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Legislative Update

Week Ending June 23, 2006

• Week in Review
• Political News & Notes
• Browne's Tax Appeals Bill Goes to Full Senate
• Lobbyist Reform Legislation Passes House
• Identity Theft Legislation Clears General Assembly
• AICPA Urges Form 990 Clarifications
• Taxpayer Burden Reduction Feedback Requested
• Businesses Urged to Classify Workers Correctly
• IRS National Phone Forums Scheduled
• Crowd Attends Working Together Conference

Week in Review

In a sign of solidarity, House Democrats stood behind their leadership at a press conference Tuesday to announce the caucus' priorities for the remainder of the legislative session-investing more in basic education and special education, adding new seniors to PACE, enacting the Governor's Cover All Kids program, and passing lobbyist reform. The caucus also supports "sensible and responsible" business tax cuts.

On Thursday, the state House approved lobbyist reform legislation, sponsored by Rep. John Maher, CPA. "This reform is the toughest and most expansive lobbying law that the state Legislature has ever considered," according to Maher. In 2002, the Pennsylvania Supreme Court overturned Pennsylvania's lobbying law declaring only the courts have the ability to regulate lawyers. As a result, Pennsylvania has been the only state in the nation without such a law.

The Senate approved a minimum wage increase bill Thursday evening. On a 36 to 14 vote, senators approved a plan that would boost the $5.15 minimum wage to $6.25 an hour by Jan. 1, 2007, and $7.15 an hour on July 1, 2007, for businesses with more than 10 employees. The bill now goes to the House, which has already passed its own minimum wage bill.

Political News & Notes

Dinniman Takes Oath as Senator. History was made this week in the General Assembly as Andrew Dinniman took the oath of office to become the first Democrat state Senator in modern history to hold the 19^th Senatorial seat in Chester County. Dinniman defeated Republican opponent Carol Aichele the May 16 special election. The seat was vacated by the death of Sen. Robert Thompson. Dinniman served as a Chester County Commissioner for 15 years.

Casey Leads Santorum. In the latest Quinnipiac poll state Treasurer Bob Casey Jr. holds an 18-point lead over Republican incumbent U.S. Sen. Rick Santorum. Casey leads Santorum 52 percent to 34 percent, with 12 percent of voters undecided. Among Casey supporters, 44 percent said their vote was mainly against Santorum. In all, 67 percent of voters say their mind is made up. According to the survey, Republicans back Santorum 68 percent to 20 percent, while Democrats back Casey 80 percent to 9 percent, and independent voters back the Democrat 54 percent to 30 percent.

Swann Still Trails Rendell. Republican challenger Lynn Swann has gained no ground on Gov. Ed Rendell in their race for Governor and trails the Democratic incumbent 55 - 31 percent, according to a Quinnipiac University poll released this week. In this survey, Gov. Rendell leads Swann 78 - 13 percent among Democrats and 60 - 22 percent among Independent voters. Swann leads 61 - 27 percent among Republicans. The Governor gets 44 - 22 percent favorability, with 23 percent mixed and 10 percent who haven't heard enough to form an opinion. Voter opinion of Swann is 23 - 14 percent favorable, with 12 percent mixed and 50 percent who don't know enough to form an opinion.

Browne's Tax Appeals Bill Goes to Full Senate

PICPA-supported legislation reforming and consolidating the tax appeals process in Pennsylvania unanimously passed the Senate Finance Committee on Tuesday, June 20. The bill now goes to the full Senate for consideration.

Senate Bill 993, sponsored by Sen. Pat Browne, CPA, replaces the corporation tax settlement process with an assessment process beginning Jan. 1, 2008 with regard to corporation taxes, retains the informal process at the Board of Finance and Revenue, ensures that the Office of the Auditor General maintains similar powers to review and approve corporation tax filings, and preserves the role of the Attorney General in mediating cases appealed to Commonwealth Court. The bill does NOT include a Tax Review Tribunal, which PICPA opposed.

SB 993 represents an eight year effort led by Sen. Browne and PICPA to make the tax appeals process more efficient and less burdensome for Pennsylvania taxpayers.

The Committee also amended Senate Bill 292-PICPA's earned income tax improvement proposal. The bill incorporates many of the administrative reforms to the local earned income tax collection system recommended in the Department of Community and Economic Development's 2004 report. SB 292 requires consolidation of collection at the school district level, strengthens auditing and reporting requirements, and necessitates that DCED establish uniform rules and regulations, including standard forms and returns.

The bill was referred back to the Finance Committee and could be used as a vehicle for a countywide collection proposal being drafted by the DCED.

Lobbyist Reform Legislation Passes House

Reform legislation, sponsored by Rep. John Maher, CPA, that will "shed light on the business of lobbying" passed the state House this week by a vote of 190 to 1.

House Bill 700 would enact provisions to reform lobbyist regulation and disclosure and to create a new Lobbying Disclosure Act. In 2002, the Pennsylvania Supreme Court overturned Pennsylvania's lobbying law declaring that the Courts alone should have the ability to regulate lawyers. As a result, Pennsylvania has been the only state in the nation without such a law.

Every dollar of the total costs spent by those working to influence the Governor, Legislature and state agencies will be revealed in public reports. The total costs of gifts and hospitality provided to any state official will be reported specifically identifying each official receiving anything at all reportable under the ethics law.

House Bill 700 requires lobbyists to register with the Pennsylvania Department of State every two years upon spending more than $2,500 in lobbying expenses or services. Lobbyists also will be required to file quarterly reports with the Department of State detailing information required by the bill.

The independent State Ethics Commission will enforce the new law and will be armed with severe penalties. The Commission will have the power to fine offenders up to $50,000 per infraction and could even ban individuals from lobbying activities altogether for up to five years.

The bill now goes to the Senate for consideration.

Identity Theft Bill Clears General Assembly

State legislation to protect the privacy of Social Security numbers was sent to Gov. Rendell this week for his approval.

Senate Bill 601 would prohibit a person, entity, state agency, or political subdivision from publicly posting a Social Security number, printing the number on any cards required for individual access to products or services, requiring an individual to transmit his or her Social Security number over an insecure connection on the Internet, or printing a Social Security number on materials mailed to an individual unless Federal or State law requires the number to be on the document mailed.

These provisions do not apply to a document that originated with, or is filed with, recorded in or is maintained by any court component or part of the unified judicial system. It also does not apply to any document that is required by law to be open to the public; and originates with, or is filed, recorded or maintained by any government agency, instrumentality or taxing authority.

The bill provides that fees from penalties would be distributed equally between the Crime Victim's Compensation Fund and the Office of Attorney General for future identity theft prevention. The bill will not apply to a financial institution, a covered entity, or an entity subject to the Fair Credit Reporting Act. The legislation provides for criminal enforcement by district attorneys and the Attorney General.

If signed into law by Gov. Rendell, the bill will take effect in 180 days.

AICPA Urges Form 990 Clarifications   

The American Institute of Certified Public Accountants has urged the IRS to clarify its instructions on three lines of Form 990, which is the form filed by organizations that are exempt from federal income tax. Practitioners who file federal tax forms for exempt organizations may be interested in these comments.

The three lines of the form on which the AICPA commented are Line 25, Line 75b and Line 75c. Line 25 is where exempt organizations report the amount of compensation paid to their officers. Line 75b is where the reporting exempt organization discloses whether officers, highly compensated employees or independent contractors have any family or business relationships. Line 75c is where exempt organizations disclose whether certain officers, employees or independent contractors receive compensation from any other organizations that are related to the reporting organization through common supervision or common control.

IRS Office of Taxpayer Burden Reduction Feedback Requested

In IR-2006-93 , the IRS' Office of Taxpayer Burden Reduction (TBR) encourages tax professionals, business owners and others to submit proposals on ways to reduce taxpayer burden by using referral Form 13285A, Reducing Tax Burden on America's Taxpayers. More information on completing the form  is available on the IRS Web site.

Earlier this year, the IRS announced in IR-2006-28  an estimate of the tax gap for tax year 2001. The overall gross tax gap - the difference between what taxpayers should have paid and what they actually paid on a timely basis - came to $345 billion. IRS enforcement activities, coupled with other late payments, recover about $55 billion of the tax gap, leaving a net tax gap of $290 billion for 2001.

A number of critical actions and proposals have been initiated to reduce the tax gap, but more is needed. We value your feedback and suggestions. If you have an innovative recommendation on how the IRS can further impact the tax gap while imposing little burden on taxpayers, please share your idea with your Stakeholder Liaison local contact .

Businesses Urged to Classify Workers Correctly

The rash of natural disasters that have hit the United States in the last several months have caused many businesses to hire additional workers to help them meet increased demand for their goods or services. These businesses must make sure they treat their workers properly to make sure everyone can meet their tax obligations.

Most workers fall into two categories, independent contractors and common-law employees. How do you know which one to use? Degree of control: the more control the business has over a worker; the more likely it is that the worker is an employee rather than an independent contractor.

If a business incorrectly classifies a worker, the business could be subject to penalties. However, there may be relief for employers who want to correct any errors they may have made by classifying an employee as an independent contractor.

IRS Headliner 152, IRS Offers Tips on How to Correct Misclassification of Employees, contains additional information about correcting worker classification. 

IRS National Phone Forums Scheduled

The IRS announced that new IRS National Phone Forums, which Stakeholder Liaison will coordinate, will be held on the 3rd Wednesday of each month (except for December). Each Forum will be one to two hours long and cover a particular topic.

The first forum, "Foreign Investment in Real Property Tax Act (FIRPTA)", will address the ten recognized exceptions to the withholding tax and how to apply for a reduction or elimination of the tax. A US real property interest is land, buildings, mines, wells, crops, and timber, as well as an interest in a US Real Property Holding Company. This forum will be held eight times throughout July 19.

Upcoming topics and dates that have been scheduled are "Navigating the IRS Campus System"-August 16 and "Energy Credits"-September 20. To obtain additional information or to register, visit the IRS Web site at: http://www.irs.gov/businesses/small/article/0,,id=158856,00.html.

Crowd Attends Working Together Conference

A standing-room only audience of over 225 CPAs, enrolled agents, attorneys, and employees from the Pennsylvania Department of Revenue and the IRS met at Philadelphia University for the annual Working Together Conference late last month.

"Working Together has become a mark-your-calendar event for many tax professionals in Eastern Pennsylvania," said Brian M. Finn, Mid-Atlantic Area manager for SB/SE Stakeholder Liaison. "Practitioners know that this conference represents a unique opportunity to hear panel discussions where IRS personnel and experienced practitioners discuss issues such as Campus Compliance procedures, Field Exam and Collection programs, and Circular 230 issues."

Working Together is a collaborative effort of public and private tax professionals with the goal of enhancing the level of communication education, and trust between tax administrators and tax practitioners.