Tax Notes, a weekly magazine published in Arlington, began over a decade ago on a shoestring budget and a commitment to lead the charge in the drive to reform the tax system.
Its constituency was, almost entirely, the press. And the publication was free.
"The seemingly strange fact is that we naively set out to reform the tax system in 1970, and promptly ran into the facts of life," said the publisher, Thomas F. Field. "Few are willing to put up the money to achieve that goal."
For most idealistic ventures of the ideological left, recent years have been a disaster. Foundation money has dried up, the Reagan administration is trying to cut off funds that could trickle down to liberal reform groups, and the spurt of public support in the late 1960s and early 1970s has quieted, if not died.
But for Tax Notes, the past decade has been an extraordinary transition. The one-time handout now costs subscribers $375 a year, and there are 2,700 people and companies willing to pay. While some newspapers continue to subscribe, the publication's constituency is now the legal and accounting community, the tax practitioners.
In terms of political consequences, perhaps the magazine's major coup was in 1973, when it played a key role in initiating questions about the amount of money President Nixon had paid in federal taxes in past years, and in challenging the legality of $570,000 in charitable tax deductions.
The nonprofit publication continues to maintain a reform edge--it is perhaps the only institution that attempts to trace the real tax rates paid by different companies and industries, and, recently, a Tax Notes article raised significant questions over the tax benefits created by U.S. Steel's acquisition of Marathon Oil.
It is also, however, a key Washington forum in the wide-ranging debate over tax policy, publishing articles from across the political spectrum. In this sense it remains a major resource for politicians and their aides who deal with tax issues, and for the press covering the tax process.
But, in terms of the magazine's growth, the major reason for the broadened subscription base is the detailed--and to the general public, arcane--information provided the legal and accounting community. This information is not sought to help reform the system, but to find new ways to help clients avoid paying taxes.
For these practitioners, who want detailed documents, Tax Notes has been expanding rapidly, and now provides a complete microfiche edition with all back-up materials for $995. This month the weekly publication is starting up a daily service, Tax Notes Today, to be sent out electronically.
Field, acknowledging that the tax practitioners are the magazine's bread and butter, said that the 2,700 subscribers consist of 2,625 lawyers, accountants and corporate representatives, 50 aides and elected officials on Capitol Hill, and 25 reporters. It is for the minority of 75 "that we write the magazine," he contended.
When it began, Tax Notes was one part of a three-pronged drive to reform the tax system: under an umbrella organization called Taxation With Representation, there was also a public interest law firm and a lobbying arm. By the mid-1970s, both of these were dropped.
At the start, Tax Notes was put out by Field and James Byrne. Now there is a full-time staff of 28. Compared to the world of tax practitioners, where annual compensation can easily exceed $200,000, the pay is low. Field makes $35,000 and the publication has no pension plan.
But, boasts former editor Byrne, who is still on the publication's board, "Tax Notes is now a $1 million-a-year gross operation without one dime of foundation money."
Field, 50, a former tax attorney for the Treasury and Justice departments, has overseen the magazine and the former lobbying and legal advocacy operations through the entire history of the organization.
"We figured out a way to make it pay for itself, and really, when you get down to it, that is the bottom line," Field said. "In the end, we had to stop the advocacy functions because they didn't pay for themselves."
In an unusual twist, however, it is the results of the work of the advocacy law firm that had been a part of the Tax Notes operation which produced the material that gives the magazine much of its appeal to tax practitioners.
In a series of Freedom of Information suits, the organization won access to letters, mainly from tax lawyers, corporate counsel and trade associations, to the Treasury, and to Internal Revenue Service general counsel's memoranda and IRS private-letter rulings in response to requests from corporations and individual taxpayers seeking to determine what their tax liabilities would be for various actions.
A key function of tax lawyers is to develop new mechanisms for their clients to avoid tax. These documents, for the practitioner, can become essential leads to new tax-avoidance techniques. For the average reader, the IRS advice, even when summarized by Tax Notes, would have little or no meaning.
For example, the lead item of the IRS letter rulings in the June 21 issue is: "A limited partnership that provides cable television service plans to incorporate in a section 351 transaction. The partnership will transfer section 38 property to the new corporation, and partners will receive interests in the corporation commensurate with their interests in the partnership. The service has ruled that the transfer of the section 38 property to the corporation will not cause investment credit recapture under section 1.47-3(f)(1)(i) of the regulations."
It is, however, the bread of butter of the tax bar to determine the tax consequences in every conceivable way of achieving a specific goal (in this case, the question is whether some of the already received investment tax credit would have to be paid back when a partnership became a corporation in these circumstances).
Field argues that one of the basic functions of Tax Notes is to make available to everyone in the tax bar, including lawyers well away from the center of the debate here in Washington, the minutiae that can make or break a client's plans.
The Treasury letters, however, are interesting both to the detailed practitioner and to those who are trying to determine who is active in tax fights on Capitol Hill.
For example, in the current drive to increase taxpayer compliance, the incoming Treasury letters show growing opposition by such corporations as Weyerhauser and Union Carbide to penalties for understating tax liabilities, and the proposal to eliminate corporate tax leasing produced a flood of letters, pro and con, from across the country.
The magazine regularly publishes lengthy articles on current tax issues. These have included a 30-page critical analysis of tax expenditures by Paul R. McDaniel, of Boston College, and Stanley S. Surrey, of Harvard Law School; a study of the administration's corporate minimum tax proposal by Mai N. Woo, of the Institute for Research on the Economics of Taxation, the consulting firm started by supply-side advocate Norman B. Ture; and a comparison of the way different advanced countries use taxation to encourage savings, productivity and growth, by Bob Kuttner, editor of Working Papers.
In addition, although much of the work of the staff is to produce coverage of hearings, IRS rulings and other matters of record, the magazine earlier this year produced a study by Melissa Brown, Tax Notes' editor, of the tax consequences of the U.S. Steel-Marathon Oil merger.
The article, in turn, has been a major factor in a drive in Congress to eliminate a provision in the tax code that creates tax benefits in mergers that would not exist otherwise, and which appears to act as an incentive to mergers, despite public policy to the contrary.
The publication is generally widely respected for its accuracy, but, in at least one case, it significantly underestimated the tax rate paid on domestic income by Exxon.
In 1981, using publicly available data, and an accounting system which, when firms failed to distinguish between foreign and domestic income, resulted in declaring the rate to be the highest of various alternatives, Tax Notes contended that Exxon was paying only 1.3 percent on its U.S. income.
After a running dispute with Exxon officials, during which Exxon agreed to provide information separating foreign deferred taxes from domestic deferred taxes, the magazine published recomputed tax rates showing that for Exxon, the rate actually was 32.9 percent.
Field, a consistent optimist, ran detailed stories describing the dispute and its resolution, and a less-resolved conflict with Mobil, as: "A sometimes productive dialogue."