Jan. 18 (Bloomberg) -- Three members of President George W. Bush's panel to simplify taxes have business interests that would be affected by the commission's recommendations.

The three commissioners are Chairman Connie Mack, Vice Chairman John Breaux and former Internal Revenue Service Commissioner Charles Rossotti.

Three days after being named to the panel, Breaux, a former Democratic senator from Louisiana, joined Washington lobbying firm Patton Boggs LLP, which represents companies such as Mars Inc. on tax issues. Mack, a former Republican senator from Florida, is a senior adviser at Shaw Pittman LLP, which has lobbied the Internal Revenue Service. Rossotti is on the board of Liquid Engines, a Sunnyvale, California, software company that helps companies reduce taxes.

``You're asking these people, if they do a good job, to create a system that would be essentially bad for their businesses,'' said Celia Wexler, director of research at Common Cause, a nonpartisan government watchdog group in Washington. ``You're essentially asking some of these folks to serve two masters and that is something that raises some concern.''

Neither Breaux nor Mack represent clients' tax interests, and both firms have taken steps to ensure they don't during their service on the panel. Rossotti isn't involved in management at Liquid Engines.

Wexler and other critics said there is an appearance of a conflict that may create tensions as the commission examines options such as eliminating deductions, reducing tax rates, or changing to a flat-rate system, national sales or business-to- business tax.

Breaux, who left the Senate this month after a 32-year legislative career, is prohibited from lobbying during his first year at Patton Boggs, the largest lobbying firm by revenue, according to PoliticalMoneyLine, a nonpartisan group which tracks money in politics.

One-Year Prohibition

Patton Boggs handles tax work for Mars, New York-based Time Warner Inc. and the Mutual Legislative Committee, a life insurance industry trade group, according to disclosure reports filed with Congress.

For McLean, Virginia-based Mars, the second-largest U.S. candy maker, Patton Boggs lobbied on tax provisions of a 2004 bill, estate and gift tax changes. Time Warner was helped by Patton Boggs in its successful fight to maintain a moratorium on state and local Internet taxes.

Breaux couldn't be reached yesterday afternoon. In an interview Jan. 11, he said the one-year prohibition against lobbying won't stop him from advising the firm's clients on legislative issues, including those related to taxes.

``The areas of health care and taxation and trade and telecommunications and energy obviously are all areas that we've worked in and I hope to provide some help and assistance,'' Breaux said. ``I can look at things and give clients realistic advice on what is likely to happen or not happen.''

Mack's Refusal

Breaux and the firm discussed his position on the tax panel before he signed on, and agreed he wouldn't work on tax issues for clients while on the commission, said Stuart Pape, a managing partner at Patton Boggs.

``Senator Breaux is not going to be working on tax policy issues for any of our clients while he is working on the tax commission,'' Pape said.

In an interview, Mack said he told the White House he doesn't lobby on tax matters and hasn't in his nearly four-year association with Shaw Pittman, which hired him after he retired from the Senate in 2000. Mack said he agreed with the firm's management that during his involvement with the commission, ``I just won't talk to anybody about tax matters and have told those I work with at the firm to refuse all requests for my involvement on tax issues.''

Clients' Interests

Shaw Pittman, the 107th-biggest lobbying firm by revenue, according to PoliticalMoneyLine, lobbies on tax issues for Washington-based XM Satellite Radio Holdings Inc., its third- largest client.

Last year, XM hired the firm to lobby Congress on taxes for the satellite radio industry, according to a disclosure report. The firm also lobbied the Internal Revenue Service, Treasury Department and Congress on behalf of the Swiss Bankers Association, its sixth-biggest lobby client, on IRS regulations on reporting of deposit interest and on ``international tax issues,'' according to a disclosure.

Rossotti, who left the IRS in 2003 after a five-year term, said in an interview that the White House was aware of his affiliation with Liquid Engines and concluded it didn't pose a conflict.

``It's not like a tax consulting firm, it's just a calculating engine,'' Rossoti said. ``It's completely neutral with respect to what kind of tax there is.''

The software, initially developed to help companies handle interstate transactions, also helps companies manage financial reporting and accounting.

Panel Vetted

Rossotti, who left his job as chief executive officer of Fairfax, Virginia-based American Management Systems in 1998 to run the IRS for five years, is a senior policy adviser at the Carlyle Group, one of Liquid Engines' investors.

Liquid Engines makes software marketed to Fortune 500 companies that ``provides tax planning and management automation that combines robust application capabilities with complex income tax calculations and intelligence,'' according to its Web site. Companies use the software to manage tax audits, plan deferral of U.S. taxes on foreign income, and calculate the tax-efficient pricing arrangements between subsidiaries.

White House spokeswoman Claire Buchan said the Bush administration vetted all of the board members and has no concerns about conflicts of interest.

``Each individual's background, financial holdings and directorships were carefully evaluated by ethics officials to ensure that each could serve in full compliance with all ethics laws and rules,'' she said.

Business Opportunities

Steven Weiss, an analyst at the Center for Responsive Politics, a nonpartisan government watchdog group, said the lobbying firms want former lawmakers at the helm of a high- profile presidential advisory panel because it may translate into more business.

``The organizations that hire them are all too happy for these kinds of opportunities,'' he said.

Jeffrey Trinca, a lobbyist at Van Scoyoc Associates who was staff director of a congressionally appointed commission in 1998 on how to restructure the IRS, said conflicts may not materialize until after the panel completes its work.

``They're going to have a front pole position in the legislative race that begins afterward,'' Trinca said of Breaux and Mack.

Christopher Bergin, chief executive officer of Tax Analysts, the Arlington, Virginia, publisher of Tax Notes magazine, said the three men's business interests don't disqualify them from advising the president on changes to the tax code.

`Principled People'

``I don't know how you can find anybody who hasn't benefited from the current tax system, including me,'' said Bergin, who said Rossotti made a financial sacrifice to be commissioner of the IRS. ``Let's not assume these aren't principled people.''

Other members of the panel include former U.S. Representative Bill Frenzel, a Minnesota Republican and visiting scholar to the Brookings Institution; Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. Inc.; University of Southern California professor Elizabeth Garrett; former Federal Trade Commission Chairman Timothy Muris; Stanford University Economics professor Edward Lazear; and Massachusetts Institute of Technology professor James Poterba.

Bush asked the panel to make recommendations by July 31.

To contact the reporter on this story: rdonmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: January 19, 2005 00:18 EST