The Nov. 23 Business story "When Shelters Aren't Aboveboard" suggested that "corporate tax shelters" are eroding the corporate income tax base, but it cited a flawed study to support its contention.

First, the study by Martin A. Sullivan measured taxes by reference to tax receipts rather than tax liability. Thus, it took into account refunds that relate to prior-year tax liabilities and thus have no bearing on current-year liability. Second, its measure of corporate profits included profits of the Federal Reserve Banks and other amounts that have nothing to do with the measurement of corporate effective tax rates.

A PricewaterhouseCoopers study of corporate effective tax rates--which used Internal Revenue Service data and followed the Congressional Budget Office's measure of corporate profits--found no decline in the corporate effective tax rate; the corporate effective tax rate is 32.7 percent so far this year.

The article also did not point out that corporate income tax revenues for the past four years have been at the highest level of gross domestic product than at any time since 1980. And while aggregate corporate tax receipts declined in FY '99, this decline was foreseen by the Office of Management and Budget; increased depreciation and compensation deductions--not tax shelters--have been cited as a cause. The article also failed to note that corporate income tax receipts are on the rise.

Finally, the article suggested that "improper deals" are proliferating but the only so-called shelter it discussed in any detail related to leveraged corporate-owned life insurance--an arrangement prohibited by Congress in 1996. The IRS's recent victories in the tax court in a number of shelter cases serve as a strong deterent to improper behavior and call into question the need for additional legislation.

KENNETH J. KIES

Washington

The writer is a co-managing partner and chair, federal tax policy group, Washington national tax services, for PricewaterhouseCoopers.