Daily Tax Update - April 23, 2007

IRS ISSUES GUIDANCE ON PENALTIES FOR TAX PRACTITIONERS:  Today, the IRS issued Notice 2007-39, which provides guidance to practitioners, employers, firms, and other entities that might be subject to financial penalties under 31 U.S.C. 330.  Section 330 was amended by the American Jobs Creation Act of 2004 to expand the sanctions that the Secretary may impose for certain prohibited conduct within the meaning of section 10.52 of Circular 230 to include monetary penalties.

  • The Notice provides guidance regarding the amount of the monetary penalty the Secretary may impose for prohibited conduct.  The Jobs Act provided that the aggregate monetary penalty cannot exceed the gross income derived from the prohibited conduct by the practitioner and the employer, firm, or other entity in connection with such prohibited conduct.
    • The Notice provides that if a single act of prohibited conduct is an "integral part" of a larger engagement, the amount of the penalty is limited to the gross income derived from the larger engagement.
    • The Notice also notes that the Secretary has the discretion to impose a monetary penalty in an amount less than the amount allowed by statute.
    • If the Secretary imposes penalties against both the practitioner and the employer, firm, or other entity for any prohibited conduct, each separate penalty may not exceed the gross income derived by the practitioner and the employer, firm, or other entity, respectively.
  • The Notice also provides examples that describe situations in which the employer, firm, or other entity is subject to monetary penalties because it knew, or reasonably should have known, of such prohibited conduct.  
  • The Notice invites comments from the public on the rules.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com  or Arthur L. Baileyabailey@steptoe.com  
  • The notice can be accessed via: http://www.irs.gov/pub/irs-drop/n-07-39.pdf

AGREEMENT REACHED ON SMALL BUSINESS TAX PACKAGE:  Late Friday, House Ways and Means Committee Chairman Charles Rangel (D-NY) and Senate Finance Committee Chairman Max Baucus (D-MT) agreed to a $4.84 billion package of tax incentives for small businesses that excludes many of the controversial revenue offset provisions originally approved by the Senate.   Grassley criticized the final package over the omission of several of the revenue offsets.  Grassley said, “Missing are many of the tax abuse crackdowns from the Senate bill. Apparently the lobbyists' crocodile tears over those crackdowns were effective.”

The bill would:

  • extend the work opportunity tax credit for three and a half years with disabled veterans and “outward migration” provisions;
  • increase the small-business expensing limit under section 179 to $125,000 while extending through 2008 expensing limits for businesses in the Gulf Opportunity Zone;
  • make several modifications to the standards that allow a small business to qualify for S corporation treatment;
  • allow an unincorporated business owned jointly by a married couple to file as a sole proprietorship instead of a partnership;
  • freeze the minimum wage level for purposes of calculating the tip credit;  and
  • waive the individual and corporate alternative minimum tax limitations on the WOTC and the tip credit.
  • Additional information can be accessed via:  http://finance.senate.gov/press/Bpress/2007press/prb042007a.pdf 

TAX BILLS INTRODUCED APRIL 20TH:
H.R.1976: To amend the Internal Revenue Code of 1986 to modify the refined coal credit to include qualified coal waste sludge recycling.
Sponsor: Rep Doyle, Michael F. [PA-14] (introduced 4/20/2007)      Cosponsors (8)
Committees: House Ways and Means
Latest Major Action: 4/20/2007 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

H.R.1977: To amend the Internal Revenue Code of 1986 to allow solar and geothermal investment credit for public utility property.
Sponsor: Rep Berkley, Shelley [NV-1] (introduced 4/20/2007)      Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 4/20/2007 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

H.R.1987: To amend the Internal Revenue Code of 1986 to allow the small agri-biodiesel credit for biodiesel derived from waste vegetable oils.
Sponsor: Rep Jefferson, William J. [LA-2] (introduced 4/20/2007)      Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 4/20/2007 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

S.1179: A bill to amend the Internal Revenue Code of 1986 to extend the financing for Superfund for purposes of cleanup activities with respect to those Superfund sites for which removal and remedial action is estimated to cost more than $50,000,000, and for other purposes.
Sponsor: Sen Casey, Robert P., Jr. [PA] (introduced 4/20/2007)      Cosponsors (None)
Committees: Senate Finance
Latest Major Action: 4/20/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

S.1180: A bill to amend the Internal Revenue Code of 1986 to extend the placed-in-service date requirement for low-income housing credit buildings in the Gulf Opportunity Zone, and for other purposes.
Sponsor: Sen Landrieu, Mary L. [LA] (introduced 4/20/2007)      Cosponsors (None)
Committees: Senate Finance
Latest Major Action: 4/20/2007 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
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