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Legislative Update

Week Ending Oct. 6, 2006

• Tax Appeals Bill Wins House Approval; Goes to Governor
• EIT Collection Forum Educates Legislators
• Goodwill Bill Clears Committee
• New Law Gives Active-Duty Reservists Tax Relief
• Congress Approves CPAs Exempt from GLB Act
• California Safe Harbor Provision Extended Until 2010
• Illinois Licensing Update
• Make an Online Contribution to CPA-PAC

Tax Appeals Bill Wins House Approval; Goes to Governor 

Nearly a decade in the making, legislation streamlining the tax appeals process in Pennsylvania is now headed to Gov. Rendell’s desk for his approval. With PICPA support, the State House approved Senate Bill 993 this week by a vote of 191 to 0. The bill unanimously passed the Senate on June 29, 2006.

Senate Bill 993 reforms and consolidates the tax administration process in Pennsylvania, making it more efficient and less burdensome for taxpayers. The bill also addresses all or parts of five recommendations made by the Governor's Business Tax Reform Commission to improve tax administration and appeals. Those include:

• Standardizing assessment terminology to use “assessment” throughout.
• Requiring all assessments to be prominently labeled and sent via certified mail.
• Changing the settlement of corporate taxes to an assessment process used in other taxes.
• Standardizing all administrative appeal periods to 90 days, while maintaining the appeal period to Commonwealth Court at 30 days.
• Requiring the Department of Revenue to provide the taxpayer with an explanation of the basis for any assessment.

PICPA wishes to acknowledge and thank Sen. Pat Browne, CPA, prime sponsor of the bill, Rep. John Maher, CPA, Rep. Gordon Denlinger, CPA, Rep. David Levdansky, Democratic chair of the House Finance Committee, and Revenue Sec. Greg Fajt, for their efforts in support of the legislation.

EIT Collection Forum Educates Legislators

On Tuesday, Oct. 3, PICPA joined with representatives from the Pennsylvania Chamber of Business and Industry and the National Federation of Independent Business to co-host an educational forum for legislators and staff regarding the complex system of Earned Income Tax (EIT) collection, and proposals for its consolidation and reform.

Held in conjunction with the state Department of Community and Economic Development (DCED), the discussion was held in order to address a proposal recently amended into House Bill 1427, which would streamline the current EIT collection system to the countywide level. DCED Secretary Dennis Yablonsky addressed the gathering with a brief description of the amendment, which represents the combined efforts of all four caucuses, the administration and the business community.

Ken Klothen, DCED Deputy Secretary for Community Affairs and Development, then went into greater detail regarding the benefits the proposed legislation would have over the existing complex and fragmented system. According to Klothen's report, the amendment would reduce the number of tax collectors to almost one tenth of its current 560. The new system also contains provisions for accountability, financial safeguards, oversight and enforcement, providing for uniform withholding, rules, regulations, returns, forms and codes.

PICPA’s Cheri Freeh, CPA, then spoke to the group to emphasize that there are currently no real penalties for tax collectors who fail to comply with Act 511 in their collection practices, or who fail to disclose records or disburse tax monies that belong to another taxing jurisdiction. She also stressed that the passage of Act 1 (Special Session House Bill 39), will only further complicate the system. (To read Cheri Freeh's Sept. 13 testimony before the House Finance Committee, please click here.)

House Bill 1427 is currently in the Senate Appropriations Committee. PICPA is hopeful that forums such as this week's will demonstrate to House and Senate members the value of passing the legislation before the end of the legislative session.

Goodwill Bill Clears Committee

House Bill 2774 was reported from the House Finance Committee on Tues., Oct. 3. The bill addresses the issue and treatment of goodwill associated with business combination and acquisitions.

The legislation would amend the Tax Reform Code and is intended to clarify that for purposes of determining the taxable value of shares, the book value of any surplus may be determined on a pooled basis without any addition to the value of goodwill ascribed to a combination occurring after June 30, 2001. An amendment to the bill makes it prospective to shares assessed as of Jan. 1, 2007, and thereafter.

PICPA members Barry E. Smith, of Smart and Associates, LLP, and Bruce K. Darkes, of Beard Miller, LLP, provided testimony at an Aug. 30, 2006, hearing of the Finance Committee on the bill.

New Law Gives Active-Duty Reservists Tax Relief

The Pension Protection Act of 2006 provides retroactive tax relief to military reservists activated after Sept. 11, 2001, and before Dec. 31, 2007. Military reservists called to active duty can receive payments from their individual retirement accounts, 401(k) plans, and 403(b) tax-sheltered annuities without having to pay the 10 percent early-distribution tax.

Because this relief is retroactive, eligible reservists who have already paid the 10-percent tax can claim a refund by using Form 1040X to amend their return for the year in which the retirement distribution was received. Eligible reservists should write the words, "active duty reservist," at the top of the form.

Congress Approves CPAs Exempt from GLB Act

Congress has passed a bill that exempts certified public accountants from the Gramm-Leach-Bliley Act’s requirement that CPAs send their clients an annual privacy notice. The exemption will be effective as soon as the President signs the bill into law.

The AICPA has worked with lawmakers since enactment of the Gramm-Leach-Bliley Act to achieve the change, which is possible because CPAs are certified or licensed by state boards of accountancy and are already subject to state laws and regulations that prohibit disclosure of nonpublic personal information without the expressed consent of the client.

The House passed the Financial Services Regulatory Relief Act of 2006 on Sept. 27, 2006 by a vote of 417-0. The Senate unanimously passed it on Sept. 30, 2006.

California Safe Harbor Provision Extended Until 2010

A California assembly bill, currently awaiting Gov. Arnold Schwarzenegger's signature, would affect practice privilege conditions for out-of-state CPAs.

The bill would allow out-of-state CPAs to temporarily practice in California provided they do not solicit California clients or assert or imply they are licensed to practice in California. In addition, the bill would: allow out-of-state CPAs to sign their names or firm names to tax returns even if not registered by the California Board of Accountancy (CBA); and require that the '"safe harbor" period for late practice privilege notifications remain in effect until Dec. 31, 2010. This allows out-of-state CPAs a grace period of five days to submit the Notification Form to practice public accounting in California to the CBA.

More information on the bill is available on this CBA tip sheet. Please direct any questions or concerns to the California Board of Accountancy at (916) 263-3630.

lllinois Licensing Update

Under Illinois law, by Oct. 1, 2006, all CPAs who are not licensed but wish to hold themselves out to the public in Illinois must register with the Illinois Department of Financial and Professional Regulation (IDFPR). An emergency rule filed by IDFPR on Sept. 29, 2006, addresses the out-of-state practice issue as it relates to the Illinois Registration Requirement.

The emergency rule is effective immediately and in force for 150 days. The regulation states that if one is an out of state CPA and does not have a physical presence in Illinois or solicit clients in Illinois, he or she will not be required to register with Illinois for temporary or incidental practice in the state.