An original bill to amend the Internal Revenue Code of 1986 to provide additional tax incentives to employers and employees of small businesses.
Detailed Summary
Small Business and Work Opportunity Act of 2007 - Title I: Small Business Tax Relief Provisions - Subtitle A: General Provisions - (Sec. 101) Amends the Internal Revenue Code to extend through 2010 the increased expensing allowance for small business assets.
(Sec. 102) Extends through March 2008 accelerated depreciation of qualified leasehold and restaurant improvement property. Revises the definition of "qualified restaurant property" to eliminate the requirement that improvements to restaurant property must be placed in service more than three years after the original building is placed in service.
Allows accelerated depreciation (i.e., 15-year recovery period, using the straight line method) for qualified retail improvement property placed in service before April 1, 2008. Defines "qualified retail improvement property" as improvements to the interior portion of a nonresidential building used as a retail trade or business serving the general public. Excludes as an improvement the enlargement of the building, any elevator or escalator, common area structures, or the internal structural framework of the building.
(Sec. 103) Exempts certain small businesses from the requirement of using the accrual method of accounting (thus permitting such businesses to use a cash method of accounting). Limits such exemption to businesses which have annual gross receipts of not more than $10 million (increased from $5 million). Indexes the gross receipts amount for inflation after 2008. Exempts such small businesses eligible to use cash accounting methods from the requirement to use inventories.
(Sec. 104) Extends the work opportunity tax credit through 2012. Expands the veterans eligible for such credit to include veterans with service-connected disabilities incurred after September 10, 2001. Increases the amount of disabled veteran first year wages eligible for the credit from $6,000 to $12,000.
Establishes as a new targeted group under such credit designated community residents (in lieu of high risk youth). Requires such residents to be between the ages of 18 and 40 and have a principal place of abode in an empowerment zone, enterprise community, or renewal community.
Modifies the definition of vocational rehabilitation referral for purposes of such credit to include certain individual work plans developed and implemented by an employment network under the Social Security Act.
(Sec. 105) Provides rules for the treatment of certified professional employer organizations as employers for purposes of employment tax liability and other employment tax obligations. Sets forth requirements applicable to certified professional employer organizations, including bond and independent financial review requirements.
Subtitle B: Subchapter S Provisions - (Sec. 111) Redefines "passive investment income" for purposes of S corporation revocation rules to exclude gains from the sale or exchange of stock or securities as an item of passive investment income.
(Sec. 112) Excludes restricted bank director stock from treatment as S corporation stock.
(Sec. 113) Sets forth a special accounting rule for banks that become S corporations and that change from the reserve method of accounting for bad debts.
(Sec. 114) Revises the tax treatment of sales of stock of wholly-owned subsidiaries of S corporations.
(Sec. 115) Sets forth a special rule for the treatment of the pre-1983 accumulated earnings and profits of certain corporations described by the Small Business Jobs Protection Act of 1996.
(Sec. 116) Permits a nonresident alien to be a potential current beneficiary of an electing small business trust (ESBT).
Title II: Revenue Provisions - (Sec. 201) Changes the effective date (to taxable years beginning after December 31, 2006) of certain loss deferral rules applicable to leases entered into with a foreign person or entity on or before March 12, 2004.
(Sec. 202) Applies rules treating certain foreign corporations as domestic corporations for tax purposes for inversion transactions (sales or transfers of more than 80% of a domestic corporation's stock or assets to a foreign subsidiary for tax avoidance purposes) occurring after March 20, 2002, and before March 4, 2003.
(Sec. 203) Denies a tax deduction for punitive damages paid or incurred resulting from a judgment or settlement of a claim.
(Sec. 204) Revises tax rules that deny a tax deduction for fines and penalties paid to a government for the violation of any law to provide that no deduction shall be allowed for any fine or penalty paid (whether by suit, agreement, or otherwise) to, or at the direction of, a government or nongovernmental regulatory entity for a violation or for the investigation or inquiry into a potential violation.
Allows exceptions to the general rule of nondeductibility for: (1) certain restitution payments or payments required to come into compliance with law; (2) court-ordered payments not involving a government or nongovernmental regulatory entity; and (3) amounts paid or incurred as taxes due.
Requires governmental agencies involved in a settlement with a taxpayer to report information about such settlement to the Secretary of the Treasury and the taxpayer, including the amount of the settlement, the amount paid as restitution or remediation of property, and the amount paid to come into compliance with law.
(Sec. 205) Sets forth rules for the tax treatment of U.S. citizens and permanent resident aliens (expatriates) who terminate their citizenship or residency to avoid U.S. taxation. Taxes such expatriates on their property as if sold on the day before expatriation at its fair market value. Allows an exclusion of the first $600,000 (adjusted annually for inflation) of such gain.
Allows expatriates to elect to continue being taxed as U.S. citizens. Allows a deferral of any tax owed resulting from such election, but requires the posting of adequate security for payment of any deferred amount.
Sets forth rules for the tax treatment of retirement plans, interests in trusts, gifts, and inheritances of expatriates.
Amends the Immigration and Nationality Act to render inadmissible to the United States (deny reentry to) expatriates who fail to comply with their tax obligations as set forth in this Act. Requires the Secretary of Homeland Security to disclose to the Attorney General whether an expatriate is in compliance.
(Sec.206) Limits the annual aggregate amounts which may be deferred under a nonqualified deferred compensation plan.
(Sec. 207) Increases criminal fines and prison terms for attempting to evade or defeat tax, willful failure to file tax returns or pay tax, aggravated failure to file tax returns, and making fraud and false statements in connection with a tax return.
(Sec. 208) Doubles tax penalties, fines, and interest on underpayments of tax related to tax shelters involving offshore financial arrangements. Allows the Secretary to waive such penalties for certain businesses that use offshore payments in the ordinary course of business.
(Sec. 209) Increases the penalty for tendering a bad check or money order for payment of tax.
(Sec. 210) Sets forth requirements for regulations governing contingent payment convertible debt instruments.
(Sec. 211) Extends the authorization for charging Internal Revenue Service (IRS) user fees through FY2016.
(Sec. 212) Allows tax levies for federal employment taxes without pre-levy collection due process hearings.
(Sec. 213) Modifies requirements for the IRS whistleblower program. Reduces from $2 million to $20,000 the required amount of tax in dispute for granting whistleblower awards.
Establishes in the IRS a Whistleblower Office and authorizes appropriations. Requires the Secretary to report to Congress on its establishment and operation.
Authorizes the Tax Court to adopt rules to preserve the confidentiality of whistleblowers who appeal awards.
(Sec. 214) Redefines "covered employee" for purposes of the limitation on the tax deduction for excessive employee remuneration.
Status of the Legislation
Latest Major Action: 1/22/2007: Placed on Senate Legislative Calendar under General Orders. Calendar No. 10.
Points in Favor
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Points Against
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Visitor Comments
Robert L. Traylor, C.P.A.
January 16, 2007, 10:25am (report abuse)Repealing the Alternative Minimum Tax may be biting off more than can be swallowed at this time. I think the 1st priority should be to repeal the limits on the use of General Business Credits, based on the Tentative Minimum Tax.
Now that the Minimum Wage is going to be increased, it is time to repeal the limitation on the utilization of the following credits, based on Internal Revenue Code Sections 38(c)(1) and 38(c)(1)(A).
IRS Form Name of Form
5884 Work Opportunity Tax Credit (WOTC)
8861 Welfare-to-Work Credit (WtW)
8845 Indian Employment Credit (IEC)
8844 Empowerment Zone and Renewal Community Employment Credit (EZ/RC)
Deductible wages are actually reduced by the amount of the Credits claimed. This often results in more income tax being paid than the amount of Credits that can be utilized. The result is an actual disincentive to hire potential employees in these Targeted Groups.
Thanks for your consideration of this matter,
Bob
Robert L. Traylor, C.P.A.
P O Box 57789
Jacksonville, Florida 32241
Telephone: (904) 716-2169
Facsimile: (904) 236-4915
BobTraylor@Comcast.net
Bob Traylor
January 16, 2007, 10:36am (report abuse)Robert L. Traylor, C.P.A.
P O Box 57789
Jacksonville, Florida 32241-7789
Telephone: (904) 716-2169
Facsimile: (904) 236-4915
BobTraylor@Comcast.net
IRS Form Name of Form
5884 Work Opportunity Tax Credit (WOTC)
8861 Welfare-to-Work Credit (WtW)
8845 Indian Employment Credit (IEC)
8844 Empowerment Zone and Renewal Community Employment Credit (EZ/RC)
Why do less than 1% of Eligible Taxpayers Use These Credits?
If you hire as few as 10 employees a year, 1 or 2 of them may qualify for either the WOTC, WtW or IEC Tax Credits. These are Federal Income Tax Credits (Credits), so why don't more taxpayers take advantage of them?
The reason is that neither the WOTC, WtW or IEC Credits can be utilized to pay the Tentative Minimum Tax (TMT) on your Income Tax Return (EZ/RC Credits can be utilized against 25% of TMT). TMT comes from the Alternative Minimum Tax (AMT) schedule, even if you do not have to pay AMT, as follows:
IRS Form Schedule Line
Individuals: 6251 33
Corporations: 4626 12
Estates and Trusts: 1041 I 54
In addition to potentially not being able to actually utilize the Credits, wages are not deductible to the extent of the Credits claimed. Example:
WOTC, WtW and IEC Credits Claimed - $100,000
Adjusted Gross Income - $300,000
Additional Income Taxes on Non Deductible Wages - $33,000
Useable Tax Credits, after TMT limitation - $1,000
The taxpayer is now out of pocket $32,000 + its after tax cost of the necessary administration to identify and certify the Credits with the state employment security agency (SESA).
Accompanying the Minimum Wage increase, there should be a repeal of the limitations on the use of these Credits under Internal Revenue Code Sections 38(c)(1) and 38(c)(1)(A). Form 1040 - U.S. Individual Income Tax Return - Page 2
Married Filing Jointly with 2 Exemptions
Description
Adjusted Gross Income Taxable Income Regular Income Tax Form 6251 Tentative Minimum Tax 2006 Useable Income Tax Credits Credits / Tax
50,000 33,100 4,210 - 4,210 100.00%
200,000 183,100 40,671 38,987 1,684 4.14%
400,000 389,700 109,644 108,486 1,158 1.06%
600,000 589,700 179,644 164,500 15,144 8.43%
800,000 789,700 249,644 220,500 29,144 11.67%
1,000,000 989,700 319,644 276,500 43,144 13.50%
1,200,000 1,189,700 389,644 332,500 57,144 14.67%
1,400,000 1,389,700 459,644 388,500 71,144 15.48%
1,600,000 1,589,700 529,644 444,500 85,144 16.08%
1,800,000 1,789,700 599,644 500,500 99,144 16.53%
2,000,000 1,989,700 669,644 556,500 113,144 16.90%
Useable Income Tax Credits are less than $6,000 until AGI of $450,000
Useable Income Tax Credits are less than $10,000 until AGI of $525,000
At AGI of $300,000 Useable Income Tax Credits are less than $1,000
Regular Income Tax = Useable Income Tax Credits + Tentative Minimum Tax
Laser
March 21, 2007, 3:26pm (report abuse)Mr Traylor, it is a shame I am a poor boy, if I ever come to wealth or stature I surely hope to find someone of your common sense/legal prowess!