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Legislative Update

Week Ending April 20, 2007

• Governor Appoints PICPA Member Fajt as Chief of Staff
• Pa. House Passes PICPA Financial Literacy Resolution
• Internet Cigarettes Buyers Must Pay State Taxes
• Treasury Statement on Negative/Zero Reports
• Finance Committee Approves Disability Assistance Measures
• Long-Term Care Insurance Proposal Clears Senate
• Survey Seeks to Help Spanish-Speaking Taxpayers
• Everson to Lead Red Cross
• IMRS Monthly Overview
• Final IRS 409A Regulations on Deferred Compensation Issued

Governor Appoints PICPA Member Fajt as Chief of Staff

Gov. Ed Rendell this week appointed PICPA member Greg Fajt as his chief of staff, effective May 1. Fajt served as Secretary of Revenue from March 2003 until February 2007, when he was named a senior advisor to the Governor.

"Greg Fajt is a proven leader and dedicated public servant whose broad experience and understanding of state government will continue to benefit all Pennsylvanians," Rendell said. "He has been an integral part of our team since 2003, including the last 3 months in the Governor's Office. As chief of staff, Greg will continue to serve a leadership role in moving forward our agenda of progress for Pennsylvania.”

As chief of staff, Fajt will serve as the top advisor to the Governor and manage the day-to-day activities of the executive branch of state government, including 18 cabinet agencies and the Governor's Office.

From 1991 to 1996, Fajt served as state representative for the 42nd district in Allegheny County.

He succeeds John H. Estey who has served as chief of staff to the Governor since January 2003. Estey will continue to work as a senior advisor to the Governor.

Pa. House Passes PICPA Financial Literacy Resolution

The House of Representatives passed a resolution on Tuesday, April 17, decreeing April 2007 as Financial Literacy Month in Pennsylvania. Legislators are calling on members of Pennsylvania Institute of Certified Public Accountants (PICPA) to increase consumer education in this area.

PICPA Member Rep. John Maher sponsored House Resolution 206. He was joined by 68 of his colleagues as co-sponsors.

The resolution coincides with the ongoing Feed the Pig program, a national public service campaign by the Ad Council and the CPA profession that encourages young Americans to take control of their finances. Americans are spending $1.22 for every $1 they earn, and the House states in its resolution, “Many young people fail in the management of their first consumer credit experience, establish bad financial management habits, and stumble financially, learning by trial and error.”

Tips for taking control of your finances can be found on the Feed the Pig Web site.

Internet Cigarettes Buyers Must Pay State Taxes

Pennsylvanians, who purchased cigarettes over the Internet, or from out-of-state mail order companies, will soon receive a letter from the Pa. Department of Revenue asking them to pay state taxes on the purchases.

Under the federal Jenkins Act, vendors who ship cigarettes out of state are required to release information about the purchases to state taxing authorities.

The Revenue Department this week mailed cigarette tax forms and letters explaining Pennsylvania’s cigarette tax law to 4,329 people who purchased at least 100 cartons of cigarettes from out-of-state sources since January 2005.

The department has been receiving information on cigarette purchases from a number of Web sites nationwide. At least 13 other states, including neighboring New Jersey, Ohio and New York, have also been using the federal information to collect cigarettes taxes.
 
All cigarettes sold legally in Pennsylvania are marked with a Pennsylvania cigarette tax stamp on the bottom of the pack to show that the appropriate tax has been paid. The cigarette tax is imposed on the ultimate consumer, but licensed cigarette stamping agents remit the tax, currently $1.35 per pack of 20 cigarettes, to the Commonwealth.
 
Possessing or selling untaxed cigarettes in Pennsylvania is illegal. By law, Pennsylvanians may possess no more than one carton of out-of-state cigarettes (i.e., not bearing the genuine Pennsylvania cigarette tax stamp). However, the person who possesses the cigarettes is still responsible for paying the appropriate cigarette and use taxes to the state Revenue Department on a Consumer Cigarette Excise Tax Return (REV-791). Cigarette purchases from Native American reservations are also subject to Pennsylvania taxes.

Treasury Statement on Negative/Zero Reports

Treasury has received questions concerning the scope and purpose of the zero report requirement, along with requests for extensions to the April 17, 2007, due date for submission of unclaimed property holder reports.

The purpose of zero reporting is to ensure that the Bureau of Unclaimed Property has accurate and complete unclaimed property information. Filing a zero report is intended for holders that reported unclaimed property in the past, or were found previously to have reportable unclaimed property as a result of audit reports by Treasury, other states or third parties.

Treasury has no policy or intention to seek interest, penalties, or any other sanction authorized by the Unclaimed Property law against any person or organization subject to the law, solely on the basis of a failure to submit a zero report. However, holders that do not submit zero reports may be contacted by Treasury in the future if there is a reasonable basis for Treasury to conclude that the holder is likely to have reportable unclaimed property. The absence of a reporting history is one factor that will be considered by Treasury in determining the appropriate level of inquiry.

Finance Committee Approves Disability Assistance Measures

On Wednesday, the State Senate Finance Committee approved two bills to assist disabled Pennsylvanians and their families.

Senate Bill 54 would authorize the establishment and maintenance of Disability Savings Accounts for individuals determined to have mental retardation. Increases in the value of a Disability Savings Account and distribution for qualified disability expenses would be excluded from the state’s Personal Income Tax under the bill.

Senate Bill 659 would exempt the first $3,000 of income from a qualified disability trust for tax reporting purposes from inheritance tax.

Both bills now head to the Senate Appropriations Committee for a fiscal note.

Long-Term Care Insurance Proposal Clears Senate

The State Senate this week unanimously approved a bill that would provide a strong financial incentive for consumers to invest in long-term care insurance and reduce financial costs to taxpayers.

Senate Bill 548 would create the Long-Term Care (LTC) Partnership Program, and orders the Pennsylvania Department of Public Welfare to file Pennsylvania's state plan for LTC insurance with the federal Centers for Medicare and Medicaid Services by June 30, 2007. The measure is intended to give people the opportunity to protect their personal assets by buying the insurance.

Senate Bill 548 now goes to the House of Representatives for consideration.

Survey Seeks to Help Spanish-Speaking Taxpayers

In the past, the PA Department of Revenue, Office of e-Commerce, has relied on the expertise and experience of PICPA members to collect information, which helps the department provide better service to the taxpayers of the Commonwealth. Once again, the department is asking for help from members of PICPA that have Spanish-speaking clients to complete a survey. The information collected will assist a special work group of the national Federation of Tax Administrators (FTA).

This work group of the FTA is exploring the common obstacles that prevent the Spanish-speaking community from e-filing their federal and state income tax returns. Use this link, https://efile.state.nm.us/FTASurvey, to access the survey. Select the option for business solution providers. The results of this survey will be made public at the May meeting of the FTA.

Everson to Lead Red Cross

The American Red Cross selected Mark Everson, the commissioner of the Internal Revenue Service, to be its new president Wednesday. Everson agreed to fill the post as the charity restructures itself following intense criticism over its response to Hurricane Katrina.

Everson will take the Red Cross post on May 29 and has served as IRS commissioner since May 2003. Prior to joining the IRS, he served as vice president of SC International and was an executive with the French industrial group Pechiney.

The announcement came as Congress considers legislation that would dramatically overhaul the internal governance of the Red Cross. The charity's current 50-member board would be cut by more than half, and the influence of presidentially appointed overseers would be curbed under the legislation, which is expected to win approval this spring.

IMRS Monthly Overview

The Issue Management Resolution System (IMRS) March 2007 Monthly Overview is available on PICPA’s Web site. The Monthly Overview provides a brief synopsis of some of the issues that were received and/or closed during March by the IRS.

IMRS is a streamlined and structured process that facilitates stakeholder issue identification, resolution and feedback. Tax professionals should forward significant issues regarding IRS policies, practices and issues to their Stakeholder Liaison (SL) Local Contacts.

Final IRS 409A Regulations on Deferred Compensation Issued

On April 10, 2007, the Treasury Department and the IRS issued final regulations on the treatment of nonqualified deferred compensation plans and arrangements under section 409A of the Internal Revenue Code.

The regulations provide guidance regarding the requirements for deferral elections and payment timing under section 409A. Affected plans and arrangements are required to comply with documentation requirements established in the final regulations by Dec. 31, 2007.

The final regulations generally implement the rules provided in the proposed regulations published on Sept. 30, 2005, but include revisions reflecting numerous comments received from the public. The regulations are in response to legislation enacted by Congress in 2004 to address concerns involving reported abuses of nonqualified deferred compensation plans.

Published along with the regulations was Notice 2007-34, which includes additional guidance regarding the application of section 409A to split-dollar life insurance arrangements and provides that certain amendments of such arrangements to comply with section 409A will not be treated as a material modification.