each site, the legislation contains numerous other safeguards designed to ensure that remediation of each site is performed to state specifications and with full public involvement.

Similar to the front-end certification that is required to classify properties as truly contaminated, the legislation requires the taxpayer to obtain a tail-end certification from the state agency indicating that the site has been cleaned up and is no longer considered a brownfield. Prior to applying for this certification, the taxpayer must provide the State agency with sufficient information and documentation to allow the state agency to make this determination. In particular, the taxpayer must certify and provide documentation that: there are no longer hazardous substances, pollutants or contaminants on the property that are complicating the redevelopment or reuse of the site, environmental remediation is complete or substantially complete in conformance with all applicable federal, state and local environmental laws and regulations, the property is suitable for more economically productive or environmentally beneficial uses than at the time of acquisition, if additional activities are required to complete remediation, sufficient financial assurances and institutional controls are in place to complete the remediation in as short a time as possible, and the public was notified and given the opportunity to comment on the remedial actions taken to clean up the property and, if necessary, on any longer-term remediation activities.

The provisions in this legislation are designed to create substantive thresholds that the tax-exempt entity must meet in order to qualify for the exemption from UBIT. This legislation does not alter the complex web of existing federal, state or local environmental laws, regulations or standards.

Third, this bill ensures that the legislation is tightly crafted to prevent abuse.

It is worth noting that this legislation has been drafted to contain numerous safeguards to prevent abuse of this program. The anti-abuse examples include the following. The taxpayer cannot be the party that has caused the pollution and cannot be otherwise related to the polluter. Also, all transactions, purchase of the property, sale of the property, expenditure of remediation funds, etc., must be arms-length transactions with parties unrelated to the taxpayer. Further, the taxpayer is not allowed to count any Federal funds, e.g. grants, etc., or other types of government payments and benefits toward and required remediation thresholds. There are also restrictions on how the taxpayer may treat costs across multiple properties, requiring that an election be made specifying when and which properties are considered for such purposes; this is intended to prevent cherry-picking among different properties once the election has been made. Moreover, the legislation contains special restrictions addressing the use of the legislation's provisions by partnerships and other pass-through entities including requiring that all partnerships under the bill be fractions-rule compliant.

Because this legislation is narrowly crafted, and because tax-exempt entities are not currently investing in these sites, and thus are not paying UBIT, the Joint Committee on Taxation has concluded that this legislation will actually generate revenue for the Federal treasury during the first three years after enactment and that it will cost $10 million over five years and $192 million over ten years.

Further, because the legislation will accelerate cleanup of brownfield sites, create jobs, stimulate the economy, reduce blight and public health concerns, and because the bill has an acceptable fiscal impact, this legislative approach has been endorsed by Environmental Defense, the U.S. Chamber of Commerce, the National Taxpayers Union, and the U.S. Conference of Mayors, as well as numerous local, state and regional organizations and municipalities.

Passage of this bill will dramatically increase the speed at which our country's contaminated properties are remediated and brought back into productive taxable use. This narrowly crafted legislation will create jobs, increase tax revenues, and protect the environment--all accomplished without creating new government programs or regulations and all at a minimal cost to the Federal treasury.

I am pleased to be introducing this legislation with my colleague from Oklahoma. I look forward to working together to enact this legislation into law.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I rise today to introduce the Tax Shelter Transparency and Enforcement Act. I am pleased to be joined by my good friend, the Chairman of the Senate Finance Committee, Chairman Grassley.

He and I introduced similar legislation in the last Congress. And, just this year, the Finance Committee approved this legislation as part of the CARE Act, the energy bill, the Jobs and Growth Act, and the Jumpstart Our Business Strength Act.

But why do we need this legislation? It has been more than 2 years since the collapse of Enron.

Since then, numerous other corporate scandals have come to light, thousands of employees have lost their jobs and pension savings, and the after-shock has yet to settle down in the stock market.

But there is one thing that has not happened. This Congress has failed to send to the President one single piece of tax legislation designed to shut down the kinds of abusive tax shelters we saw Enron use and that we know many others use.

Every day that we fail to address this scandal, honest taxpayers pay the bill.

A recent study commissioned by the IRS estimated that abusive corporate tax shelters alone cost honest taxpayers from $14 billion to $18 billion each year. That means up to $180 billion over ten years.

Simply put, this abuse of our tax laws has got to stop.

Abusive tax shelters are wide-spread--and not new.

As early as 1995, the Clinton Administration undertook a comprehensive, multi-faceted effort to tackle the problem of corporate tax shelters. This included legislative proposals to halt the

sale and marketing of shelters. Regulatory action to clamp down on illicit activity. And steps to better identify and pursue abusive transactions.

The current Administration has added to the list of identified tax shelters and supported legislative proposals to ensure greater disclosure.

This is not--and should not be--a partisan issue.

The proliferation of abusive tax shelters hurts the entire tax system. Specifically, it places a greater tax burden on those Americans who are honestly and patriotically paying their fair share of taxes-- whether they are republican, democrat, or independent.

These shelters undermine the confidence of the American people in the fairness of the tax system. Abusive tax shelters place honest corporate competitors at a disadvantage.

And shutting down these abuses presents a great opportunity for Congress to restore fairness in the system.

We should do no less.

Let me take a few moments to discuss the nature of these tax shelters. Why they are wrong. And how purportedly reputable companies and professional advisors are participating in a disturbing race to the bottom.

First, what are these tax shelters?

Let me give you just one example of a tax shelter.

On October 20th, the Finance Committee held a hearing on tax shelters. This hearing was a follow-up to a hearing earlier this year to review the Committee's investigative report on the collapse of Enron.

At our hearing last month, we heard how some American corporations are purportedly buying and then leasing bridges, dams, subway systems, and other infrastructure through corporate tax shelters.

It's like the old line: If you think these tax shelter transactions are legitimate--or what Congress intended--have I got a bridge to sell you.

A former leasing industry executive, who testified before the Finance Committee, described complex transactions where U.S. companies make a single payment to a municipality to lease a bridge or other public infrastructure. These companies then lease the infrastructure back to the city. All along, the company takes a deduction on its U.S. taxes for the depreciation of the high valued asset.

The companies never pay any real lease payments to the cities. And the cities never pay any lease payments to the companies. The cities never risk losing control of the bridge, dam, or subway system.

But the companies--who include major banks and Fortune 500 companies--take millions and millions of dollars in deductions for what is essentially a paper transaction. And the American taxpayer is left holding the bill.

The witness testified: ``[M]uch of the old and new infrastructure throughout Europe has been leased to, and leased back from, American corporations.''

In essence, in these transactions, the American people, through their tax dollars, are providing these companies a subsidy, part of which the companies pocket, and part of which they transfer to these cities.

As Yale law school Professor Michael Graetz once said, a tax shelter is a ``deal done by very smart people, that, absent tax considerations, would be very stupid.''

This is nothing more than an unwarranted tax subsidy to U.S. companies courtesy of honest taxpayers. It is simply wrong. It rewards a transaction with no real economic substance.

This has got to stop. And it is up to Congress and the President to put an end to this kind of abuse.

So how did this tax shelter industry develop?

If there is one thing that we should have learned from the Enron scandal, it is the pervasive role of lawyers and accountants.

Why did some of the country's leading professional firms devote so much effort to spinning reported earnings out of nothing? And what does that say about the erosion of ethical standards for accountants and lawyers?

In 1908, the American Bar Association adopted its first code of ethics.

The preamble to their Model Rules states that a lawyer serves his client, but is also ``an officer of the legal system and a public citizen having special responsibility for the quality of justice.''

It also states that a lawyer should ``further the public's understanding of and confidence in the rule of law and the justice system because legal institutions in a constitutional democracy depend on popular participation and support to maintain their authority.''

In 1946, the Executive Director of the American Institute of Accountants--the predecessor to the American Institute of Certified Public Accountants--stated that:

The very existence of the accounting profession depends on

public confidence in the determination of certified public

accountants to safeguard the public interest. This confidence

can be maintained only by evidence of both technical

competence and moral obligation. One item of evidence is

promulgation and enforcement of rules of professional

conduct.

So, why did the legal and accounting profession fail to follow their own principles. And, why did they fail to police themselves?

Part of the problem stems from the 1990s practices of investment bankers and venture capitalists--taking a piece of the deal or a piece of the upside performance. This behavior spread into almost every public company.

And, following their clients, accountants and lawyers also began adopting these practices. Add to this an enormous pressure on company executives to hit revenue and earnings targets on a quarterly basis.

Amidst this obsession with short-term results, no one was left to look after the company's long-term survival.

At the same time, lawyers and accountants faced their own profit pressures as their compensation was tied to their ``book of business'' and their success in cross-selling different services to their clients.

These cultural conflicts presented a threat to professional values.

For auditing firms, traditional professional values mean attesting to investors and lenders that the company's financial statements are properly prepared and reflect all material issues.

The business culture, however, encouraged the auditor to serve company executives--not only to refrain from pushing back, but also to affirmatively help them achieve their personal goals.

Furthermore, audit services themselves became more and more of a low- profit business, as audit firms battled each other to gain the inside audit position--which could help them market high-profit services. The big money was in selling tax-engineered products.

Finally, the private interests of the accounting professional and the corporate executive converged on one kind of activity that has proved particularly toxic--the proprietary financial maneuver that boosted reported earnings. That means, manipulate the bottom line of the financial statements.

Such maneuvers satisfied the executives' need to feed the markets and keep stock prices afloat.

They also satisfied the accountant's need for generating large profits for their firm and for their own bonus formula.

Similarly, for law firms, the traditional professional values are associated with loyalty to the client and advocacy of the client's interests within the bounds of the law.

Yet, loyalty to the corporate client and attention to corporate risks came to be sorely tested in many instances.

A company executive could well be more interested in getting a deal done--and getting the legal opinion needed to support the accounting analysis--than in gaining an accurate understanding of the legal merits of the issue and the associated risks to the company.

A law firm might even have its own stake in getting the deal done-- because of a bonus or contingency fee associated with completing the deal--or because of having assisted a promoter in developing the deal.

In many accounting and tax schemes, executives simply did not want a frank assessment of legal merits and risks.

Instead, what they sought was a professional opinion that would justify hiding the true nature of a transaction from readers of financial reports and tax returns.

This was not legal advice on the merits--it was advice that was needed to justify hiding the ball.

Clearly, some accounting firms and law firms have abandoned ethics for the big dollar bonus.

As an extreme example, there were many people in the Arthur Andersen

Houston office who knew about the destruction of Enron documents. Not one appears to have realized that what they were doing was terribly wrong. Apparently, not one of these professionals even thought to check with anyone elsewhere in the firm about whether or not what they were doing was wrong.

Professional firms also have been all too willing to let themselves be compartmentalized. This way, they could say ``That wasn't my job'' when things went wrong.

Consider the case of prominent law firms that provided tax opinions for investment banks and other promoters to use in selling tax shelter products.

These opinions described the consequences of complicated tax maneuvers--based on the assumption that the future tax shelter purchaser would have a valid business purpose. And on the assumption that the transaction would not be tweaked further to reduce financial risk to almost nothing.

It may have been true that these firms were asked to provide advice based on those implausible assumptions. But that does not justify allowing the firm's professional reputation to be used to market tax shelters. The lawyers simply must have known that no purchaser could realistically be expected to supply the critical assumed facts.

The Enron case of using tax shelters to generate phantom financial earnings also seems to reflect a cycle of ``That wasn't my job'' role- playing.

The tax lawyers found a business purpose for the transaction because it generated financial earnings.

The accountants found financial earnings because the transaction promised future tax reductions. It all seems a bit circular.

And it all assumes that creating misleading earnings reports is in the real business interest of the corporation. Again, the professionals appear to have lost track of who their real client was.

Now, what do we need to do about this?

Congress and Federal regulators started to address these issues with the Sarbanes-Oxley Act of 2002.

For example, Sarbanes-Oxley calls for lawyers practicing before the SEC to report evidence of securities violations ``up the chain'' of their corporate clients--ultimately to corporate boards.

And the Act calls for auditors to report directly to the corporate board's audit committee. And, provide a number of safeguards to assure that audit committees have the independence and autonomy needed to represent corporate interests and not personal interests.

The Sarbanes-Oxley Act also addresses auditor independence in ways that respond to the business pressures that I described earlier.

Audit partners cannot be compensated based on cross-selling. Audit personnel must be rotated periodically. And a one-year cooling off period is required in the case of individuals moving between employment at an audit firm and employment at an audit client.

Public companies are prohibited from obtaining certain non-audit services from their auditor, and all other non-audit services require prior approval of the board's audit committee.

But these changes just nibble at the edges of the bigger problem. We have to reign in these lawyers, accountants, and investment bankers who are out there manipulating the tax code to come up with tax shelter schemes.

The tax shelter legislation that Chairman Grassley and I introduce today goes to the heart of the tax schemes problem.

For example, the bill ensures that transactions are done for legitimate business purposes. That means that transactions must have economic substance and are not done merely to avoid taxes.

It makes it explicit that achieving a particular kind of financial accounting treatment does not provide the needed ``business purpose'' to satisfy tax requirements.

The bill also provides for stiff penalties that are needed to back up Treasury's new shelter disclosure requirements.

As a Treasury official pointed out, ``[I]f a promoter is comfortable with selling a transaction. If a practitioner is comfortable with advising that the transaction is proper. And if a taxpayer is comfortable with entering into that transaction. Then they should all be comfortable with the IRS knowing about the transaction.''

Our bill also broadens the IRS's ability to enjoin tax shelter promoters and allows the agency to impose monetary penalties--in addition to suspension or disbarment--on disreputable tax advisors or their firms.

And more may be needed, from both government and the private sector.

For one thing, we need to also pass Senator Levin's bill, S. 1767, the Auditor Independence and Tax Shelters Act. I am pleased to be an original co-sponsor of that legislation. The Auditor Independence and Tax Shelters Act compliments the legislation that I am introducing today.

Senator Levin's legislation shuts down tax shelter promotion from the audit and financial statement side of the equation. Specifically, S. 1767 would strengthen auditor independence by prohibiting them from providing tax shelter services to their audit clients.

The legislation would also reduce potential auditor conflicts of interest by codifying four auditor independence principles to guide the audit committees of the Board of Directors of a publicly traded company, when that committee is required by the Sarbanes-Oxley Act to decide whether the company may provide certain non-audit services to the corporation.

Next, the SEC and the new Public Accounting Oversight Board should devote significant resources to considering ways to improve the clarity of the tax footnote in the company's financial statements.

They should also undertake a comprehensive review of financial reporting of income taxation. These agencies should also ensure that they have tax experts to ensure proper oversight investigations and reviews of the financial statement tax disclosures.

The IRS should improve the clarity of the already-required reconciliation between book and tax earnings on the corporate tax return--the Schedule M-1.

And we need to have better communication and coordination between the various federal departments and agencies with oversight over lawyers, accountants and investment bankers. The Department of Treasury, the IRS, the Department of Justice, the SEC, and the Public Accounting Oversight Board should talk to each other and not fall into the ``it's not my job'' mindset.

The Sarbanes-Oxley Act also empowers the Public Company Accounting Oversight Board to describe new non-audit services that public companies could not acquire from their auditors, even if they are not explicitly described in the statute as a prohibited service.

The Accounting Oversight Board should review the record of SEC rulemaking in this area, as well as ongoing business practices, and take action if it is needed to assure the public interest in auditor independence.

Finally, professional firms need to cultivate professional cultures. The Enron scandal should serve as a wake-up call to all of us, but particularly the professionals.

Law firms and accounting firms must be sure that their members and employees understand the nature of corporate representation and who the client is.

Everyone who works at the firm needs to understand that the firm is committed to integrity and quality. And to understand that the firm's leaders will listen and react if legitimate questions arise.

Professionals should resist the tendency to avert their eyes to obvious issues on the grounds that they are technically someone else's responsibility.

In the best traditions of both the accounting and legal professions, the work of the professional must be guided by commitments to professional duty, fair dealing, and honesty.

I hope that the leaders of the accounting and legal professions understand how important this is, and take the actions needed to give new vitality to these great traditions.

Every Spring, Americans sit down at the kitchen table, or at their home computer, and figure out their taxes.

With quiet patriotism, these Americans step up and pay their fair share. They are counting on us to make sure

that sophisticated corporations pay their fair share as well.

I am simply unwilling to tell the school teacher in Montana that he needs to pony up a little more because Congress is unwilling to shut down a loophole that is costing tens of billions every year.

I look forward to continuing to work with the Chairman of the Finance Committee, Senator Grassley, to see the Tax Shelter Transparency and Enforcement Act through to enactment.

I also urge all of my congressional colleagues--in the House and the Senate--to join forces to send tax shelter legislation to the President for his signature.

We need to act to close these tax shelters and restore professional ethics. And we need to act before the next big scandal comes. Congress cannot ignore the problem any longer.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, today along with Senators Schumer, Lautenberg, and Reed, I am introducing the Act to Save America's Forests. This important legislation is designed to protect our national forests from needless clearcutting, safeguard our roadless areas, and preserve the last remaining stands of Ancient forests in this country.

There used to be over one billion acres of forest on the land that is now

the United States. Over 95 percent of that original forest has been logged, and less than one percent is in a form large enough to support all the native plants and animals. This land is under continuous threat, and if we don't act now to protect these Ancient forests we might lose many of them forever.

Our national forests also are under attack by clearcutting. Removing huge groups of trees at once creates a blighted landscape, destroys wildlife habitats, increases soil erosion, and degrades water quality. In the last ten years, over a quarter-million acres of our national forests were clearcut. Clearcutting destroys a vibrant, ecologically diverse natural forest, which is usually replaced, if at all, with a single species tree farm: tightly packed rows of the most profitable trees. This is forest management focused solely on economics, not ecology. And it is not the way to save America's forests.

This bill is a balanced, scientific approach to forest management. It bans all logging operations in roadless areas, Ancient forests, and forests that have extraordinary biological, scenic, or recreational values. These are our most fragile ecosystems and need to be protected. This bill also bans clearcutting in our national forests except in specific cases where complete removal of non-native invasive tree species is ecologically necessary.

However, this bill does not ban all logging in our national forests. It allows a method of logging called ``selection management,'' which cuts individual trees instead of the whole forest, leaving a healthy, diverse woodland. Selection management is less harmful to the soil, less destructive to wildlife, and less disturbing to people who enjoy the scenic beauty of our forests. Selection management can be sustainable and profitable, as demonstrated by a number of private forests around the country.

This legislation emphasizes biodiversity and sustainable management, allowing ecologically sound logging practices in some of our national forestland and fully protecting the rest. That's why over 600 scientists, including Dr. Jane Goodall and Dr. E.O. Wilson, and the Union of Concerned Scientists, support this bill. I am proud to introduce this legislation to protect and restore America's public forests, and I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I am introducing today a bill that will ensure that we properly budget for what we are now learning will be a long and costly war in Iraq. This legislation, which requires the President to submit a report every 90 days on the projected total costs of military operations and reconstruction efforts to Iraq is identifcal to an amendment I offered to the supplemental appropriations bill to October. That announcement was agreed to by unanimously consent. Unfortunately, it was removed in conference.

In recent days, the Administration has finally begun to acknowledge what Secretary of Defense Donald Rumsfeld wrote in an internal memorandum last month: that Iraq will be a ``long, hard slog.'' This past Thursday, November 20, President Bush told us that quote, ``We could have less troops in Iraq, we could have the same number of troops in Iraq, we could have more troops in Iraq, whatever is necessary to secure Iraq.'' The following day, the New York Times, citing a ``senior Army officer,'' reported that the Army was planning to keep about 100,000 troops in Iraq through early 2006.

For over a year, this Administration has downplayed the costs of the war in Iraq. Last September, after White House economic advisor Lawrence Lindsay put the figure at between $100 billion and $200 billion, OMB Director Mitch Daniels insisted that that estimate was, quote: ``very, very high.'' Mr. Lindsay, whose candor reportedly cost him his job, was the Administration official to provide anything close to a realistic estimate. In December, Director Daniels put the figure at $50 billion to $60 billion. A few weeks later, Secretary of Defense Donald Rumsfeld told us that the war would cost under $50 billion.

As the Administration planned for war, it stopped making any public estimates at all. As Deputy Defense Secretary Wolfowitz said in February, quote: ``I think it's necessary to preserve some ambiguity of exactly where the numbers are.'' Administration officials also insisted repeatedly that Iraq would pay for its own reconstruction. To quote Deputy Secretary Wolfowitz again: ``There's a lot of money there, and to assume that we're going to pay for it is just wrong.''

The Administration failed to include any military or reconstruction costs in its Fiscal Year 2004 budget estimate, and refused to submit to Congress a budget amendment. As a result, we passed a budget resolution that included enormous, fiscally irresponsible tax cuts but no money for a war that was already upon us. Even after President Bush had issued his ultimatum to Saddam Hussein, the Administration, along with my Republican colleagues, opposed a series of efforts to put aside between $80 billion and $100 billion for the war. Only the following week, after the budget resolution was passed, did we receive the first supplemental request, for nearly $75 billion, of which nearly $60 billion was for defense and nearly two and a half billion was for the reconstruction of Iraq.

Even with the war having begun, the Administration continued to downplay the expected costs of reconstruction. On March 27, Deputy Secretary Wolfowitz stated, quote: ``We're dealing with a country that can really finance its own reconstruction, and relatively soon.'' And, on April 10, Secretary Rumsfeld said, quote: ``I don't know that there's much reconstruction to do.''

These reassurances were contradicted flatly by outside experts. In March, a panel led by former Nixon and Ford Secretary of Defense James Schlesinger estimated that the cost of postwar reconstruction would be at least $20 billion a year. The panel, which included the first President Bush's ambassador to the United Nations, Thomas Pickering, former Chairman of the Joint Chiefs of Staff John Shalikashvili, and former Reagan U.N. ambassador Jeanne Kirkpatrick, concluded that President Bush had failed, quote: ``to fully describe to Congress and the American people the magnitude of the resources that will be required to meet the post-conflict needs'' of Iraq.

But the Administration continued to insist otherwise. In April, USAID Administrator Andrew Natsios was asked whether the Administration was sticking to its estimate of total costs. He responded, quote: ``That is our plan and that is our intention. And these figures, outlandish figures I've seen, I have to say, there a little bit of hoopla involved in this. Three months later, OMB Director Josh Bolton promised, quote: ``We don't anticipate requesting anything additional for the balance of the year.''

Then we got the bill: a second supplemental request for $87 billion, of which more than $20 billion was for the reconstruction of Iraq.

This war--which I opposed--has been far more costly to the American taxpayer than was necessary. The Administration's blind assumption that we would be greeted as liberators has resulted in unnecessary costs. The failure to prevent looting, for example, or to anticipate sabotage, has made reconstruction more expensive than the Administration promised.

The Bush Administration's unilateral approach to the war has also cost U.S. taxpayers. It is worth remembering that while the first Persian Gulf War cost more than $61 billion, our allies paid for all but $4.7 billion. Had President Bush managed to enlist more of our friends and allies in this effort, the American taxpayer would not be footing this enormous bill practically alone.

We are also paying for the vast majority of reconstruction costs, and may be paying more in the future. The World Bank has estimated Iraq's reconstruction costs to be $56 billion. Iraq also has $120 billion in debts that have not yet been restructured. Outside contributions have been relatively meager. The recent donors' conference in Madrid produced pledges of $13 billion, but two thirds of that amount was in the form of loans. As for Iraqi oil, next year's revenues will be used entirely for government operations, leaving nothing for reconstruction.

It is long past time for the Administration to be more forthcoming about the future costs of operations in Iraq. Right now, the only estimates come from outside sources, such as the Congressional Budget Office, which earlier this month estimated that with 67,000 to 106,000 military personnel in Iraq, the annual cost of the occupation would be between $14 billion and $19 billion. Given recent revelations about the Army's current planning, we might now expect those upper range costs, at least through 2006. And even these figures seem low considering that we are now spending in Iraq at the rate of $4 billion a month, which would translate into $48 billion per year.

We cannot continue to play guessing games with the war in Iraq, our national defense, or our children's future. The Congressional Budget Office has estimated the Fiscal Year 2004 ``on-budget deficit'' to be $644 billion. We have serious domestic needs in everything from health care, to education, to the environment. We are not adequately protecting ourselves against terrorism, denying our first responders

the resources they need and leaving critical infrastructure such as chemical facilities unguarded. We are underfunding veterans' benefits at a time when thousands of new veterans are returning home from Iraq wounded and disabled. And we are overstretching our troops and may have to consider a significant increase in end-strength. All of these priorities are put at risk so long as we fail to budget for future costs of the war and occupation in Iraq.

The Senate clearly recognized the seriousness of this problem when it agreed unanimously last month to this legislation. There is simply no reason why we should not expect the Administration to plan for the future costs of the occupation of Iraq, to budget accordingly, and to keep Congress and the American people informed.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I am introducing today a bill to establish an independent, bipartisan commission to examine intelligence issues related to Iraq. This commission is necessary because what we have discovered on the ground in Iraq has shown our intelligence to be wrong. It is necessary because Administration officials misused intelligence--that is, they made public statements and submitted reports to Congress that the Administration knew at the time to be unsupported by the available intelligence. And it is necessary because inaccurate and misused intelligence played a role in leading us to war.

Accurate, objective, and credible intelligence is a fundamental cornerstone of our national security, particularly in an age of shadowy terrorist networks and clandestine weapons programs. Unless we improve our intelligence, we risk failing to identify serious threats to the United States and being distracted by lesser dangers at the expense of larger and more urgent security concerns.

This effort must include not only the collection and analysis of intelligence, but the use, reporting, and dissemination of intelligence assessments. If the American people are asked to go to war to preempt an attack, or--as in the case of Iraq--to prevent a possible future threat from emerging, it is critical that the public statements of our officials be supported by the available intelligence. If members of Congress are to consider authorizing the use of force, particularly against countries that have not attacked the United States, they must be provided with honest and complete intelligence. And if our allies are to be asked to join us in confronting these threats, the intelligence that we share with them and that we rely on to bolster our case must be credible in the eyes of the world.

I first proposed an independent commission to examine intelligence related to Iraq last summer, when it became clear that President Bush had made an important but unsubstantiated claim in his January 2002 State of the Union address. That claim was, quote: ``The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa.''

Although this statement has been dismissed as the ``16 words,'' its significant cannot be overstated. The State of the Union address is the most important, the most scrutinized speech the President delivers. The statement concerned the most important topic a President can discuss-- whether to send Americans to war. And this claim was the most important element of the President's argument for war: that there was evidence that Saddam Hussein might have the necessary materials to produce a nuclear bomb. As for the reference to the British government, it is hard to imagine how the use of the word ``learned'' could imply anything other than that the United States independently believed that the claim was true.

It turns out that the Bush Administration had ample reason to know at the time that what the President was telling the nation could not be substantiated. The CIA had sought to dissuade the White House from making claims about uranium purchases. And on February 5, a week after the State of the Union address, Secretary of State Powell made a presentation to the Untied Nations in which he omitted the claim precisely because it was not supported by the available intelligence.

Despite this knowledge, the Administration never issued a clarification. As a result, the President's statement stood, as an important element of the Administration's case for war. Only last summer, after Americans learned from Ambassador Joe Wilson and others what Administration officials knew at the time, did the Administration acknowledge that the uranium allegation should never have been included in the State of the Union Address.

The case generated outrage across party lines. Republicans as well as Democrats expressed serious concern about the credibility of the Administration and the country. They stressed that cabinet members, the vice president, and the entire administration are responsible for honestly representing intelligence. They called for someone in the Administration to be held accountable. The Senate passed a resolution by voice vote. The chairman of the Senate Intelligence Committee promised to undertake a, quote ``very aggressive review.'' And the Bush Administration insisted that it would cooperate. As White House spokesman Ari Fleischer stated on June 11, quote: ``The Administration welcomes the review. It's important.''

In July, when I first sought to establish this commission, there was no dispute that the use of intelligence, as well as the collection and analysis of intelligence, should be examined. Republicans who voted against the commission did so, they said, because the commission would intrude on the jurisdiction of the Intelligence Committee. I was, and remain supportive of efforts by the committee to look into the use of intelligence related to Iraq, an inquiry that is clearly included within the committee's jurisdiction. But it was and is my belief that an independent, bipartisan commission, building on the findings of Congressional and other investigations, could undertake the most thorough, depoliticized review possible.

Now, however, it seems an independent commission is the only remaining means left to examine the use, or misuse, of intelligence. On November 13, the Chairman of the Intelligence Committee announced that there would be no examination of how intelligence was used by policymakers. I deeply regret this decision by the chairman and fervently hope the committee will ultimately exercise its role, established in the resolution laying out its jurisdiction, in overseeing the, quote: ``use or dissemination'' of intelligence. In the meantime, I would expect that an independent commission would receive strong bipartisan support.

It is now beyond question that our intelligence on Iraq was inaccurate. After months of searching, investigative teams have yet to find stockpiles of chemical or biological weapons. David Kay, who heads up the Iraqi Survey Group, has stated that Iraq's nuclear program was only at the, quote: ``very most rudimentary level.'' The Administration has yet to produce evidence of the high-level ties between Iraq and al Qaeda that it warned of prior to the war. And now, tragically, we must add to the list of intelligence failures the inability to anticipate the current resistance to U.S. occupation. Clearly, the facts and circumstances surrounding these failings warrant a detailed and systematic review.

But what of the use of intelligence? As important as the State of the Union address was, that speech was only part of a larger case made by the Administration for war. Administration officials made many claims--particularly those related to chemical and biological weapons-- that were expressed in terms that were more specific and more certain than the intelligence may have supported. Most troubling, however, were the highly dubious assessments and suggestions related to nuclear programs and terrorism with which the Administration built its most powerful and emotionally potent argument. That argument had three elements: 1. That Iraq had a nuclear weapons program, and possibly even a nuclear weapon; 2. that Saddam Hussein was allied with al Qaeda, and that he may have been involved with the terrorist attacks of September 11; and 3. that the threat was imminent.

The Administration began to make its argument in the summer of 2002. As vice President Cheney stated in an August 26 speech, quote: ``Simply stated, there is no doubt that Saddam Hussein now has weapons of mass destruction.'' In an indication of how Administration officials would make their case over the next seven months, the vice president insisted that the intelligence indicated no doubt, no internal disagreement, and no uncertainty.

Then, on September 12, President bush, in his speech to the United Nations, went further, stating, quote: ``right now, Iraq is expanding and improving facilities that were used for the production of biological weapons.'' the President also made two statements regarding Iraq's alleged nuclear program. The first was that Iraq had made, quote: ``several attempts to buy high-strength aluminum tubes used to enrich uranium for a nuclear weapon.'' He failed to mention that neither the Department of Energy nor the Department of State's Bureau of Intelligence and Research believed that the tubes were intended for that purpose. The President's second statement added the missing ingredient: the uranium itself. As the President stated, quote: ``Should Iraq acquire fissile material, it would be able to build a nuclear weapon within year.'' This was the context for the President's claim made in the State of the Union address that Iraq had sought to purchase uranium from Africa.

The Administration continued making its case throughout the fall of 2002, adding claims concerning ties between Saddam Hussein and al Qaeda. One of many examples was Secretary Rumsfeld's September 26 statement that the

Administration had, quote: ``very reliable reporting of senior level contacts going back a decade.''

As Congress deliberated whether to authorize the use of force against Iraq, the Administration officials made increasingly alarming statements about Iraq's ties to al Qaeda and about its nuclear weapons program. On October 7, three days before the vote in the House of Representatives and four days before the vote in the Senate, President Bush gave a speech in which he said, unequivocally, that, quote: ``We know that Iraq and al Qaeda have had high-level contacts that go back a decade,'' and, quote: ``The evidence indicates the Iraq is reconstituting its nuclear weapons program.'' He repeated the allegations about uranium tubes and the warning about purchases of uranium. Then the President put it all together--the implication that Iraq was connected to the September 11 attacks, the implication that Iraq could have a nuclear bomb at any time, and the warning that Saddam Hussein could decide on any day to explode a nuclear bomb in the United States. Here is what the President said: ``Why do we need to confront it [Saddam] now? And there's a reason. We've experienced the horror of September the 11th. We have seen that those who hate America are willing to crash airplanes into buildings full of innocent people. Our enemies would be no less willing, in fact, they would be eager, to use biological or chemical, or a nuclear weapon. Knowing these realities, America must not ignore the threat gathering against us. Facing clear evidence of peril, we cannot wait for the final proof--the smoking gun--that could come in the form of a mushroom cloud.''

This was the most powerful, dire, and convincing warning a President could give. And it was based on one inference that the President has acknowledged he never had any evidence of, that Saddam was tied to September 11, and another which had already been refuted by many within the Administration, that Iraq was reconstituting its nuclear program.

Later statements included Secretary of Defense Rumsfeld's claims to specific knowledge of the whereabouts and movements of biological and chemical weapons. On March 11, he stated, quote: ``We know he continues to hide biological and chemical weapons, moving them to different locations as often as every 12 to 24 hours, and placing them in residential neighborhoods.'' On March 30, he said, quote: ``We know where they are. They're in the area around Tikrit and Baghdad and east, west, south and north somewhat.''

The Administration also continued to insist that the threat was imminent--a claim that served to counter arguments that the United Nations should be given more time. On February 6, the day after Secretary of State Powell made his presentation to the UN, Secretary of Defense Rumsfeld made an appeal for immediate action. ``Why now?'' he asked. ``The answer is that every week that goes by, his weapons of mass destruction programs become more mature.'' That same day, Deputy Secretary Wolfowitz stated, quote: ``Connections with terrorists, which go back decades, and which started some 10 years ago with al Qaeda, are growing every day.''

Finally, on March 16, the day before President Bush's ultimatum to Saddam Hussein, Vice President Cheney went beyond claims that Iraq had the intent to produce nuclear weapons, and even beyond the claims that Iraq was seeking centrifuge equipment or uranium. Rather, the vice president stated flatly, quote: ``We believe he has, in fact, reconstituted nuclear weapons.'' This assertion, which the vice president has recently acknowledged was a misstatement, was not corrected. Instead, it was allowed to stand as nearly the final word on why we were going to war.

Questions surrounding the Administration's use of intelligence extend beyond public statements, to include reports to and testimony before Congress. One example of unsubstantiated reporting was the January 20 report to Congress, mandated by the use of force resolution, that cited Iraq's failure to declare its, quote: ``attempts to acquire uranium and the means to enrich it''--the same unsubstantiated claim made in the President's State of the Union address.

This commission would be authorized to examine other intelligence issues related to Iraq, as well. The Administration made claims related to weapons delivery systems, including President Bush's assertion on October 7 that, quote: ``Iraq has a growing fleet of manned and unmanned aerial vehicles that could be used to disperse chemical or biological weapons across broad areas,'' and that Iraq could use them for, quote: ``missions targeting the United States.'' There has never been evidence that Iraq had UAVs with ranges of thousands of miles.

Administration officials made claims related to the occupation, including Vice President Cheney's March 16 assertion that, quote: ``I really do believe that we will be greeted as liberators,'' and Deputy Defense Secretary Wolfowitz's November 17 analogy to, quote: ``post- liberation France.''

The Administration also downplayed the costs of the occupation. Despite White House economic advisor Lawrence Lindsey's estimate that the occupation would cost between $100 and $200 billion--an estimate for which he was apparently fired--Secretary of Defense Rumsfeld on January 19 put the figure at, quote: ``something under $50 billion,'' On February 27, Deputy Defense Secretary Wolfowitiz stated that, quote: ``there's a lot of money there, and to assume that we're going to pay for it is just wrong.'' And, on March 27, Deputy Secretary Wolfowitz stated, quote: ``We're dealing with a country that can really finance its own reconstruction, and relatively soon.''

The independent commission I propose would be authorized to examine the relationship between policy makers and the intelligence community. Were members of the intelligence community pressured to produce analyses that conformed to the Administration's policies? Did Administration officials seek to bypass the normal analysis process by cherry-picking bits of intelligence that suited their agenda, through the Office of Special Plans in the Department of Defense or through other special or ad hoc arrangements? Did the Administration base its analyses on foreign intelligence sources of dubious credibility? These questions must be answered, and corrective measures undertaken, if our intelligence community is to be as effective and objective as we need it to be.

Perhaps the most egregious undermining, indeed betrayal, of the intelligence community was the identification by senior Administration officials of a covert CIA operative. The operative is the spouse of a person who has been called a national hero by President George H.W. Bush but who questioned the current Administration's statements regarding Iraq. The leak of this operative's identity sent an implicit warning to others in the intelligence community who might disagree with the Administration's positions. It potentially endanged the life of the operative and those with whom the operative worked. And it rendered the operative's skills, experience and sources permanently useless, thus wasting precisely the kind of intelligence asset that the United States so desperately needs right now.

The purpose of this commission is to identify ways in which we can learn from past mistakes and thus improve our collection, analysis, reporting, use and dissemination of intelligence. The commission's members, who will come from both parties, will be prominent Americans with experience in intelligence, the armed forces and other relevant areas. Their work will build on relevant Congressional and other investigations.

The commission, through an objective, independent, highly professional examination process, will help depoliticize an extremely complicated and sensitive topic. By reviewing intelligence related to Iraq beginning in 1998, it will draw conclusions about the use of intelligence by a Democratic as well as Republican Administration. And by reporting its recommendations directly to the President and to Congress, it will serve as a valuable resource outside the context of open political debate. In this respect, I disagree with the Chairman of the Intelligence Committee who has stated that the full Congress and the public could ``decide for themselves whether the intelligence was accurately represented by government officials.''

This issue is far too serious to simply ignore. Over one hundred thousand brave Americans are currently serving

in Iraq, facing challenges that require accurate and objective intelligence. We have an obligation to pursue every opportunity to improve that intelligence. Meanwhile, the United States faces other threats--from despotic regimes with nuclear, chemical, or biological weapons, from terrorism, and from the horrible possibility that terrorists could acquire these weapons. Our ability to confront these threats requires that our intelligence be accurate and objective. And, as we seek to enlist our friends and allies in our efforts to address these common threats, we must ensure that our intelligence is credible.

Unless we identify and correct the mistakes of the past, we will not be safer.

I ask unanimous consent that the text of the legislation be printed in the Record.

Mr. President, I rise today to introduce the Tax Shelter Transparency and Enforcement Act. I am pleased to be joined by my good friend, the Chairman of the Senate Finance Committee, Chairman Grassley.

He and I introduced similar legislation in the last Congress. And, just this year, the Finance Committee approved this legislation as part of the CARE Act, the energy bill, the Jobs and Growth Act, and the Jumpstart Our Business Strength Act.

But why do we need this legislation? It has been more than 2 years since the collapse of Enron.

Since then, numerous other corporate scandals have come to light, thousands of employees have lost their jobs and pension savings, and the after-shock has yet to settle down in the stock market.

But there is one thing that has not happened. This Congress has failed to send to the President one single piece of tax legislation designed to shut down the kinds of abusive tax shelters we saw Enron use and that we know many others use.

Every day that we fail to address this scandal, honest taxpayers pay the bill.

A recent study commissioned by the IRS estimated that abusive corporate tax shelters alone cost honest taxpayers from $14 billion to $18 billion each year. That means up to $180 billion over ten years.

Simply put, this abuse of our tax laws has got to stop.

Abusive tax shelters are wide-spread--and not new.

As early as 1995, the Clinton Administration undertook a comprehensive, multi-faceted effort to tackle the problem of corporate tax shelters. This included legislative proposals to halt the

sale and marketing of shelters. Regulatory action to clamp down on illicit activity. And steps to better identify and pursue abusive transactions.

The current Administration has added to the list of identified tax shelters and supported legislative proposals to ensure greater disclosure.

This is not--and should not be--a partisan issue.

The proliferation of abusive tax shelters hurts the entire tax system. Specifically, it places a greater tax burden on those Americans who are honestly and patriotically paying their fair share of taxes-- whether they are republican, democrat, or independent.

These shelters undermine the confidence of the American people in the fairness of the tax system. Abusive tax shelters place honest corporate competitors at a disadvantage.

And shutting down these abuses presents a great opportunity for Congress to restore fairness in the system.

We should do no less.

Let me take a few moments to discuss the nature of these tax shelters. Why they are wrong. And how purportedly reputable companies and professional advisors are participating in a disturbing race to the bottom.

First, what are these tax shelters?

Let me give you just one example of a tax shelter.

On October 20th, the Finance Committee held a hearing on tax shelters. This hearing was a follow-up to a hearing earlier this year to review the Committee's investigative report on the collapse of Enron.

At our hearing last month, we heard how some American corporations are purportedly buying and then leasing bridges, dams, subway systems, and other infrastructure through corporate tax shelters.

It's like the old line: If you think these tax shelter transactions are legitimate--or what Congress intended--have I got a bridge to sell you.

A former leasing industry executive, who testified before the Finance Committee, described complex transactions where U.S. companies make a single payment to a municipality to lease a bridge or other public infrastructure. These companies then lease the infrastructure back to the city. All along, the company takes a deduction on its U.S. taxes for the depreciation of the high valued asset.

The companies never pay any real lease payments to the cities. And the cities never pay any lease payments to the companies. The cities never risk losing control of the bridge, dam, or subway system.

But the companies--who include major banks and Fortune 500 companies--take millions and millions of dollars in deductions for what is essentially a paper transaction. And the American taxpayer is left holding the bill.

The witness testified: ``[M]uch of the old and new infrastructure throughout Europe has been leased to, and leased back from, American corporations.''

In essence, in these transactions, the American people, through their tax dollars, are providing these companies a subsidy, part of which the companies pocket, and part of which they transfer to these cities.

As Yale law school Professor Michael Graetz once said, a tax shelter is a ``deal done by very smart people, that, absent tax considerations, would be very stupid.''

This is nothing more than an unwarranted tax subsidy to U.S. companies courtesy of honest taxpayers. It is simply wrong. It rewards a transaction with no real economic substance.

This has got to stop. And it is up to Congress and the President to put an end to this kind of abuse.

So how did this tax shelter industry develop?

If there is one thing that we should have learned from the Enron scandal, it is the pervasive role of lawyers and accountants.

Why did some of the country's leading professional firms devote so much effort to spinning reported earnings out of nothing? And what does that say about the erosion of ethical standards for accountants and lawyers?

In 1908, the American Bar Association adopted its first code of ethics.

The preamble to their Model Rules states that a lawyer serves his client, but is also ``an officer of the legal system and a public citizen having special responsibility for the quality of justice.''

It also states that a lawyer should ``further the public's understanding of and confidence in the rule of law and the justice system because legal institutions in a constitutional democracy depend on popular participation and support to maintain their authority.''

In 1946, the Executive Director of the American Institute of Accountants--the predecessor to the American Institute of Certified Public Accountants--stated that:

The very existence of the accounting profession depends on

public confidence in the determination of certified public

accountants to safeguard the public interest. This confidence

can be maintained only by evidence of both technical

competence and moral obligation. One item of evidence is

promulgation and enforcement of rules of professional

conduct.

So, why did the legal and accounting profession fail to follow their own principles. And, why did they fail to police themselves?

Part of the problem stems from the 1990s practices of investment bankers and venture capitalists--taking a piece of the deal or a piece of the upside performance. This behavior spread into almost every public company.

And, following their clients, accountants and lawyers also began adopting these practices. Add to this an enormous pressure on company executives to hit revenue and earnings targets on a quarterly basis.

Amidst this obsession with short-term results, no one was left to look after the company's long-term survival.

At the same time, lawyers and accountants faced their own profit pressures as their compensation was tied to their ``book of business'' and their success in cross-selling different services to their clients.

These cultural conflicts presented a threat to professional values.

For auditing firms, traditional professional values mean attesting to investors and lenders that the company's financial statements are properly prepared and reflect all material issues.

The business culture, however, encouraged the auditor to serve company executives--not only to refrain from pushing back, but also to affirmatively help them achieve their personal goals.

Furthermore, audit services themselves became more and more of a low- profit business, as audit firms battled each other to gain the inside audit position--which could help them market high-profit services. The big money was in selling tax-engineered products.

Finally, the private interests of the accounting professional and the corporate executive converged on one kind of activity that has proved particularly toxic--the proprietary financial maneuver that boosted reported earnings. That means, manipulate the bottom line of the financial statements.

Such maneuvers satisfied the executives' need to feed the markets and keep stock prices afloat.

They also satisfied the accountant's need for generating large profits for their firm and for their own bonus formula.

Similarly, for law firms, the traditional professional values are associated with loyalty to the client and advocacy of the client's interests within the bounds of the law.

Yet, loyalty to the corporate client and attention to corporate risks came to be sorely tested in many instances.

A company executive could well be more interested in getting a deal done--and getting the legal opinion needed to support the accounting analysis--than in gaining an accurate understanding of the legal merits of the issue and the associated risks to the company.

A law firm might even have its own stake in getting the deal done-- because of a bonus or contingency fee associated with completing the deal--or because of having assisted a promoter in developing the deal.

In many accounting and tax schemes, executives simply did not want a frank assessment of legal merits and risks.

Instead, what they sought was a professional opinion that would justify hiding the true nature of a transaction from readers of financial reports and tax returns.

This was not legal advice on the merits--it was advice that was needed to justify hiding the ball.

Clearly, some accounting firms and law firms have abandoned ethics for the big dollar bonus.

As an extreme example, there were many people in the Arthur Andersen

Houston office who knew about the destruction of Enron documents. Not one appears to have realized that what they were doing was terribly wrong. Apparently, not one of these professionals even thought to check with anyone elsewhere in the firm about whether or not what they were doing was wrong.

Professional firms also have been all too willing to let themselves be compartmentalized. This way, they could say ``That wasn't my job'' when things went wrong.

Consider the case of prominent law firms that provided tax opinions for investment banks and other promoters to use in selling tax shelter products.

These opinions described the consequences of complicated tax maneuvers--based on the assumption that the future tax shelter purchaser would have a valid business purpose. And on the assumption that the transaction would not be tweaked further to reduce financial risk to almost nothing.

It may have been true that these firms were asked to provide advice based on those implausible assumptions. But that does not justify allowing the firm's professional reputation to be used to market tax shelters. The lawyers simply must have known that no purchaser could realistically be expected to supply the critical assumed facts.

The Enron case of using tax shelters to generate phantom financial earnings also seems to reflect a cycle of ``That wasn't my job'' role- playing.

The tax lawyers found a business purpose for the transaction because it generated financial earnings.

The accountants found financial earnings because the transaction promised future tax reductions. It all seems a bit circular.

And it all assumes that creating misleading earnings reports is in the real business interest of the corporation. Again, the professionals appear to have lost track of who their real client was.

Now, what do we need to do about this?

Congress and Federal regulators started to address these issues with the Sarbanes-Oxley Act of 2002.

For example, Sarbanes-Oxley calls for lawyers practicing before the SEC to report evidence of securities violations ``up the chain'' of their corporate clients--ultimately to corporate boards.

And the Act calls for auditors to report directly to the corporate board's audit committee. And, provide a number of safeguards to assure that audit committees have the independence and autonomy needed to represent corporate interests and not personal interests.

The Sarbanes-Oxley Act also addresses auditor independence in ways that respond to the business pressures that I described earlier.

Audit partners cannot be compensated based on cross-selling. Audit personnel must be rotated periodically. And a one-year cooling off period is required in the case of individuals moving between employment at an audit firm and employment at an audit client.

Public companies are prohibited from obtaining certain non-audit services from their auditor, and all other non-audit services require prior approval of the board's audit committee.

But these changes just nibble at the edges of the bigger problem. We have to reign in these lawyers, accountants, and investment bankers who are out there manipulating the tax code to come up with tax shelter schemes.

The tax shelter legislation that Chairman Grassley and I introduce today goes to the heart of the tax schemes problem.

For example, the bill ensures that transactions are done for legitimate business purposes. That means that transactions must have economic substance and are not done merely to avoid taxes.

It makes it explicit that achieving a particular kind of financial accounting treatment does not provide the needed ``business purpose'' to satisfy tax requirements.

The bill also provides for stiff penalties that are needed to back up Treasury's new shelter disclosure requirements.

As a Treasury official pointed out, ``[I]f a promoter is comfortable with selling a transaction. If a practitioner is comfortable with advising that the transaction is proper. And if a taxpayer is comfortable with entering into that transaction. Then they should all be comfortable with the IRS knowing about the transaction.''

Our bill also broadens the IRS's ability to enjoin tax shelter promoters and allows the agency to impose monetary penalties--in addition to suspension or disbarment--on disreputable tax advisors or their firms.

And more may be needed, from both government and the private sector.

For one thing, we need to also pass Senator Levin's bill, S. 1767, the Auditor Independence and Tax Shelters Act. I am pleased to be an original co-sponsor of that legislation. The Auditor Independence and Tax Shelters Act compliments the legislation that I am introducing today.

Senator Levin's legislation shuts down tax shelter promotion from the audit and financial statement side of the equation. Specifically, S. 1767 would strengthen auditor independence by prohibiting them from providing tax shelter services to their audit clients.

The legislation would also reduce potential auditor conflicts of interest by codifying four auditor independence principles to guide the audit committees of the Board of Directors of a publicly traded company, when that committee is required by the Sarbanes-Oxley Act to decide whether the company may provide certain non-audit services to the corporation.

Next, the SEC and the new Public Accounting Oversight Board should devote significant resources to considering ways to improve the clarity of the tax footnote in the company's financial statements.

They should also undertake a comprehensive review of financial reporting of income taxation. These agencies should also ensure that they have tax experts to ensure proper oversight investigations and reviews of the financial statement tax disclosures.

The IRS should improve the clarity of the already-required reconciliation between book and tax earnings on the corporate tax return--the Schedule M-1.

And we need to have better communication and coordination between the various federal departments and agencies with oversight over lawyers, accountants and investment bankers. The Department of Treasury, the IRS, the Department of Justice, the SEC, and the Public Accounting Oversight Board should talk to each other and not fall into the ``it's not my job'' mindset.

The Sarbanes-Oxley Act also empowers the Public Company Accounting Oversight Board to describe new non-audit services that public companies could not acquire from their auditors, even if they are not explicitly described in the statute as a prohibited service.

The Accounting Oversight Board should review the record of SEC rulemaking in this area, as well as ongoing business practices, and take action if it is needed to assure the public interest in auditor independence.

Finally, professional firms need to cultivate professional cultures. The Enron scandal should serve as a wake-up call to all of us, but particularly the professionals.

Law firms and accounting firms must be sure that their members and employees understand the nature of corporate representation and who the client is.

Everyone who works at the firm needs to understand that the firm is committed to integrity and quality. And to understand that the firm's leaders will listen and react if legitimate questions arise.

Professionals should resist the tendency to avert their eyes to obvious issues on the grounds that they are technically someone else's responsibility.

In the best traditions of both the accounting and legal professions, the work of the professional must be guided by commitments to professional duty, fair dealing, and honesty.

I hope that the leaders of the accounting and legal professions understand how important this is, and take the actions needed to give new vitality to these great traditions.

Every Spring, Americans sit down at the kitchen table, or at their home computer, and figure out their taxes.

With quiet patriotism, these Americans step up and pay their fair share. They are counting on us to make sure

that sophisticated corporations pay their fair share as well.

I am simply unwilling to tell the school teacher in Montana that he needs to pony up a little more because Congress is unwilling to shut down a loophole that is costing tens of billions every year.

I look forward to continuing to work with the Chairman of the Finance Committee, Senator Grassley, to see the Tax Shelter Transparency and Enforcement Act through to enactment.

I also urge all of my congressional colleagues--in the House and the Senate--to join forces to send tax shelter legislation to the President for his signature.

We need to act to close these tax shelters and restore professional ethics. And we need to act before the next big scandal comes. Congress cannot ignore the problem any longer.

I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I rise today to co-sponsor legislation, the ``Tax Shelter Transparency and Enforcement Act"to address the continuing proliferation of tax shelters. This bill reflects tax shelter measures that have been passed by the Senate Finance Committee in the Jobs and Growth Tax Relief Act of 2003, the CARE Act, the JOBS Act, and the Energy bill. The full Senate has passed these shelters provisions twice this year.

We have known for many years that abusive tax shelters, which are structured to exploit unintended consequences of our complicated Federal income tax system, erode the federal tax base and the public's confidence in the tax system. Such transactions are patently unfair to the vast majority of taxpayers who do their best to comply with the letter and spirit of the tax law. The Finance Committee produced its first draft of tax shelter legislation in 1999, and has produced several subsequent bills, each of which were enhanced to attack new developments in abusive tax shelters. The most recent Finance Committee bill was the Tax Shelter Transparency Act in May 2002. Today's bill builds on that 2002 legislation by adding certain corporate governance provisions, the recommendations from the Finance Committee's tax shelter investigation of Enron, and a proposal to clarify the judicial economic substance doctrine.

The Finance Committee has worked exceedingly hard over many several years to develop a legislative response to tax shelters, and the bill we offer today may not be the final word in that response. Thoughtful and well-considered comments on the provisions in this bill have been greatly appreciated by the staff and members of the Finance Committee, and will be considered in further refining today's bill, particularly with respect to clarification of the economic substance doctrine.

In our ongoing efforts to end tax shelters, we have attacked the issue on several fronts. We have introduced numerous measures to end specific shelter abuses as they are discovered. We have offered legislation attacking corporate inversions, individual expatiations, and corporate deductions for phony leases of tax-payer funded subways, bridges, and water lines. I have pursued public disclosure of the differences in the income on financial statements reported by public companies to their shareholders, and the income the company reports to the IRS on its tax return. I have written to the President, Treasury and SEC to encourage them to consider this idea.

During the Senate's 2002 deliberation of the Sarbanes-Oxley bill, I attempted to add an amendment that would have prohibited auditors from opining on the financial statement results of tax shelters that they had sold to an audit client. I was blocked in my attempt to offer that amendment, with several members expressing skepticism about the need for such a measure. I suspect that today, however, few members would have such reservations.

On October 21st, 2003, the Senate Finance Committee conducted a hearing to determine if tax shelters were a continuing problem. Not only are they continuing, they are now expanding to mid-level companies and wealthy individuals, many of whom have been duped into engaging in shelter transactions. During our hearing, we heard testimony from taxpayers who relied on reputable tax professionals and accounting firms for sound tax advice, but unknowingly purchased tax shelters that were peddled by those trusted professionals through a web of collusion and deception. We also heard from employees of large accounting firms and major corporations who testified regarding the pressure exerted on them to bless transactions that, in their professional opinions, would constitute abusive tax shelters. The price for their integrity was the loss of their jobs and the ruin of their career. Tax shelter abuse must be stopped for the sake of fairness, the integrity of our tax system, and the protection of honest tax professionals.

Our years of work on this issue was recently reaffirmed in a hearing before the Permanent Subcommittee on Investigations, which explored abusive shelters that were promoted by purportedly reputable tax lawyers and accounting firms. Following that hearing, there has been considerable discussion of promoting an amendment similar to the one I offered in 2002 during the Sarbanes-Oxley debate, and I am appreciative of that effort. I hope we are able to construct a measure that can be readily enforced by the Public Accounting Oversight Board and the SEC, even though that agency lacks expertise in, or jurisdiction over, federal tax matters.

At its core, however, the problem is not an SEC matter, but is a problem of ongoing abuse of the tax code by very smart people doing some very ugly business. The only way to end this problem is to put it out in the open. Even the most cynical tax advisor does not want their dirty laundry in the public eye, particularly if that public includes the IRS. That is why disclosure of abusive or potentially abusive transactions is so important in solving this problem.

The Tax Shelter Transparency and Enforcement Act requires taxpayer disclosure of potentially abusive tax avoidance transactions. It is surprising and unfortunate that taxpayers, though required to disclose tax shelter transactions under present law, have refused to comply. The Tax Shelter Transparency and Enforcement Act will curb non-compliance by providing clearer and more objective rules for the reporting of potential tax shelters and by providing strong penalties for anyone who refuses to comply with the revised disclosure requirements.

The legislation has been carefully structured to reward those who are forthcoming with disclosure. I wholeheartedly agree with the remarks offered by a former Treasury Assistant Secretary for Tax Policy, that ``if a taxpayer is comfortable entering into a transaction, a promoter is comfortable selling it, and an advisor is comfortable blessing it, they all should be comfortable disclosing it to the IRS.'' Transparency is essential to an evaluation by the IRS and ultimately by the Congress of the United States as to whether the tax benefits generated by complex business transactions are appropriate interpretations of existing tax law.

It is time to get this bill done. The Finance Committee has worked on rooting out tax shelters for nearly five years, and we have debated the issue long enough. The time to act is now. I will vigorously pursue enactment of an anti-tax shelters bill in the upcoming year. I think we can all take pride in the Senate's consistent action of passing the measures in today's bill. We must press forward to put a final end to the seemingly endless abuse of tax shelters.

Mr. President, I rise today to co-sponsor legislation, the ``Tax Shelter Transparency and Enforcement Act"to address the continuing proliferation of tax shelters. This bill reflects tax shelter measures that have been passed by the Senate Finance Committee in the Jobs and Growth Tax Relief Act of 2003, the CARE Act, the JOBS Act, and the Energy bill. The full Senate has passed these shelters provisions twice this year.

We have known for many years that abusive tax shelters, which are structured to exploit unintended consequences of our complicated Federal income tax system, erode the federal tax base and the public's confidence in the tax system. Such transactions are patently unfair to the vast majority of taxpayers who do their best to comply with the letter and spirit of the tax law. The Finance Committee produced its first draft of tax shelter legislation in 1999, and has produced several subsequent bills, each of which were enhanced to attack new developments in abusive tax shelters. The most recent Finance Committee bill was the Tax Shelter Transparency Act in May 2002. Today's bill builds on that 2002 legislation by adding certain corporate governance provisions, the recommendations from the Finance Committee's tax shelter investigation of Enron, and a proposal to clarify the judicial economic substance doctrine.

The Finance Committee has worked exceedingly hard over many several years to develop a legislative response to tax shelters, and the bill we offer today may not be the final word in that response. Thoughtful and well-considered comments on the provisions in this bill have been greatly appreciated by the staff and members of the Finance Committee, and will be considered in further refining today's bill, particularly with respect to clarification of the economic substance doctrine.

In our ongoing efforts to end tax shelters, we have attacked the issue on several fronts. We have introduced numerous measures to end specific shelter abuses as they are discovered. We have offered legislation attacking corporate inversions, individual expatiations, and corporate deductions for phony leases of tax-payer funded subways, bridges, and water lines. I have pursued public disclosure of the differences in the income on financial statements reported by public companies to their shareholders, and the income the company reports to the IRS on its tax return. I have written to the President, Treasury and SEC to encourage them to consider this idea.

During the Senate's 2002 deliberation of the Sarbanes-Oxley bill, I attempted to add an amendment that would have prohibited auditors from opining on the financial statement results of tax shelters that they had sold to an audit client. I was blocked in my attempt to offer that amendment, with several members expressing skepticism about the need for such a measure. I suspect that today, however, few members would have such reservations.

On October 21st, 2003, the Senate Finance Committee conducted a hearing to determine if tax shelters were a continuing problem. Not only are they continuing, they are now expanding to mid-level companies and wealthy individuals, many of whom have been duped into engaging in shelter transactions. During our hearing, we heard testimony from taxpayers who relied on reputable tax professionals and accounting firms for sound tax advice, but unknowingly purchased tax shelters that were peddled by those trusted professionals through a web of collusion and deception. We also heard from employees of large accounting firms and major corporations who testified regarding the pressure exerted on them to bless transactions that, in their professional opinions, would constitute abusive tax shelters. The price for their integrity was the loss of their jobs and the ruin of their career. Tax shelter abuse must be stopped for the sake of fairness, the integrity of our tax system, and the protection of honest tax professionals.

Our years of work on this issue was recently reaffirmed in a hearing before the Permanent Subcommittee on Investigations, which explored abusive shelters that were promoted by purportedly reputable tax lawyers and accounting firms. Following that hearing, there has been considerable discussion of promoting an amendment similar to the one I offered in 2002 during the Sarbanes-Oxley debate, and I am appreciative of that effort. I hope we are able to construct a measure that can be readily enforced by the Public Accounting Oversight Board and the SEC, even though that agency lacks expertise in, or jurisdiction over, federal tax matters.

At its core, however, the problem is not an SEC matter, but is a problem of ongoing abuse of the tax code by very smart people doing some very ugly business. The only way to end this problem is to put it out in the open. Even the most cynical tax advisor does not want their dirty laundry in the public eye, particularly if that public includes the IRS. That is why disclosure of abusive or potentially abusive transactions is so important in solving this problem.

The Tax Shelter Transparency and Enforcement Act requires taxpayer disclosure of potentially abusive tax avoidance transactions. It is surprising and unfortunate that taxpayers, though required to disclose tax shelter transactions under present law, have refused to comply. The Tax Shelter Transparency and Enforcement Act will curb non-compliance by providing clearer and more objective rules for the reporting of potential tax shelters and by providing strong penalties for anyone who refuses to comply with the revised disclosure requirements.

The legislation has been carefully structured to reward those who are forthcoming with disclosure. I wholeheartedly agree with the remarks offered by a former Treasury Assistant Secretary for Tax Policy, that ``if a taxpayer is comfortable entering into a transaction, a promoter is comfortable selling it, and an advisor is comfortable blessing it, they all should be comfortable disclosing it to the IRS.'' Transparency is essential to an evaluation by the IRS and ultimately by the Congress of the United States as to whether the tax benefits generated by complex business transactions are appropriate interpretations of existing tax law.

It is time to get this bill done. The Finance Committee has worked on rooting out tax shelters for nearly five years, and we have debated the issue long enough. The time to act is now. I will vigorously pursue enactment of an anti-tax shelters bill in the upcoming year. I think we can all take pride in the Senate's consistent action of passing the measures in today's bill. We must press forward to put a final end to the seemingly endless abuse of tax shelters.