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TO AMEND TITLE 4 OF THE UNITED STATES

CODE TO CLARIFY THE TREATMENT OF SELFEMPLOYMENT FOR PURPOSES OF THE LIMITATION ON STATE TAXATION OF RETIREMENT

INCOME

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

ON

H.R. 4019

DECEMBER 13, 2005

Serial No. 109–72

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://judiciary.house.gov 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

CHRIS VAN HOLLEN, Maryland 

DEBBIE WASSERMAN SCHULTZ, Florida

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

CHRIS CANNON, Utah Chairman

HOWARD COBLE, North Carolina 

TRENT FRANKS, Arizona 

STEVE CHABOT, Ohio 

MARK GREEN, Wisconsin 

RANDY J. FORBES, Virginia 

LOUIE GOHMERT, Texas 

MELVIN L. WATT, North Carolina 

WILLIAM D. DELAHUNT, Massachusetts 

CHRIS VAN HOLLEN, Maryland 

JERROLD NADLER, New York 

DEBBIE WASSERMAN SCHULTZ, Florida

RAYMOND V. SMIETANKA, Chief Counsel 

SUSAN A. JENSEN, Counsel 

MIKE LENN, Full Committee Counsel 

BRENDA HANKINS, Counsel 

STEPHANIE MOORE, Minority Counsel 

(III)

C O N T E N T S 

DECEMBER 13, 2005

OPENING STATEMENT 

Page 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Chairman, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 1

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Commercial 

and Administrative Law ...................................................................................... 2

WITNESSES 

The Honorable George W. Gekas, former United States Representative, 

former Chairman of the Subcommittee on Commercial and Administrative 

Law, Committee on the Judiciary 

Oral Testimony ..................................................................................................... 3

Prepared Statement ............................................................................................. 4

Mr. Lawrence F. Portnoy, LLP, retired partner, PricewaterhouseCoopers 

Oral Testimony ..................................................................................................... 6

Prepared Statement ............................................................................................. 8

Mr. Harley T. Duncan, Executive Director, Federation of Tax Administrators 

Oral Testimony ..................................................................................................... 12

Prepared Statement ............................................................................................. 14

Mr. Stanley R. Arnold, CPA, former Commissioner of New Hampshire’s Department of Revenue Administration and former President of the Federation of Tax Administrators 

Oral Testimony ..................................................................................................... 18

Prepared Statement ............................................................................................. 19

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Biography of the Honorable George W. Gekas, former United States Representative, former Chairman of the Subcommittee on Commercial and 

Administrative Law, Committee on the Judiciary ............................................ 25

Biography of Lawrence F. Portnoy, LLP, retired partner, 

PricewaterhouseCoopers ...................................................................................... 26

Biography of Harley T. Duncan, Executive Director, Federation of Tax Administrators ................................................................................................................. 27

Biography of Stanley R. Arnold, CPA, former Commissioner of New Hampshire’s Department of Revenue Administration and former President of 

the Federation of Tax Administrators ................................................................ 29

(1)

TO AMEND TITLE 4 OF THE UNITED STATES 

CODE TO CLARIFY THE TREATMENT OF 

SELF-EMPLOYMENT FOR PURPOSES OF THE 

LIMITATION ON STATE TAXATION OF RETIREMENT INCOME 

TUESDAY, DECEMBER 13, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 4:04 p.m., in Room 

2141, Rayburn House Office Building, the Honorable Chris Cannon 

[Chairman of the Subcommittee] presiding. 

Mr. CANNON. This hearing of the Subcommittee on Commercial 

and Administrative Law will now come to order. 

Today we will consider H.R. 4019, a bill I introduced earlier this 

year to clarify the treatment of self-employment in regard to the 

taxation of retirement income and, to ensure fairness across the 

board for all retirees. This bill is intended to place all retirees on 

equal footing regarding the taxation of their retirement benefits, 

whether they worked for a company as an employee, were self-employed or were a partner prior to retirement. 

In the 104th Congress this Subcommittee passed the Senate Taxation of Pension Income Act of 1995, which subsequently became 

Public Law 104–95. The purpose of this act was to prohibit the 

State taxation of certain retirement income of nonresidents. The 

act did not allow all retirement income to be removed from taxation 

by a State where the retirees were no longer residents. It specifically set certain standards under which a retiree’s income could not 

be taxed by State where that person was no longer living. 

No matter how clear and precise Congress thought it was when 

it originally passed the bill to prevent States from taxing the retirement incomes of retirees who no longer live in those States, it 

seems that the language and principle in Public Law 104–95 is 

being circumvented, or at least an attempt is being made. 

Congress made it so very clear in 1995 in determining that 

States should not tax the retirement income of people who are not 

in the State. The determination was regarding all retirees. This bill 

is not trying to change the intent of the original law or increase 

the bounds. It is to make sure that, as it should be, all retirees are 

treated the same, regardless of whether they worked for someone 

else or themselves prior to retirement. 

2

The bill clarifies that Public Law 104–95 was intended to cover 

all retirees with regard to the described plans, specifically the nonqualified types of plans and the restrictions in it. 

I look forward to the testimony of the panel. 

Without objection, the Chair will be authorized to declare recesses of the hearing at any point. 

Hearing none, so ordered. 

I further ask unanimous consent that Members have 5 legislative 

days to submit written statements and statements by interested 

parties for inclusion in today’s record. 

I now yield to Mr. Watt, the Ranking Member of the Subcommittee, for an opening statement. 

Mr. WATT. Thank you, Mr. Chairman. And thank you for convening the hearing so that we can get some clarification about 

what we may be doing subsequently in the markup. 

This bill amends, as I understand it, Public Law 104–95, to 

which some of us objected when it came before the Committee in 

1996. 

A review of the record from 1996 indicates that at that time I, 

along with several of my colleagues, including Ranking Member 

Conyers, had three principal concerns about the bill: that it failed 

exclude non-qualified deferred compensation plan; that it failed to 

impose a monetary cap on exempting funds; and that it was not 

made subject to the Unfunded Mandate Reform Act. 

These concerns have really not gone away and were this a new 

bill that presented the same issues that were presented by Public 

Law 104–95 that we were marking up in 1996, no doubt we’d probably be having the same debate with the same concerns being 

raised. 

As I understand H.R. 4019, however, we do not today revisit the 

policy choices implemented by the underlying bill. Instead, H.R. 

4019 represents a technical correction designed to preempt at least 

one State from implementing an interpretation that’s clearly at 

odds with the intent of the original bill, and one which would create a situation under which a specific group of retirees—that is 

partners and principals—would be treated differently from all 

other groups of retirees. 

I will be interested in hearing Mr. Duncan’s testimony since he 

suggests that bill may be more than simply a technical correction. 

So I’ll be listening carefully to what he has to say about that. 

However, if H.R. 4019 is truly only a technical correction, I see 

no reason to oppose it. In addition, even if the bill does not—does 

more than merely clarify the original intent of the underlying law, 

there is nonetheless some basis upon which to support it. And that 

is presumably most States have, over the nearly 10 years since the 

law first passed, structured or enforced their tax systems in accordance with the law and they’ve made the necessary adjustments to 

this bill already. 

Absent a persuasive objection from the States, therefore I see no 

reason to deviate from that policy because one State revenue department has found a potential loophole in the original language. 

I’ll listen intently to the testimony, particularly Mr. Duncan’s 

testimony, and look forward to the hearing and perhaps look forward to the subsequent markup. 

3

Mr. CANNON. The gentleman yields back. 

Mr. WATT. I yield back. 

Mr. CANNON. Thank you. 

I’m going to dispense, just to meet the needs of a couple of our 

Members, I’m going to dispense with introductions if you don’t 

mind. We’ll include those for the record and we’ll just go right directly to your testimony. 

[The information referred to is available in the Appendix.] 

So Mr. Gekas, would you honor us with your testimony? Welcome 

back before—I feel really awkward sitting up here with the chairman sitting at the table. 

Mr. WATT. Mr. Chairman, I’m almost constraint to introduce the 

Honorable George Gekas myself, just to give him an adequate introduction. But I’ll restrain myself. 

Mr. CANNON. A man who otherwise needs no introduction and 

who used to chair this Committee. We appreciate your coming back 

Mr. Gekas, and look forward to your testimony. 

STATEMENT OF THE HONORABLE GEORGE W. GEKAS, 

FORMER UNITED STATES REPRESENTATIVE, FORMER 

CHAIRMAN OF THE SUBCOMMITTEE ON COMMERCIAL AND 

ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY 

Mr. GEKAS. Thank you, Mr. Chairman, Mr. Watt——

Mr. CANNON. Your microphone, please. First time on that side of 

the table. 

Mr. GEKAS. I’m so nervous. 

In conjunction with the Chair’s first offering, I’m going to offer 

this historic document as my written statement in this hearing for 

the record and proceed to outline some of the issues that already 

have been touched upon by both the Chair and Mr. Watt. 

My sole purpose in being here today is to testify to the legislative 

intent upon which you’ve both touched. And that legislative intent 

was so clear from the beginning that I was astounded when, very 

recently, I was called and asked if I would testify here as to that 

very same intent because the State of New York, I had learned, 

was eager to jump on what they considered to be a loophole for the 

purpose of reaching beyond its borders to attach a taxation vehicle. 

This first came to light, as some of you will remember—I remembered it very well—when Barbara Vucanovich, then Congresswoman Vucanovich, came to my office to explain that she, as a representative of our Congressional District in Nevada, was concerned, 

very concerned, about the great number of retirees who came to 

Nevada from the State of California, came to Nevada to establish 

permanent residence and then were affronted by the fact that California was reaching across the borders to tax their retirement income. 

Well, that one thing led to another. I, too, was mortified at that 

because what it had done was to rear the ugly head of double taxation, which was one of the first fears that I uncovered as a legislator, both in the Pennsylvania Legislature and in Congress. 

And indeed, this is a subject matter that arose in the context of 

double taxation, and therefore, Barbara’s persuasion led to eventually the enactment of the—of the law which we’re discussing here 

today. 

4

The pure legislative intent was to honor all retirees in all States 

and to keep them safe from the taxation of a neighboring or any 

State in the Union in reaching to their retirement income, now in 

their new retired residential status in another State. That is clear 

to me. I don’t see how it can be argued any other way. 

Something that Mr. Watt mentioned also brings to mind that one 

of the chief proofs that we have about the intent to—not to exclude 

partners but to include partners in the whole context of retirees, 

was the fact that the opponents, those who voted against it back 

then, somewhere along the line in their documents, perhaps in the 

minority report, referred to the ugliness that would occur if that 

bill—if our bill would be passed, because you could see partners 

doing bailout contracts with their employers or their former bosses 

or colleagues. The very fact that they mentioned as a possibility 

means that they—that partners fit into the type of retiree that 

should be free from this taxation. 

And so I’m eager to have your record indicate that when we enacted this legislation there was no doubt about the inclusion of 

partners. 

As a matter of fact, we never dreamed at that time, except for 

that one reference in the minority report which came about after 

the hearings and after the deliberations and after the final vote, et 

cetera, that partners would be excluded. You’d have to search deeply—not search, but rather embed some kind of thoughts into the 

general language to bring about an exclusion for partners. 

So with all of that, I am gratified that we have, joining me on 

this panel, experts in this whole field on all sides of the issue and 

I’m urging them not to contradict me at all. And if they do, they 

will find that I will not be here. I have to leave immediately. 

With that, I yield the balance of my non-time and wish you all 

well. And as I’m wafting out of here, I hope to hear some lingering—shall I say—endorsement of my statement. 

Thank you very much. 

[The prepared statement of Mr. Gekas follows:]

PREPARED STATEMENT OF THE HONORABLE GEORGE GEKAS

Mr. Chairman, Congressman Watt and distinguished Members of the Subcommittee: 

Thank you for the opportunity to testify on H.R. 4019, a bill that would make it 

clear that existing federal law prohibits States from taxing the retirement income 

of any non-residents retirees. Congress needs to take action quickly to prevent 

States from undermining the common-sense legislation that was enacted in 1996 to 

prevent unfair and burdensome taxation. I commend you, Mr. Chairman, for introducing H.R. 4019 and for holding this hearing. 

I understand that at least one large State is attempting to exploit an ambiguity 

in the 1996 law to argue that some non-resident retirees, namely non-resident retired partners, are not covered by the current-law prohibition on State taxation of 

non-resident retirees. As Chairman of the Subcommittee on Commercial and Administrative Law when Congress originally considered this issue, I can tell you this is 

simply not the case. The purpose of my testimony today is to provide some legislative background and history that will make this abundantly clear. 

This issue first arose in the 1990s because some States, such California and New 

York, were imposing an income tax on retirement income of retired, non-resident 

individuals who worked in those States for part or all of their careers. At the time, 

several other States were discussing so-called ‘‘State source’’ taxes. There was no 

question that States had the Constitutional authority to impose such taxes, but Congress intervened because of the risks of double taxation and the complexity of multistate compliance. 

5

1 Congressional Record, Extension of Remarks, January 5, 1995, p. E42. 

2 H. Rep. No. 104–389 at 16. 

Largely due to the efforts of Congresswoman Barbara Vucanovich of Nevada, Congress ultimately passed the State Taxation of Pension Income Act of 1995 (Public 

Law 104–95). Public Law 104–95 is very straightforward. It provides that a State 

may not tax the retirement income of non-residents. The definition of retirement income includes income from a qualified retirement or annuity plan, such as an IRA 

or 401(k) plan, and income from a nonqualified deferred compensation plan. As Congresswoman Vucanovich noted when she introduced the legislation, it was purposefully designed to apply to all retirement income in order to be fair and treat all retirees equally.1

Although I believe that current law prohibits any State taxation of non-resident 

retirement income, I also understand that at least one State is arguing that there 

is a ‘‘loophole’’ in the statute that allows them to tax some non-resident retirees and 

not others, simply because they are non-resident retired partners rather than nonresident retired employees. I disagree. Therefore, it is important that Congress remove any doubt by enacting H.R. 4019. Otherwise, certain non-resident retirees 

could face costly litigation to fight aggressive taxation by some States—a fight retirees would clearly win in court. In addition, if Congress does not act now, this issue 

could develop into a significant problem with other States. 

The issue we are considering today stems from the definition of nonqualified deferred compensation plan contained in Public Law 104–95. When the decision was 

made during the legislative process to include nonqualified retirement plans, we referred to the definition of ‘‘nonqualified deferred compensation plan’’ found in the 

employment tax. At least one State has used this reference to argue that Public Law 

104–95 only applies to nonqualified deferred compensation received by retired, nonresident employees and does not protect retired, non-resident partners. In reality, 

we used the reference to employment tax because, unlike qualified retirement plans, 

there is no reference to nonqualified retirement plans in the income tax code. The 

employment tax reference was meant to serve as a general, non-technical description of nonqualified deferred compensation plans. Had we fully understood the potential tax implications of including a FICA tax reference, we most certainly would 

have drafted the legislation differently. 

Congress never intended to arbitrarily carve out certain groups of individuals 

from the protection of Public Law 104–95 even though the retirement income that 

they receive is in all other respects identical to the retirement income received by 

individuals enjoying the protection of Public Law 104–95. For example, Congress 

never intended to prohibit source State taxation of nonqualified retirement income 

of all employees, including highly compensated executives, but not of self-employed 

individuals, such as partners. Moreover, Congress never intended for self-employed 

retirees to receive protection from source State taxation on their qualified retirement income (which Public Law 104–95 clearly covers) but not their nonqualified 

retirement income, while highly compensated executive retirees enjoy protection 

under Public Law 104–95 with regard to both types of retirement income. It is also 

difficult to see any policy reason for such a distinction. 

In fact, Members of Congress who opposed Public Law 104–95 clearly believed the 

statute would apply to partners. The Dissenting Views section of the Committee report complains that ‘‘[b]y including nonqualified plans in the legislation, Congress 

will open broad new loopholes for lucrative compensation arrangements, such as 

golden parachutes, partnership buy-outs, and large severance packages.’’ 2

I believe it is clear from the statutory language, legislative history and purpose 

of the statute that Public Law 104–95 protects all non-resident retirees, regardless 

of whether they are a retired employee or a retired partner. However, because at 

least one large State is unwilling to recognize this, I strongly support enactment of 

H.R. 4019, which would shut down any possibility that States might be able to unfairly tax the retirement income of certain non-resident retirees, effective as of the 

date of enactment of Public Law 104–95 because it is consistent with Congressional 

intent. 

Thank you again for the opportunity to testify today. I would be happy to answer 

any questions you may have.

Mr. CANNON. If you leave quickly, I think Mr. Portnoy is probably going to be very supportive of your statement. 

Thank you for being here. And just for everyone’s recollection, 

you were the Chairman at the time this bill was passed. 

Mr. GEKAS. That’s correct. 

6

Mr. CANNON. You chaired this Committee. And so we appreciate 

your expertise and your knowledge on the subject. 

I recognize——

Mr. WATT. Mr. Chairman, can I just thank the gentleman for 

being here? 

Mr. CANNON. Certainly. 

Mr. WATT. George was always one of my favorite people to get 

into debates with. But he’s a great guy and no doubt when he 

leaves we’re going to hear sleigh bells ring. That’s what we’re likely 

to hear. 

Mr. GEKAS. Bill, glad to see you. 

Mr. DELAHUNT. Good to see you, George, and welcome back. I 

would echo all of the kudos and sentiments that were expressed by 

Mr. Watt. 

I haven’t read the bill yet, but I am sure I’ll support it with 

vigor, if you leave now. 

Mr. GEKAS. Thank you very much. 

Mr. CANNON. Thank you, George. 

Mr. Portnoy, I will recognize you for 5 minutes and feel free to 

summarize your testimony because we do have your written record 

in the record. Thank you very much. 

STATEMENT OF LAWRENCE F. PORTNOY, LLP, RETIRED 

PARTNER, PRICEWATERHOUSECOOPERS 

Mr. PORTNOY. Thank you, Mr. Chairman. 

I’m Lawrence Portnoy, a retired partner of 

PricewaterhouseCoopers, LLP. From 1992 until my retirement in 

2001, I served as the tax matters partner for my firm. During this 

period, among other things, I supervised the firm’s implementation 

of the procedure to account for income earned by staff working in 

nonresident States, withholding and reporting procedures, preparation of the resident tax returns for staff claiming credit for tax paid 

to the nonresident States, and calculating any amounts to be paid 

by the firm to those staff to assure that their total tax cost was no 

greater than if they did not work temporarily in a nonresident 

State. 

For example, if you send someone out of town to work on a job 

for 6 months, and because of that he’s got an incremental tax cost, 

this was a process to take care of all of that and to make that person whole. 

As a result of my work in this area, I’m very familiar with the 

laws regarding the taxation, both federally and at the State level, 

of individuals and other taxable entities. In this regard, I wish to 

express my concerns with the States’ misinterpretation in the State 

Taxation and Pension Act of 1995, P.L. 104–95, often referred to 

as H.R. 394. 

The purpose behind passage of the act was simple, to prohibit 

State taxation of certain pension income by States in which the recipient was neither resident nor domiciled at the time of receipt. 

According to the December 7, 1995 report of the Committee on 

the Judiciary of the House of Representatives, the bill was needed 

because the system permitting both the individual State of residence and the States in which the individual had previously earned 

7

income to tax that retirement income would produce a burden on 

retirees that would ‘‘be, all too often, simply unreasonable.’’ The act defines retirement income broadly. The reason for exempting income from both qualified and nonqualified plans was 

best expressed by Representative Vucanovich during the hearing 

before the Subcommittee on Commercial and Administrative Law 

of the Committee on the Judiciary in June 1995. She stated that 

‘‘it is a question of fairness to make the law apply equally to all 

retirees.’’ I would particularly like to point out that after the enactment of 

P.L. 104–95, all of the States respected the exemption of nonqualified deferred compensation, as defined in the act, from nonresident taxation to all retirees, irrespective of whether he or she 

was formerly an employee or a self-employed individual. 

This was the case until the past year or so. Now the question of 

whether the law applies equally to all retirees is being questioned 

by one State. And there’s no doubt that other States will follow. 

This State is asserting that the exemption does not apply to retired 

partners, only to retired employees. Any disparity in the treatment 

of retired partners would raise a major issue with regard to fairness in that, unlike employees, partners of large accounting and 

law firms pay tax in as many as 30 or more States because that’s 

where the partnerships did business rather than where the individual partner performed services. These partners did not reside in 

these States where they paid tax and, in many instances, performed no services in the vast majority of these States. They were 

taxed under State partnership rules and received no benefits from 

the State either as a resident or as an income earner. 

Congress clearly understood the issue of burden, which is one of 

the major reasons for the original legislation. And the same burden 

applies to retired partners as well. And, in fact, the burden is even 

greater on retired partners than it is on retired employees. As a result of the original legislation, retired partners correctly concluded 

that they were covered by P.L. 104–95 and thus, did not file any 

returns outside their State of residence. 

It’s been 10 years since P.L. 104–95 has been enacted and, up 

until last year, the States agreed with that position. If the States 

were now to adopt a different position, the States could require 

nonresident returns to be filed for all prior years with the payment 

of tax and interest. 

Let me emphasize that the burden on retired partners also involves determining how much of their income is taxable by a particular nonresident State. We could easily be looking at 30 or more 

States for which data would have to be gathered and the proper 

formula applied. This is precisely the type of burden——

Mr. CANNON. Mr. Portnoy, could I just ask how much more do 

you have left in your testimony? 

Mr. PORTNOY. Quarter of a page. 

Mr. CANNON. Go ahead. 

Mr. PORTNOY. Sorry. 

This is precisely the type of burden the act was designed to 

avoid. This bill clarifies P.L. 104–95 by specifically stating that retired partners are included. The bill further clarifies the type of income Congress intended to cover because one State is trying to tax 

8

certain types of nonqualified retirement income. These changes are 

intended to provide clarity and precision to the types of income intended to be covered. 

Most importantly, since it is a clarification of existing law rather 

than a change in the law, H.R. 4019 will be effective as of the date 

that P.L. 104–95 was effective. With the passage of H.R. 4019, Congress will have assured that the problems that necessitated the enactment of P.L. 104–95 are solved for all retirees. 

Thank you for your time and consideration of this important 

issue. 

[The prepared statement of Mr. Portnoy follows:]

PREPARED STATEMENT OF LAWRENCE F. PORTNOY

Mr. Chairman, Congressman Watt and distinguished Members of the Subcommittee: Thank you for the opportunity to testify on H.R. 4019. 

I am Lawrence Portnoy, a retired partner of PricewaterhouseCoopers, LLP. I 

joined the tax department of Price Waterhouse (now PricewaterhouseCoopers) in 

1964 and was admitted to the partnership in 1975. 

During my years with the firm I served as a tax consultant for many large multinational clients and later was responsible for representing clients before the National Office of the Internal Revenue Service on accounting method change requests, 

accounting period change requests, ruling requests and requests for technical advice. I represented the firm when making comments to IRS and Treasury Department on proposed regulations. 

From 1992 until my retirement in 2001 I served as Tax Matters Partner and Senior Tax Technical Partner. This involved setting policy for the firm on major client 

tax matters and having responsibility for planning and compliance (the filing of all 

required tax returns) for the firm’s federal, state, local, and international tax matters. During this period I supervised the firm’s implementation of the procedure to 

account for income earned by staff in nonresident states, withholding and reporting 

procedures, preparation of resident tax returns for staff claiming credit for tax paid 

to nonresident states, and calculating any amounts to be paid by the firm to staff 

to assure that their tax cost is no greater than if they did not work temporarily in 

nonresident states. 

As a result of my work in this area, I am very familiar with the laws regarding 

the taxation, both federally and at the state level, of individuals and other taxable 

entities. In this regard, I wish to express my concerns with the misunderstanding 

in the State Taxation of Pension Income Act of 1995, (P.L. 104-95), often referred 

to as HR 394. The purpose behind passage of the Act was simple: to prohibit state 

taxation of certain pension income by states in which the recipient was neither resident nor domiciled at the time of receipt. According to the December 7, 1995 Report 

of the Committee on the Judiciary of the House of Representatives, the bill was 

needed because a system permitting both the individual’s state of residence and the 

states in which the individual had previously earned income to tax retirement income, would produce a burden on retirees that would be ‘‘all too often simply unreasonable.’’

The Act defines retirement income broadly and exempts all income from ‘‘qualified’’ pension plans as defined in the Internal Revenue Code, as well as income received under deferred compensation plans that are ‘‘non-qualified’’ retirement plans 

under the Code, but that meet additional requirements. While HR 394 as originally 

proposed did not exempt income from non-qualified plans, it was amended prior to 

passage to add the exemption (with certain caveats) to distributions from such nonqualified plans. The reason for including income from non-qualified plans was best 

expressed by Representative Vucanovich during the Hearing before the Subcommittee on Commercial and Administrative Law of the Committee on the Judiciary in June of 1995. She stated that ‘‘it is a question of fairness to make the law 

apply equally to all retirees.’’

After the enactment of HR 394, all of the states respected the exemption of nonqualified deferred compensation (as defined under the Act) from nonresident taxation to all retirees, irrespective of whether he/she was formerly an employee or a 

self-employed individual-until the past year or so. Now, the question of whether the 

law applies equally to all retirees is being questioned by the states, ‘‘unreasonable’’

burdens are surfacing, and double taxation of such income is again likely. The major 

factor accounting for the lack of equal application is that some states are asserting 

9

that the exemption does not apply to retired partners, only to retired employees. 

These states are also asserting that, even if retired partners are eligible for the exemption from nonresident taxation, an additional requirement applies to non-qualified deferred compensation received by them. Specifically, they assert that, if a partnership plan has a formulary cap or a provision for a cost of living adjustment, it 

does not qualify for the exemption, since the payments do not meet the Act’s definition of ‘‘substantially equal periodic payments.’’ Why do we now have a problem? While the law was intended to apply to all retirees, due to what I believe is a misreading of the section of HR 394 exempting nonqualified plan benefits only where such benefits are paid pursuant to Section 3121 

(v)(2)(C) of the Internal Revenue Code, some state taxing authorities maintain that 

the exemption is only available to employees. This section is a part of the Code relating to the Social Security and Medicare tax payments that employers and employees make under FICA. Partners, as self-employed individuals, make their payments of Social Security and Medicare taxes under a different section of the Code. 

However, nowhere does HR 394 use the word ‘‘employee.’’ All references are to individuals and a reasonable interpretation would be that the reference to Section 3121 

(v)(2)(C) was meant only to generally describe the type of non-qualified plan subject 

to the exemption - not to restrict the exemption to employees and allow the taxation 

of those who were self-employed. 

This disparity in the treatment of retired partners raises a major issue with regard to ‘‘fairness’’ in that, unlike employees, partners of large accounting and law 

firms paid tax in as many as thirty or more states because that is where the partnership did business rather than where the individual performed services. These 

partners did not reside in these states and, in many instances, performed no services in the vast majority of these states. They were taxed under state partnership 

rules and received no benefits from the states either as residents or as income earners. In most cases, the partnership filed both a partnership return and a composite 

return that included all partners who elected to be part of the return. The firm determined the income allocable to the state based on the firm’s federal taxable income and the specific state apportionment formula. That total was then allocated 

to each partner. The composite return was filed for non-resident partners in lieu of 

individual returns filed by each nonresident partner and was based on the partner’s distributive share of the firm’s income earned in the state - whether the individual 

partner had worked in the state or had never stepped foot in it. In contrast, employees generally worked in only a few states during their active careers and actually 

earned income in such states and enjoyed the benefits as income earners in the 

states. 

With regard to the issue of burden, it is clear that a system that would require 

retired partners, particularly those who were members of large partnerships, to determine how much of their income was taxable in every state in which the partnership earned income is difficult at best, impossible at worst. Add to this the fact that 

most retired partners reasonably believed that they were covered by HR 394 and 

never filed returns outside of their state of residence. These retired partners have 

no statute of limitations protection. It is ten years since HR 394 was enacted, and 

states could require nonresident returns to be filed for all prior years, creating a 

substantial compliance burden in terms of tax and interest, and the cost of preparing nonresident tax returns. The statute of limitations trap is exacerbated by the 

fact that retired partners who reside in a state that imposes an income tax can only 

claim a refund for nonresident taxes paid within the resident state’s statute of limitations, generally three years. Nonresident taxes that are assessed outside of this 

period will provide no resident state tax relief, resulting in double taxation for the 

entire amount of nonresident tax assessed. This is a burden that had not even been 

contemplated when the law was passed. 

Another burden involves determining how much of the retired partner’s pension 

income is allocable to a particular state. One state is presently considering employing two alternative methods, depending on whether the retired partner’s interest in 

the partnership is totally liquidated. If the interest is not totally liquidated, then 

the state intends to allocate the retirement income by the allocation percentage of 

the partnership itself for the current year. If the interest is liquidated, then the 

amount allocated to the state is based on where the partner performed his or her 

services prior to retirement, using the ratio derived from dividing the number of 

days services were performed in the state during the portion of the retirement year 

plus the prior three years, by the total number of days services were performed everywhere during the same period. 

Neither of these methods is reasonable. In the first instance, since the retired 

partner performed no work for the partnership during the taxable year, how can the 

partnership’s allocation percentage be relevant? Under the second method the probVerDate 0ct 09 2002 15:39 Feb 22, 2006 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 G:\WORK\COMM\121305\24986.000 HJUD1 PsN: 24986
10

lem of finding and defending the number of days worked years in the past is virtually an insurmountable burden. Worst of all, each state that determines that partners are not exempt individuals may devise its own allocation formula. We could 

easily be looking at 30 or more states for which data would have to be gathered 

and the proper formula applied. This is precisely the type of burden the Act was 

designed to avoid. 

As to double taxation, it is clear that retired partners who may have earned income in as many as thirty states during their active tenure could be responsible for 

taxes in all of these states. This raises the possibility they will pay state taxes on 

more than one hundred percent of their retirement income. 

State administrators point to the fact that the states generally allow a credit for 

taxes paid to non-domiciliary states. They must also agree, however, that this does 

not eliminate the problem. Most states, if not all, allow the credit only up the 

amount that would be subject to tax under their laws. For example, if I am a resident of a state that imposes its tax at the rate of five percent, and a state that imposes its tax at the rate of ten percent also taxes my retirement income, I will pay 

ten percent to that non-resident state, but only receive a credit by my resident state 

equal to five percent of that amount. Also, some states will not allow a credit to 

its residents for a tax that they do not impose on its nonresidents, or do not believe 

is valid. And, of course, retirees who live in states that do not impose an income 

tax will receive no relief from paying tax to other states when there is no offset to 

be had. Finally, there may be little or no concomitant federal tax relief for these 

multiple payments due to the Alternative Minimum Tax. 

. An example of the difficulties of calculating the amounts owed is attached to this 

testimony. It would be necessary to estimate the amount a state could assess on 

audit for each open year and the maximum credit available to be claimed against 

the tax in the resident state. Further, the schedule would need to be updated periodically as the states assess and collect the tax. In the attached schedule, a retired 

partner resident in New Jersey had, in the 2001 tax year, a total of $18,826.06 of 

state taxable income attributable to 34 different states. His state tax would total 

$1,192.49 but based on state rules, only $1,040.58 would be creditable. It is clear 

that the credit mechanism does not solve the problem of double taxation. Further, 

retired partners who, in 2001 were residents of Pennsylvania, Illinois, Mississippi 

or Hawaii would receive no credit since those states did not tax pension income. 

How can these problems be solved? The answer is to enact HR 4019. This bill 

clarifies HR 394 by specifically stating that retired partners are included. Further, 

it makes it clear that the language requiring that payments from non-qualified 

plans must be ‘‘part of a series of substantially equal periodic payments (not less 

frequently than annually)’’ does not preclude such plans from the exemption based 

merely upon caps or limits based on a predetermined formula or on adjustments 

such as cost of living increases. Most importantly, since it is a clarification of existing law, rather than a change in the law, HR 4019 is applied retroactively to the 

December 31, 1995 date that HR 394 was enacted. With the passage of HR 4019, 

Congress will have assured that the problems that necessitated the enactment of 

HR 394 are solved for all retirees. 

Thank you for your time and consideration of this important issue.

11

ATTACHMENT


Portnoy.eps
12

Mr. CANNON. Thank you, Mr. Portnoy. 

Mr. Duncan, we look forward to your testimony now. 

STATEMENT OF HARLEY T. DUNCAN, HARLEY T. DUNCAN, EXECUTIVE DIRECTOR, FEDERATION OF TAX ADMINISTRATORS 

Mr. DUNCAN. Thank you, Mr. Chairman. My name is Harley 

Duncan. I’m the Executive Director of the Federation of Tax Administrators, which is an association of the principal tax administration agencies in the 50 States, D.C., and New York City. We appreciate the opportunity to present our position on H.R. 4019. 

That position can be summarized, I think, as follows, that if the 

Subcommittee determines that it is appropriate to move forward 

with the bill, we would encourage you to take steps to improve the 

clarity and precision of the bill in order that we can avoid conflict 

in interpretations and confusion for taxpayers, make the act administrable by the States, and prevent the bill from creating opportunities for substantial tax avoidance. 

The Federation was an active participant in the discussion surrounding the passage of Public Law 104–95, and we worked closely 

with Mr. Gekas and the Members of this Subcommittee to define— develop the final legislation. 

Then, as now, we recognize that the source principle of taxation 

must be balanced with the administrative difficulties and burdens 

that might be imposed on taxpayers and their employers in maintaining sufficient records over a lifetime of earning to ensure an appropriate allocation of the deferred income among all States in 

which it might be taxed. 

At the same time, the proponents of 104–95 and this Subcommittee recognized that limitations that were going to be imposed on State and local taxing authority needed to be narrowly 

and clearly drawn so that they accomplished their intended purposes, did not create unintended consequences and open up the 

States to substantial taxable avoidance. We think the same considerations are appropriate for 4019. 

Public Law 104–95 substantially achieved those principles and 

goals because every item of income that’s subject to the act is defined with reference to the Internal Revenue Code so that the taxpayer knows and the tax agency knows what type of income we’re 

talking about. 

In the one area where that’s not possible, with the nonqualified 

deferred comp plans, there were two provisions inserted by the 

Subcommittee to make sure that distributions from those nonqualified plans looked like the rest of the retirement income that 

was being—that was covered by the bill, namely that it was paid 

out over a substantial period of years or the length of life of the 

individual, and that it came out in substantially equal installments 

to take then the differential nonqualified deferred comp and make 

it look like the rest of the retirement income, but again with specific reference to the Internal Revenue Code so that it both defined 

it specifically and prevented abuses. 

Those two things do not occur in H.R. 4019. First of all, the term 

retirement benefits, which are then to be subject to the limitation, 

is fully undefined in the bill. There’s no reference to the Code, 

13

there’s no reference to anything that we could find that we would 

then be able to say this constitutes the retirement benefit that’s 

subject to the limitation. 

Second, the term retired partner is defined by a parenthetical 

that says defined as such in appropriate tax laws. But that’s not 

a meaningful statement. It doesn’t help you determine who is eligible for the limitation and when they’re eligible for the limitation. 

Finally, there are some qualifications then added to the two limitations that this Subcommittee put in in 1995, about the length of 

the pay out and the substantially equal installments. And those are 

accompanied by undefined terms such as a predetermined formula 

that might be used to deviate from those limits, similar alterations 

or similar formula to alter those pay outs again, without respect to 

any definition that we could find. 

The end result then is that you’ve got an ability to recharacterize 

virtually any income as a retirement benefit and try to qualify for 

the limitation. We don’t know who it applies to. And the predetermined formula and qualifications on the length of pay out and substantially equal payments can be used to effectively negate those 

limitations. 

If you move forward, we would make several suggestions. First, 

tie the income to some part of the Code. We’d throw out 1402(a)(10) 

as a starter for working away from it. At least it talks about the 

types of income that makes for non—for retired partners. 

Specifically include an exclusion for retirement—from the definition of retirement benefits for gains on the sale of a partnership interest in a trade or business so that we don’t have that converted 

into retirement benefits. 

Delete the modifications on the length of the pay out and the 

substantially equal test or put them in some form so that they are 

meaningful limits and can’t be used to negate those two principles. 

If those don’t work for you, consider tying the amount of income 

that’s exempt to some prior level so that we know what we’re looking at. Those are the types of things that we think need to be done 

so that A, the taxpayer knows what he or she can do; B, the State 

can administer it and we don’t open ourselves up to avoidance. 

One minute, 15 seconds on the effective date, if I may. 

We would argue that it ought to be January 2006. It may be that 

this is retirement income that is similar to that in 104–95. I think 

it is fair to say that retired partners were not excluded by choice 

from 104–95. Equally, I think it’s an overstatement to say that 

they are included in 104–95. The language tying to all those references in the Code doesn’t deal with partners. They simply aren’t 

addressed in the bill as it was passed. 

So I think it’s an overstatement to say clarification. That, if you 

extend it, if you take the effective date back to 1995, that implies 

a misapplication in some fashion by the States. I don’t think that’s 

the case. If a taxpayer feels that’s the case, he or she should contest that in a State tax administration appeals system. 

Thank you, Mr. Chairman.

14

[The prepared statement of Mr. Duncan follows:]

PREPARED STATEMENT OF HARLEY T. DUNCAN

Chairman Cannon, Congressman Watt and Members of the Subcommittee: 

Thank you for the opportunity to appear before the Subcommittee on H.R. 4019 

relating to state and local taxation of certain payments to retired members of partnerships. My name is Harley Duncan, and I am the Executive Director of the Federation of Tax Administrators. The Federation is an association of the principal tax 

administration agencies in the 50 states, the District of Columbia and New York 

City. My purpose today is twofold: (1) to request that the Subcommittee require the 

proponents of the bill to demonstrate with clear and convincing evidence that the 

source principle of taxation should be overridden because of concerns regarding the 

administrative and recordkeeping burden associated with taxing retirement income 

paid to retired partners in the source state; and (2) to request that, if the Subcommittee determines it is appropriate to move forward with this bill, that it take 

steps to improve the clarity and precision of the bill in order to prevent the bill from 

creating opportunities for substantial avoidance. 

H.R. 4019 would amend P.L. 104–95 by including in the list of specific distributions from specific types of retirement plans that may be taxed only by the state 

in which an individual resides or is a domiciliary a new category of income characterized as ‘‘any plan, program or arrangement providing for retirement benefits to 

a retired partner (treated as such under applicable tax laws)....’’ It would also 

liberalize the requirement that distributions from nonqualified deferred compensation plans (and the newly included partnership retirement benefits) be made not 

less frequently than annually and that the distributions be made in substantially 

equal amounts. 

INTRODUCTION

As a preliminary matter, it should be stated that to this point, there has been 

no discussion with the Federation or its staff as to the need for H.R. 4019. We understand there is a desire to bring parity to the tax treatment of various streams 

of income that some consider ‘‘identical,’’ and that there are issues of administrative 

burden that have been raised. These, however, have not been explained to or discussed with us. We believe that the Subcommittee as a first order of business should 

require the proponents of the bill to demonstrate clearly that the administrative and 

recordkeeping burden associated with taxing the retirement income in question is 

so onerous as to require a modification of the source principle of taxation, which 

would hold that the income in question should be taxed where the services giving 

rise to the income were performed even if the taxation is deferred until the income 

is actually received. Simply saying that the income in question is the ‘‘same as that 

covered by an earlier act of Congress’’ (P.L. 104–95) is insufficient without further 

evidence. 

The Federation was an active participant in the discussions surrounding the passage of P.L. 104–95 and worked closely with this Subcommittee in developing the 

final shape of the legislation. Then, as now, we recognize that the source principle 

of taxation must be balanced with administrative difficulties and burdens that 

might be imposed on taxpayers and their employers in maintaining sufficient 

records over a lifetime of income to ensure an appropriate allocation of the deferred 

income among all states in which it might have been earned. At the same time, proponents of P.L. 104–95 and Members of this Subcommittee recognized that any limitations imposed on state and local taxing authority should be narrowly and clearly 

drawn so as to accomplish their intended purpose, but not to create unintended consequences and open up opportunities for substantial tax avoidance. We think the 

same considerations are appropriate in deliberations regarding H.R. 4019. 

During testimony before this Subcommittee on legislation that ultimately became 

P.L. 104–95, FTA offered the following statement:

As a general matter, the Federation urges the Congress to move cautiously in 

considering legislation to restrict the ability of states to tax retirement income 

paid to former residents. Any such legislation should: (1) preserve to the maximum extent possible the source taxation principle under-girding state income 

tax systems; (2) not create opportunities for substantial tax avoidance; (3) be 

designed carefully to address the issues present in today’s environment and not 

a series of hypothetical situations which someone might conjure; and (4) be caVerDate 0ct 09 2002 15:39 Feb 22, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 G:\WORK\COMM\121305\24986.000 HJUD1 PsN: 24986
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1Testimony of Harley T. Duncan before the Commercial and Administrative Law Subcommittee of the House Committee on the Judiciary, ‘‘State Taxation of Nonresident Pension 

Income,’’ June 28, 1995. 2Throughout the testimony, references to nonresident pension or retirement income should be 

read to refer to that portion of any deferred compensation arrangement that is attributable to 

services performed in the state at an earlier point in time. A state would not have authority 

to tax pension income of a nonresident if it did not arise from services or other activities performed in the state. 3With respect to nonresident pension income in particular, states take the position that the 

pension income is simply deferred income or compensation for services performed at an earlier 

point in time. This issue has not been addressed directly by the Supreme Court. The Court’s 

ruling in Davis v. Michigan Department of Treasury 109 S.Ct. 1500 (1989) (intergovernmental 

tax immunity and 4 U.S.C. 111 prevent a state from taxing federal pensions to a greater degree 

than they do state and local pensions), however, certainly supports the state interpretation that 

pensions are deferred income paid for services performed previously. 4 New York ex. rel. Cohn v. Graves, 300 U.S. 308 (1937) and Lawrence v. State Tax Commission, 286 U.S. 276 (1932). 5Forty-one states and the District of Columbia levy a broad-based personal income tax. New 

Hampshire and Tennessee levy an income tax on limited types of interest, dividend and capital 

gains income. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not 

levy a personal income tax. 6Maine and Virginia do not grant such a credit on retirement income. Neither state, however, 

includes retirement income from non-state sources in the tax base of the resident. 

pable of being administered by being precisely drawn and based upon references 

to current laws or understood concepts where possible.1

P.L. 104–95 substantially follows these principles in that it specifically identifies the 

types of retirement income that are taxable only in the state of residence by defining them with respect to specific sections of the Internal Revenue Code. As to nonqualified deferred compensation plans, which are by definition variegated arrangements, the legislation imposed standards for the length and amount of distributions 

so as to avoid potentially abusive situations where an individual could defer substantial amounts in the latter part of a career, move to a non-tax state and avoid 

substantial taxes to the state in which the income was earned. P.L. 104–95 provides 

a good model to follow should the Subcommittee determine that the administrative 

burdens associated with continuing to tax the income in question at the source are 

too onerous. Any limitation should be clear and unambiguous. 

SOURCE TAX PRINCIPLE

There should be no question regarding the legal authority of states to tax the retirement income of nonresident partners where the services giving rise to the income were performed in the state.2 The basis of current state income tax systems 

is that a state may tax income that is derived from sources within the state, regardless of whether it is earned by a resident of the state or a nonresident engaging 

in income-producing activities within the state. In-state sources are generally defined to include the performance of services in the state, the conduct of a trade, 

business or occupation in the state, or the receipt of income from property owned 

within the state. 

State authority to tax nonresident income from in-state sources was validated by 

the U.S. Supreme Court over 70 years ago in Shaffer v. Carter 252 U.S. 37 (1920) 

when it wrote:

. . .we deem it clear, upon principle as well as authority, that just as a State 

may impose general income taxes upon its own citizens and residents . . . , it 

may, as a necessary consequence, levy a duty of like character, and not more 

onerous in its effect, upon incomes accruing to non-residents from their property 

or business within the State, or their occupations carried on therein....

As the Shaffer court noted, and as has been developed in subsequent cases, the essential constraint on the states in the taxation of nonresident income is that the 

nonresident may not be taxed to a greater degree than a similarly situated resident 

of the state and may not be discriminated against by virtue of the nonresident status.3 It is also clear that states have authority to tax all income received by a resident, regardless of the source of that income.4 To avoid double taxation, however, 

all states with a broad-based income tax 5 provide a tax credit to residents for income taxes paid to another state on income which is also included in the tax base 

of the state of residence.6 This system of reciprocal credits generally prevents retireVerDate 0ct 09 2002 15:39 Feb 22, 2006 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 G:\WORK\COMM\121305\24986.000 HJUD1 PsN: 24986
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7 Certain groups of states do not use such a system of credits. Instead, they have reciprocal 

agreements under which all income is taxed by the state of residence rather than the state in 

which it is earned. (This also avoids taxation by two states.) These agreements are most prevalent in the Virginia-D.C.-Maryland, Pennsylvania-New Jersey, and Ohio-Indiana-Illinois areas. 8Other than, we presume, by the current law’s limits regarding the length of payouts and 

the ‘‘substantially equal’’ requirement that govern distributions from nonqualified deferred compensation arrangements. 9This reference is provided as a possibility for further analysis. It has not been reviewed widely by states to determine if it would be suitable. It is an example, however, of the benefits of 

tying the definition in H.R. 4019 to other sections of the Internal Revenue Code. 10 Note also that the term ‘‘period’’ in page 2, lines 13 and 14 of the bill should be changed 

to ‘‘periodic.’’

ment (and other) income from being taxed in both the state in which it is earned 

and in the state of residence.7

As noted, the principle of source taxation must be balanced with issues concerning 

the administrative and compliance burden that may be imposed on individual taxpayers and their employers in maintaining the records necessary to appropriately 

allocate income among states and filing the requisite returns. For example, Congress has limited the taxation of individuals engaged in most interstate transportation industries to the state of residence or where the taxpayer spends a majority 

of his/her time in recognition of this type of burden. It was these sorts of concerns 

that also were the genesis for P.L. 104–95. As Congress has recognized in its earlier 

deliberations, if limits are to be imposed on state taxation, care must be taken to 

ensure that the limits are clear and precise and that they do not create opportunities for unwarranted tax avoidance. 

ISSUES RELATIVE TO H.R. 4019

The Federation believes that H.R. 4019, as drafted, falls short of this goal and 

the criteria outlined earlier in this testimony. Specifically, we have three concerns 

with H.R. 4019: (1) Certain terms and phrases used in H.R. 4019 are unclear and 

require further specific definitions; (2) Without greater clarification and precision, 

H.R. 4019 creates opportunities for substantial, unwarranted tax avoidance; and (3) 

The effective date in H.R. 4019 should be changed. 

Lack of precision. In subsection 1(a)(1) of H.R. 4019, the term ‘‘retirement benefits’’ is used, but not defined in any way.8 By contrast, P.L. 104–95 goes to great 

length to define the term ‘‘retirement income’’ with specific reference to sections of 

the Internal Revenue Code. This not only provides specificity for administrative purposes, but ensures that the income is actually retirement income in the normal 

sense of the term, where income has been systematically set aside in a trust arrangement to be paid out when one ceases work. Without any definition, H.R. 4019 

would potentially allow nearly any stream of post-employment income to be characterized as ‘‘retirement income’’ and made free of tax if one resided in a non-tax 

state. We would suggest that the Subcommittee consider IRC section 1402(a) as a 

potential definition for ‘‘retirement benefits.’’ The section defines income of former 

partners that are not subject to self-employment tax and may be a model for H.R. 

4019.9

The phrase ‘‘retired partner (treated as such under applicable tax laws)’’ [Section 

1(a)(1)] is presumably designed to define the types of individuals that qualify for the 

limitation. Without further specificity, however, it is simply a phrase without meaning. It will become a point of contention and litigation and creates opportunities for 

recipients to try to avoid tax by characterizing themselves as ‘‘retired partners.’’ The 

phrase must be defined with reference to the specific tax laws that help define ‘‘re- tired partner’’ or otherwise provide a statement of the qualifications that define one 

as a retired partner if it is to be administrable and enable taxpayers and states 

alike to determine who qualifies for the special treatment. 

The meaning and intent of Section 1(a)(2) is unclear and requires explanation. On 

its face, it modifies the ‘‘substantially equal periodic payments’’ test imposed on distributions from nonqualified deferred compensation plans to enable what are being 

touted as ‘‘retirement benefits’’ to be paid under some non-normal schedule. This 

would seem to open up the bill to gaming by allowing the partnership benefits to 

be paid on some other basis. If the purpose of H.R. 4019 is to replicate P.L. 104– 95, this modification should be deleted. The effort in P.L. 104–95 was to place a 

limit on what all considered to be ‘‘normal’’ retirement plans. The ‘‘substantially 

equal’’ requirement was designed to ensure that nonqualified plans could not easily 

be used to avoid tax liabilities.10

The phrases ‘‘predetermined formula’’ and ‘‘similar adjustments’’ in Section 1(a)(3) 

also need to be defined, if indeed the terms are even necessary. If those terms remains undefined, they become points of potential conflict and litigation. Also, such 

17

adjustments could be structured so as to effectively negate the ten-year/life-expectancy requirement and the ‘‘substantially equal’’ requirement, both of which are critical to limiting the use of nonqualified deferred compensation programs as tax 

avoidance techniques. While it is unclear why the language is necessary, such adjustments should be limited in some fashion, e.g., as a proportion of the total 

amount, not more than some percentage annually or the like. 

Tax Avoidance. As noted, without precise and specific definitions of such terms 

as ‘‘retirement benefits’’ and ‘‘retired partner,’’ there is a significant potential that 

income that is simply deferred (regardless of the reason) could be characterized as 

retirement income and thus be subject to the limitation in the bill. Depending on 

the state in which the individual lives at the time the income is received, it could 

turn a tax deferral into a tax exemption. 

The greatest concern is that, given the lack of precision in the language, an individual that was a partner in a trade or business could sell the partnership interest 

and structure the pay-out so that it met the time period and ‘‘substantially equal’’

tests and argue that the income is retirement income subject to the limitation. In 

actuality, the income is gain on the sale of assets associated with the trade or business and is subject to tax in the state(s) in which the trade or business operated. 

However, without specific definitions of ‘‘retirement benefits’’ in the bill, there is a 

potential for the gain to be characterized as retirement income. 

In addition to precisely defining what constitutes ‘‘retirement benefits,’’ we would 

offer several additional suggestions of ways to avoid potential abuse of the limitation contained in H.R. 4019.

• The bill should be amended to state that proceeds from the sale of a partnership interest in a trade or business shall not be considered a retirement benefit subject to the limitation.

• The amount of retirement income subject to the limitation could be defined 

with reference to a particular level of income earned by the partner prior to 

retirement, e.g., income in excess of 110 percent of the average annual wages 

subject to wage withholding paid to the recipient by the partnership in the 

three years prior to retirement of the partner would not be considered retirement income.

• The limitation could be limited to income paid from plans or programs that 

existed for some time period (e.g., three years) prior to the time the partner 

retired.

• The term ‘‘retirement benefit’’ could be left to determination under state law, 

thus allowing the states to distinguish between retirement payments and proceeds from the sale of partnership interests. 

EFFECTIVE DATE

As introduced, H.R. 4019 provides that the amendments shall be applied to income received after December 31, 1995. The effect is to retroactively apply the law 

change against the states. It would arguably allow those taxpayers that have voluntarily complied with those laws currently imposing tax on the affected income to file 

claims for refund. It would also negate any assessments states may have made. The 

change should be applied only to tax year 2006 and forward. 

The implication of the retroactive date is that the states have in some fashion 

misapplied P.L. 104–95 and that P.L. 104–95 was intended to cover the types of income that is the subject of H.R. 4019. That is simply not true in my estimation. 

As an active participant in the discussion surrounding P.L. 104–95, it is true that 

retirement payments to retired partners were not considered when P.L. 104–95 was 

approved. It is incorrect to say that such income would be included within the terms 

of P.L. 104–95. If a taxpayer was assessed on tax that is considered to be within 

the terms of P.L. 104–95, she/he should contest the assessment through administrative appeals processes as opposed to pursuing federal legislation. 

CONCLUSION

In conclusion, Mr. Chairman and Members of the Subcommittee, the Federation 

is committed to working with you further on this legislation if the proponents demonstrate to you the need for the legislation. We believe that H.R. 4019 as drafted 

is ambiguous and imprecise. It is likely to result in conflict and litigation regarding 

its interpretation and application Further work to clearly define what constitutes 

‘‘retirement benefits,’’ who is a ‘‘retired partner,’’ and to avoid situations in which 

income could be re-characterized to take advantage of the limitations is necessary 

and we are willing to assist in this effort.

18

Mr. CANNON. Thank you, Mr. Duncan. 

As always, your comments are very constructive. We appreciate 

them and we’ll take them into account and hopefully you’ll be 

available to work with us as we refine this bill before it goes to the 

floor. 

Mr. DUNCAN. We would be more than glad to work with you, and 

the Committee and the proponents of the bill. 

Mr. CANNON. Thank you, very much. 

Mr. Arnold, you may have noticed by now that we have a little 

clock up there that goes red—or from green to yellow to red. Thank 

you. Obviously, we’re not pounding on the red, but if you could 

draw your comments to a close when we get there, we’d appreciate 

that. 

Thank you. 

STATEMENT OF STANLEY R. ARNOLD, CPA, FORMER COMMISSIONER OF NEW HAMPSHIRE’S DEPARTMENT OF REVENUE 

ADMINISTRATION AND FORMER PRESIDENT OF THE FEDERATION OF TAX ADMINISTRATORS 

Mr. ARNOLD. Thank you, Mr. Chairman, Members of the Committee. 

My name is Stan Arnold and I served as the Commissioner of the 

New Hampshire Department of Revenue Administration for 14 

years, spanning the administration of four governors, both Republican and Democrat, from 1988 to 2002. I also was President of the 

Federation of Tax Administrators and served on a number of joint 

business and Government task forces attempting to resolve tax administration issues. 

In fact, Harvey became Executive Director of the FTA the same 

year that I was appointed, first appointed, commissioner. Several 

years later, I became President of FTA and had the pleasure of 

working closely with Harley during that time. 

Currently, I’m the Senior Tax Policy Adviser at the law firm of 

Rath, Young & Pignatelli on Concord, New Hampshire. I have a 

total of 30 years of experience in State and Federal taxes, both in 

the private sector and in Government. I have prepared tax returns 

for individuals and businesses, I’ve audited business tax returns as 

a State auditor, I developed audit policies as an assistant director 

of an audit division, and I developed new tax laws as commissioner. 

I appear before the Committee in support of H.R. 4019 and to 

present the viewpoint of a former State tax administrator as why 

it’s appropriate for Congress to take action on this issue. 

In the United States, both of the Federal and State tax systems 

are voluntary compliance systems built on an unwritten agreement 

between the citizens being taxed and the taxing authorities. Citizens are willing to put up with some administrative burden because they understand the need for compliance. But at the same 

time they expect administrators and their elected officials to keep 

that administrative burden to a minimum. 

Administrative burden is reduced when there is stability and 

predictability in the law. It’s my experience that citizens and businesses value that stability in tax law above all else. They want to 

be able to plan their affairs. They want to be able to comply with 

19

the law. Most of all, they don’t want the rules to be changed after 

they believe that they have honestly complied with the law. 

H.R. 4019 is not a State’s rights issue. Congress decided, back in 

1995, that it was appropriate for it to assert its Commerce Clause 

authority. We’re now asking that Congress clarify its intention to 

prevent States from taxing all nonresidents, including partners, on 

their retirement income. 

This is an issue of whether or not citizens should be able to rely 

the actions of Congress once it decides to resolve a State tax issue. 

This is about stability of the tax system and the unwritten agreement between citizens and Government to minimize compliance 

burden. This is a matter of all retirees being treated equally and 

fairly. 

Congress has only rarely involved itself in State tax matters. 

And because Congressional action to resolve the State tax issue is 

extraordinary, the rule of law created by Congressional action must 

be respected. 

For 10 years following the passage of Public Law 104–95, the 

taxation of nonresident income has been settled law. In fact, until 

recently the law as passed in 1995 has guided and been respected 

by taxpayers and individual States alike. 

In passing the original law, Congress took an important and difficult action to resolve what was becoming a possible impediment 

to interstate commerce. Public Law 104–95’s purpose was to make 

sure that States could not reach and tax the retirement income of 

nonresidents. 

Today you are being asked to clarify that retirement benefits to 

a retired partner are included for the purposes of that previous limitation on State taxation. 

Once Congress entered the field in ’95 and asserted its authority 

under the Commerce Clause, States have not attempted to tax 

these retirement payments. Congress broadly restricted the source 

taxation of retirement income whether from qualified or nonqualified plans. 

However, one State at least has issued a technical bulletin deciding retirement benefits paid to nonresident partners are not included in the Congressional limitation. There is no rational distinction to treat nonqualified plans for employees different from nonqualified plans for partners. Therefore, Congress should adopt H.R. 

4019 to clarify its intent to ensure consistent application of those 

principles established in 1995. 

Thank you for the opportunity to testify. I’m prepared to answer 

any questions you may have. 

[The prepared statement of Mr. Arnold follows:]

PREPARED STATEMENT OF STANLEY R. ARNOLD

I. INTRODUCTION

A. Personal Information. 

My name is Stanley R. Arnold, CPA, MBA and I served as the Commissioner of 

the New Hampshire Department of Revenue Administration for 14 years spanning 

the administration of four governors both Republican and Democrat from 1988 to 

2002. I also served as President of the Federation of Tax Administrators and served 

on a number of joint business and government task forces attempting to resolve tax 

administration issues. Currently, I am the Senior Tax Policy Advisor at the law firm 

of Rath, Young & Pignatelli, P.A. in Concord, NH. I have a total of 30 years of expeVerDate 0ct 09 2002 15:39 Feb 22, 2006 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 G:\WORK\COMM\121305\24986.000 HJUD1 PsN: 24986
20

rience in state and federal taxes. My 30 years of experience has included work in 

both the private sector and in government. I have prepared tax returns for individuals and businesses; audited business tax returns as a state auditor; developed 

audit policies as an assistant director of an audit division; developed new tax laws 

as Commissioner and now represent clients on tax matters. I also advise clients and 

teach classes on the how and why the state tax system works the way it does 

work—or doesn’t work. 

B. Overview of Testimony. 

I appear before the committee to support H.R. 4019 and to present the viewpoint 

of a former state tax administrator as to why it is appropriate for Congress to take 

action on this issue. In the United States both the federal and state tax systems 

are voluntary compliance systems built on an unwritten agreement between the citizens being taxed and the taxing authorities. Citizens are willing to put up with 

some administrative burden to increase compliance, but at the same time, expect 

administrators and their elected officials to keep that administrative burden to a 

minimum. One way to minimize the administrative burden is stability and predictability in tax law. It is my experience that citizens and businesses value stability 

in tax law above all else. They want to be able to plan their affairs and they want 

to be able to comply with the law. Most of all, they don’t want the rules to be 

changed after they believe they have honestly complied with the law. 

Congress has only rarely involved itself in State Tax matters. Because Congressional action to resolve a state tax issue is an extraordinary step, the rule of law 

created by Congressional action must be respected. For ten years following the passage of Public Law 104–95, codified at 4 U.S.C. 114, the taxation of non-resident 

retirement income has been settled law. In fact, until recently, the law as passed 

in 1995 has guided and been respected by taxpayers and the individual States alike. 

In passing the original law, Congress took an important and difficult action to resolve what was becoming a possible impediment to interstate commerce. Public Law 

104–95’s purpose was to make sure that states could not reach out and tax the retirement income of nonresidents. Today you are being asked to clarify that retirement benefits to a retired partner are included for the purposes of the previous limitation on state taxation of retirement income. Once Congress entered the field in 

1995 and asserted its authority under the Commerce Clause, States have not attempted to tax these retirement payments. Congress broadly restricted the source 

taxation of retirement income whether from qualified or non-qualified retirement 

plans. However, at least one state recently issued a draft Technical Services Division Bulletin deciding that retirement benefits paid to nonresident and part-year 

resident partners was not included in the congressional limitation. There is no rational distinction to treat non-qualified plans for ‘‘employees’’ different from nonqualified plans for ‘‘partners.’’ Therefore, Congress should adopt H.R. 4019 to clarify 

their intent to insure consistent application of the principles established in 1995. 

At the time of previous Congressional action, expert testimony before this committee discussed two courses of probable action that a state could take if it wished 

to continue to tax retirement income after the passage of P.L.104–95. First, an individual state could tax deferred retirement income on a current basis by decoupling 

from the federal deferral provisions. While various states, including New Hampshire, have decoupled from recent federal tax law changes, no state has chosen to 

decouple on this issue. Second, a state could seek to tax the deferred income in the 

year a resident changed residence to another state. To the best of my knowledge, 

no state has passed this type of ‘‘exit toll’’ provision either. In my opinion, State Legislatures have not taken action to enact such provisions because they are keeping 

faith with the underlying principle established by Congress that States should not 

tax the retirement income of nonresidents. 

II. 1995 CONGRESSIONAL ACTION (P.L. 104–95)

When I was the New Hampshire Commissioner, I supported annual resolutions 

adopted by the Federation of Tax Administrators (FTA) asking Congress not to pass 

legislation restricting a state’s authority to design its own tax system. I continue 

to believe that Congress’ power to restrict States taxing power should be used with 

restraint. At the same time, the States are not always right when they develop their 

tax policy and Congress has stepped in several times in the past when Congress believed it was necessary to prevent inappropriate actions which would affect individual and business taxapayers. The most well known example of Congressional action was the passage of Public Law 86–272 (15.U.S.C. 381) which permits companies 

to engage in certain sales solicitation activities in states without being subject to 

state corporate income tax. While not popular with tax administrators, the core of 

21

that law has been respected by the states. Tax administrators have tested it around 

the edges, but the core principle embodied in that law continues to be observed. 

In 1995, this Committee and Congress enacted P.L. 104–95 to limit state taxation 

of retirement income when a resident retired and moved from one state to retire 

in another state. Congress understood that when individuals retire to a different 

state they no longer vote in that state, they no longer receive benefits from that 

state, and therefore, they should not be taxed in their former state. Congress acknowledged that the States had a right to tax non-resident retirement income under 

the so called ‘‘source rule.’’ Congress also made clear that it wished to restrict that 

right because of the (1) administrative burden imposed on a citizen in complying 

with such a demand and (2) the unfairness, whether perceived or actual, of a state 

continuing to tax retirement income once a citizen had moved from the state. 

There are several elements included in the testimony presented on H.R. 394 that 

are relevant to the need for H.R. 4019. In testimony to this committee on H.R. 394, 

several members of Congress expressed concern that H.R. 394 could lead to abusive 

tax planning by wealthy individuals using tax planning to defer income while in a 

high tax state and then receive that income after retiring to a non-income tax state. 

An amendment to the original bill addressed that concern by requiring that payments from non-qualified plans be in the form of periodic payments under federal 

rules. It appears to me that the debate on the original legislation and subsequent 

amendment clearly shows Congress was broadly defining retirement benefits from 

non-qualified plans in the protected category. 

III. DYNAMICS OF A TAX SYSTEM

Questions from individuals, businesses, tax professionals and internal staff of the 

agency may always be raised about how to apply tax laws after they are passed. 

Many questions are answered on an ad hoc basis or through letters, Technical Information Releases and Declaratory Rulings. There are two ‘‘waves’’ of questions; those 

raised during the implementation phase of a law and those raised several years 

later when taxpayers are audited. 

Auditors are always looking backwards. They are often auditing returns that report transactions conducted two or three years previously. Conflicts sometimes arise 

between taxpayers and auditors because the law has changed and the interpretations of that law were developed after the returns were filed. Good administrators 

will make these adjustments prospective to maintain the stability and predictability 

principles, but sometimes that does not occur. 

Once the state auditors join in the fray, they will raise questions based on their 

audit experience. Auditors are generally not concerned with the policy behind the 

law; they simply want 100 percent compliance regardless of any administrative burden. Administrative burden is the responsibility of the policy makers. In the immediate issue at hand, the draft technical bulletin addresses retirement payments to 

nonresident partners. It is important to note, that the dynamics of the system will 

cause the expansion of the enforcement beyond the initial group. At some point, an 

administrator will point out that ‘‘everyone needs to be treated the same.’’ So it is 

likely that the current audit interpretation will expand to anyone the audit division 

can classify as non-employees, such as proprietorships and self-employed individuals. H.R. 4019 addresses this issue directly by clearly including the retirement payments to partners and self-employed individuals. 

States struggle every budget cycle on how best to finance the services they provide 

fueled in part by balanced budget requirements. In 2005, I served as a co-chair of 

Governor Lynch’s transition team with responsibility for developing the biennial 

budget. I have also worked closely with four governors, both Republican and Democrat in developing budgets and have never experienced an ‘‘easy’’ budget. The state 

budget process is difficult and requires both financial and political skills to achieve 

a balance between required services and available revenue. 

The ‘‘no new taxes’’ position has become a standard of American politics and made 

it even more difficult for any eventual winner of an election to develop a budget. 

The result is politicians have had to become very imaginative in how to pay for state 

services. Aggressive tax policy administration frequently raises revenue. And, all too 

often states look to nonvoters to raise revenue without regard to the administrative 

burdens imposed. 

Audit division interpretations and informal rule making can raise revenue directly 

or indirectly. Unfortunately, each of these methods increases administrative costs to 

companies and individuals paying lawyers and accountants to defend their rights. 

Often, aggressive audit actions are reinforced by administrations trumpeting the 

‘‘success’’ of some audit initiative. By embracing the principles established in 1995, 

H.R. 4019 will reduce administrative costs borne directly by taxpayers. 

22

IV. CONCLUSION

H.R. 4019 is not a ‘‘states’ rights’’ issue. Congress decided back in 1995 that it 

was appropriate for it to assert its Commerce Clause authority. We are now asking 

that Congress clarify its intention to prevent states from taxing all nonresidents on 

their retirement income. This clarification would of course have the same effective 

date as the original legislation. This is an issue of whether or not citizens should 

be able to rely on the actions of Congress when it decides to resolve a state tax 

issue. This is about the stability of the tax system and the unwritten agreement between citizens and government to minimize compliance burdens. 

Litigation might eventually resolve this controversy, but litigation will take a 

number of years. Citizens should not have to comply with the tremendous administrative burden identified in 1995, nor pay expensive legal fees while waiting for the 

issue to work its way through the judicial system. It is also possible that Congressional inaction would encourage other states to adopt the same interpretation to 

raise additional revenue.

Mr. CANNON. Thank you, Mr. Arnold. 

I appreciate the panel’s very concise testimony and we may want 

to get to you as we move forward. I think we’re going to mark this 

bill up today. That means we have still many places or several 

places where we can make adjustments to it. So we appreciate your 

input. 

Are there any Members of the panel that would like to ask some 

questions? 

Mr. Watt is recognized for 5 minutes. 

Mr. WATT. I won’t take 5 minutes, Mr. Chairman. I want to do 

two things. 

Number one, I think I misstated in my opening statement that 

we acted on this bill in 1996. It was actually December of ’95. I 

think the bill was actually signed by the President in ’96. So I 

didn’t want the record to be incorrect in that respect. 

I did want to ask Mr. Portnoy and Mr. Arnold whether they 

share the concerns that have been expressed by Mr. Duncan, and 

whether, in light of those concerns, we would be well advised between now and the time the full Committee acts on this bill, to address those concerns or what is your opinion on that? 

Mr. ARNOLD. Mr. Watt, I think in many ways that some of the 

issues that were brought up by Mr. Duncan were—resolved, at 

least the initial one, and I’m not speaking for him, but he makes 

an emphasis on the issue where—he used the term retirement benefit rather than retirement income, which had been the term that 

had been used in the original law. We agree that that could be easily changed to retirement income and would help in the clarity. It 

was not intended to establish a new category of income. 

Mr. PORTNOY. May I add something, Mr. Watt? 

Mr. WATT. Yes, sir. 

Mr. PORTNOY. The 4019 bill is not intended to make any of the 

changes that were being described. Many of the issues that he is 

articulating were issues when the original bill was enacted. You 

dealt with them or didn’t deal with them as you saw fit. And our 

language does not change any of those issues. 

Mr. WATT. But at the same time, we don’t want to open additional areas of dispute, whether they address concerns that were 

addressed before or not. If we’re going to open another set of issues 

to be quibbled about or litigated about or vexed about by accountants or State revenue authorities, we need to clarify that, I would 

take it. Or would you disagree with that? 

23

Mr. PORTNOY. I think that’s an appropriate concept, Mr. Watt, 

but I don’t think that any of that has occurred. For example, the 

10-year rule of substantially equal payments was in the original 

legislation. But substantially equal was undefined. 

So there has always been a degree of question about what that 

meant. 

What our bill does is narrow that to a certain extent, possibly in 

a way Mr. Duncan is not in favor of, but nonetheless is just a clarification of the original bill with these issues that you dealt with 

previously. 

Mr. WATT. I appreciate it, Mr. Chairman. I yield back. 

Mr. CANNON. The gentleman yields back. 

The Chair hopes no one else is interested in asking questions. 

That being the case, we want to thank the panel for being here 

today. 

Mr. DELAHUNT. Can I just ask one question? 

Mr. CANNON. Absolutely, Mr. Delahunt. The gentleman is recognized for 5 minutes. 

Mr. DELAHUNT. Do you want your quorum? I figured you’d recognize, Mr. Chairman. 

I’m really confused and I wasn’t here when the original bill came 

out. But let me just pursue what Mr. Watt was addressing. 

Is this a language problem, Mr. Duncan? 

Mr. DUNCAN. I thought perhaps it was. But now, after Mr. Portnoy’s answer, I’m not so sure that it is. 

I guess we believe that the limits that are in the current law of 

10 years on the pay out and substantially equal are important to 

avoid abusive situations with nonqualified deferred comp plans. 

The language that’s being inserted here, we think can effectively 

negate those. And the answer of Mr. Portnoy was—implies that 

they’d like to at least alter the substantially equal. 

We are fine with the current language, in terms of length of pay 

out and substantially equal. 

Mr. DELAHUNT. Mr. Portnoy? 

Mr. PORTNOY. We have no changes to that language. It’s still 10 

years substantially equal. 

What we are saying is there are some standard provisions in 

these type of plans, such as COLA adjustments annually, that one 

State at the moment and others shortly are saying disqualifies that 

from meeting the 10 years substantially equal test. 

We’re suggesting that this legislation doesn’t change that definition of the 10 years substantially equal. 

Mr. DELAHUNT. If I’m incorrect, I think that there’s a consensus 

that the issue should be addressed, but that there’s a real disagreement among Members of the panel here as to whether, as Mr. Watt 

says, it opens up new areas of uncertainty, as opposed to clarification. 

Mr. ARNOLD. Mr. Delahunt, if I could, I think number one, one 

of the main issues was the definition of whether or not we were 

talking about retirement income or a new thing called retirement 

benefit. We agree with Mr. Duncan that should be changed. 

And again, as far as working with the language, the sponsors 

when this bill was drafted who were working on the drafting of this 

24

bill, there was no intent to change what Congress had done back 

in 1995. 

Now from the standpoint of the language and where it is, I think 

it’s just a matter of maybe working with Mr. Duncan to ensure that 

he understands how it does not change that. 

Mr. DELAHUNT. That was going to be my recommendation because I don’t think that we want to make something that is arcane 

and esoteric, really complicated because we don’t like to deal with 

things that are any of those. 

So if you really have a desire to resolve this, I daresay that the 

three of you gentleman sit down and have discussions that prove 

to resolve that so you can reassure the Chairman and Members of 

the Committee and the Ranking Member that we’re all on the 

same page. 

I yield back. 

Mr. CANNON. The gentleman yields back. Thank you. 

Let me just say that we’re learning as we go. I think some very 

good ideas have come up here. We will be talking with particularly 

Mr. Duncan and others and will involve certainly the minority staff 

in this process so we can come up with a bill that is actually 

clarificatory and not one that creates more difficulty in the future. 

Other questions from the panel? 

If not, we thank you all for being here. 

This hearing is adjourned and now we’re going to go into a markup, so gentleman, thanks for being here. 

[Whereupon, at 4:43 p.m., the subcommittee was adjourned.] 

(25)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

BIOGRAPHY OF THE HONORABLE GEORGE W. GEKAS, FORMER UNITED STATES REPRESENTATIVE, FORMER CHAIRMAN OF THE SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY


Gekas.eps
26

BIOGRAPHY OF LAWRENCE F. PORTNOY, LLP, RETIRED PARTNER, 

PRICEWATERHOUSECOOPERS


Portnoy1.eps
27

BIOGRAPHY OF HARLEY T. DUNCAN, EXECUTIVE DIRECTOR,

FEDERATION OF TAX ADMINISTRATORS


Duncan1.eps
28


Duncan2.eps
29

BIOGRAPHY OF STANLEY R. ARNOLD, CPA, FORMER COMMISSIONER OF NEW HAMPSHIRE’S DEPARTMENT OF REVENUE ADMINISTRATION AND FORMER PRESIDENT OF

THE FEDERATION OF TAX ADMINISTRATORS

Æ


Arnold.eps