In a letter to President Bush, Senate Finance Committee ranking member Charles E. Grassley urged a sweeping review of disclosure requirements related to corporate income taxes. He wants more details on IRS Schedule M-1, and he wants someone other than the Financial Accounting Standards Board (FASB) to decide what is adequate tax footnote disclosure for financial statements.

Sen. Grassley says added disclosure could have "dramatic consequences for policing corporate fraud and policing taxpayers." His reasoning:

• Book-tax differences are growing. This is reflected in a recent Statistics of Income Bulletin issued by the Internal Revenue Service (IRS). Much of the increase is attributable to corporations that report no income for tax purposes. Investors are entitled to know which companies fall into this category and why, especially if the reasons involve unpatriotic tax avoidance schemes. But investors are kept in the dark because companies are allowed to tell the taxman one thing and investors something else.

• Improved tax disclosures might have helped Enron's investors understand the effects and magnitude of the company's undisclosed off-balance sheet financing. But current accounting standards obfuscate the effects. It is not even possible for investors to tell whether or not Enron was paying taxes. Neither the current portion of the tax provision nor the deferred net tax liability equates to, or is reconciled to, any actual payments to taxing authorities.

• Concerned tax practitioners point out that improved disclosures would also have helped investors of WorldCom and other companies. These practitioners have urged Congress, the Securities and Exchange Commission (SEC) and the IRS to consider adopting a single comprehensive requirement that would reconcile the differences between public companies' book and tax income statements and balance sheets.

• Added disclosures might also help the IRS collect taxes from tax dodgers and set fair policies for all taxpayers. Rep. Lloyd Doggett, who has drafted legislation requiring companies to disclose and explain the gap between book and taxable income, says, "A corporate culture of creative accounting and reporting abuses weakens our economy, allows some to dodge paying their fair share of our national security needs, and increases the taxes paid by honest Americans."

In his letter to President Bush, Sen. Grassley reported that Treasury Secretary Paul O'Neill agrees changes are needed. But SEC Chairman Harvey Pitt thinks the disclosures required by FASB's standards are adequate. Sen. Grassley notes that FASB is still controlled by companies and accounting firms, including the users and promoters of the tax avoidance schemes obscured by current accounting standards, so it is important that the review of the tax footnote be independent of FASB. FASB Chairman Robert Herz noted that the underlying issue is one of whether there should be public disclosure of corporate tax returns and this is "a public policy issue that is not really in our purview."