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Legislative Update

Week Ending Oct. 20, 2006

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• Rendell Signs Bill to Change Corp Tax Settlement Process
• Charitable Organizations Bill Heads to Governor's Desk
• PICPA’s Annual IRS Meeting a Success
• County Audit Extension Bills Approved
• House Passes Bill Restructuring Bank Shares Tax
• EMS Conference Committee Appointed
• LLP-LLC Fee Bill Clears Committee

Rendell Signs Bill to Change Corp Tax Settlement Process

Gov. Ed Rendell signed into law legislation Wednesday reforming and consolidating the tax administration process in Pennsylvania. PICPA supported the proposal and wishes to thank all those who helped push this bill through the legislative process, including Sen. Pat Browne, CPA, Revenue Sec. Greg Fajt, CPA, Rep. John Maher, CPA, Rep. Gordon Denlinger, CPA, and Rep. David Levdansky.

Senate Bill 993, now Act 119 of 2006, replaces the current corporation tax settlement process with an assessment and reassessment process beginning Jan. 1, 2008. The change means that corporate tax returns will be treated similarly to other tax returns and will mirror the process used in other states. The returns will be considered accepted as filed unless the Department of Revenue or the Auditor General selects them for review or audit.

The bill also standardizes assessment terminology throughout the Tax Code; requires all assessments to be sent via certified mail; standardizes all administrative appeal periods to 90 days, while maintaining the appeal period to Commonwealth Court at 30 days; and requires the Revenue Department to provide taxpayers with a written explanation of the basis for any assessment.

SB 993 becomes effective immediately and shall be applicable to all determinations and assessments of tax liability by the Revenue Department after Dec. 31, 2007.

Charitable Organizations Bill Heads to Governor's Desk

Legislation supported by PICPA to increase the audit threshold for charitable organizations was approved by both the state House and Senate this week and now heads to the governor's desk to be signed into law.

Under House Bill 632, the contribution threshold would be increased from $125,000 to $300,000 before an audit is required. In addition, organizations with contributions of $100,000 to $300,000 would require a review or audit, contributions of $50,000 to $100,000 would require a compilation, review or audit, and contributions of $50,000 or less would have optional audit requirements.

House Bill 632 is expected to be signed into law by the governor in the next couple of weeks.

PICPA’s Annual IRS Meeting a Success

On Thursday, Oct. 19, members of PICPA’s Federal and State Tax Committees met with representatives from the Internal Revenue Service to air issues of concern and hear updates on examination and collection procedures.

Several agents from the small business/self-employed (SB/SE) division of the IRS Central Area branch focused on topics ranging from fraud indicators to their multi-year strategy to reduce the tax gap. The two primary areas of interest, however, pertained to audit and collection issues, including newer initiatives such as Fast Track Mediation (FTM) and On Line Installment Agreements.

PICPA members were given the opportunity to question the IRS regarding complex or unusual cases they have encountered. The agents also told members that they would like to increase taxpayer awareness as to the compliance enforcement process, and that the IRS has been successful in its attempt to reduce the time it takes to resolve each case of delinquency.

Members were encouraged to contact the IRS offices with additional concerns or client questions that they might come across, as well as with suggestions they might have to improve the audit or collection process.

County Audit Extension Bills Approved

Legislation giving county auditors more time to complete their annual audit of the county and submit financial reports to the Court of Common Pleas and the state Department of Community and Economic Development (DCED) was approved by both chambers this week.

House Bills 2185 and 2551 would extend the audit deadline for counties to July 1, and also give counties until July 1 to provide their fiscal report to the court and DCED. Currently, these reports are required by April 1 and May 1, respectively.

House Bill 2185 still has to pass the full House, while House Bill 2551 needs Senate approval before the bills can reach the governor’s desk.

House Passes Bill Restructuring Bank Shares Tax

The House passed a bill Tuesday that will restructure the formula used by the state to calculate the bank shares tax.

House Bill 2774 restructures the formula used to calculate the state's bank shares tax by removing "goodwill" from the equation. “Goodwill” is created when one company acquires another company and pays more than the book value for the acquisition of the stock. The difference between the book value and the actual price paid is known as goodwill, an intangible asset that the state currently includes in the bank shares tax calculation.

House Bill 2774 now heads to the Senate for consideration.

EMS Conference Committee Appointed

A conference committee of the House and Senate will try to work out differences on proposed changes to the Emergency and Municipal Services (EMS) Act of 2004.

Senate Bill 157, which has been kicked back and forth between the House and Senate several times, was amended last July by the Senate by removing all the language addressing the EMS Act and replacing it with an amusement tax proposal.

This week, the Senate passed the bill, sending it back once more to the House, which quickly moved to reject it as currently written.

As reported in last week’s PICPA Legislative Update, an omnibus amendment that addresses administrative and implementation issues is being worked on by legislative staff. PICPA will continue to keep members abreast of the bill’s status as it continues to be debated.

LLP-LLC Fee Bill Clears Committee

House Bill 2251 was unanimously reported Tuesday from the House Commerce Committee. The bill, supported by PICPA, would repeal the annual registration fee for limited liability partnerships and certain limited liability companies.

An unrelated amendment regarding the removal of board of directors by shareholders was offered and, after some discussion, adopted to the bill. The proposal would roll back a law passed earlier this year on behalf of Sovereign Bank.

With only a handful of legislative days remaining and the Rendell administration’s opposition to the bill due to concerns of its cost implications to the Commonwealth, HB 2251 will likely have to be reintroduced in the new session starting in January.