PICPA to Testify before Lawmakers on Schedule C Reviews
Cheri H. Freeh, CPA, CGMA, has been invited to testify before the Pennsylvania House Finance Committee on Dec. 12, 2017, to discuss the Department of Revenue’s (DOR) review of Schedule Cs and related collection practices. Freeh, a past president of the PICPA and a member of its Committee on State Taxation, will take part in a panel discussion with other tax practitioners.
The Finance Committee will also hear from Rep. Pam Snyder (D-Fayette, Greene) and Rep. David Zimmerman (R-Lancaster), who have sponsored bills to address DOR collection activities. Snyder’s House Bill 1859 would provide taxpayers who are delinquent on the payment of a tax liability with a 60-day grace period following notification sent via certified mail from the DOR before they are required to pay applicable penalties or interest. House Bill 1867, sponsored by Zimmerman, will require the DOR to examine in person, at the physical location of the business, the requested papers and records of a taxpayer when the department’s requests total 25 pages or more.
Other testimony will come from John Kaschak, CPA, deputy secretary for taxation, and Sue Leighton, CPA, deputy secretary for compliance and collections, as well as representatives from the National Federation of Independent Business (NFIB).
Both the House and the Senate are in session the week of Dec. 11, and it will be the final week for 2017. Lawmakers will return in January. For a complete list of legislative committee meetings for this week, click here.
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House Committee Approves Budget Reform Measures
The House Appropriations Committee approved along party lines a package of bills that will change the budget making process. Also approved by the committee was House Bill 110, a state constitutional amendment that would limit state spending. The proposal would put limits on the executive branch's management of budgetary issues by requiring more information about the balances in special funds used to provide grants and subsidies and the creation of monetary reserves during revenue shortfalls.
Among the package of bills, House Bill 1940 closes the loophole that allows an out-of-balance general appropriation act to become law; House Bill 1941 limits the budget secretary’s blanket authority to waive lapsing provisions; House Bill 1942 ensures a balanced budget amid revenue shortfalls; House Bill 1943 increases the disclosure of information relating to special funds; House Bill 1944 improves the flow of budgetary information; and, House Bill 1945 requires identification of cost savings for supplemental appropriation requests.
The bills are pending before the full House for a final vote.
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Department Claims Millions Saved by Fraud Prevention and Tax Return Review
The Pennsylvania Department of Revenue (DOR) saved taxpayers approximately $29.3 million over the past fiscal year by improving the process it uses to prevent the issuance of fraudulent and erroneous tax refunds, Revenue Secretary Dan Hassell announced. An estimated $80.5 million will be saved over four years.
The department achieved the savings in part by renegotiating a software contract that helps identify and prevent fraudulent and erroneous tax returns. The new contract also allows DOR to expand its reviews to more types of tax returns while reducing the cost of its system.
In the 2016-2017 fiscal year, the DOR's review process prevented the issuance of about $23.7 million in refunds that were fraudulent, erroneously filed, or in need of adjustment. An additional $5.6 million was saved by renegotiating the software contract and reassigning existing department staff to create a Fraud Investigation Unit that focuses on assisting victims of identity theft and combating tax refund fraud.
Established in 2016, the Fraud Investigation Unit has partnered with state and federal tax administrators to address the rise in fraudulent tax returns filed by scammers. Armed with new analytical tools provided by the renegotiated software contract, the unit has helped the DOR strengthen its automated fraud filters, which intercept fraudulent and erroneous refund filings. These filings mainly contain overstated expenses and incorrectly reported wages or withholding from W-2s.
Year-to-date, more than 61,000 personal income tax returns have been flagged for review. For comparison, the department flagged 31,336 in 2016, 8,521 in 2015, and 1,132 in 2014.
In addition to those savings, the DOR now has the capability to deploy identity verification quizzes that assist taxpayers in confirming their identities online. The department has sent more than 56,000 identity validation letters to taxpayers in 2017.
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BOA Announces Petition Deadline Change
Act 43 of 2017 ushered in a change to the tax appeals process that will impact taxpayers and tax practitioners with pending appeals. The Department of Revenue (DOR) recently provided clarification regarding how it will apply the Act 43 statute of limitation amendments. According to the DOR, for any petitions filed with the Board of Appeals (BOA) on or before Dec. 29, 2017, the department’s decision and order will indicate a 90-day appeal period to the Board of Finance and Revenue.
For any petitions filed with the BOA on or after Jan. 1, 2018, the DOR’s decision and order will indicate a 60-day appeal period to the Board of Finance and Revenue. The BOA is in the process of updating its forms and computer system accordingly, and hopes for a Jan. 1, 2018, completion. Any questions should be directed to Lauren Zaccarelli at (717) 787-4916 or email@example.com.
The PICPA is seeking further clarification on the effective date from DOR. Members with questions should contact Peter Calcara of the PICPA government relations team at firstname.lastname@example.org.
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Bill Sets Future Course for UC Program
The Pennsylvania House approved a measure to ensure the completion of long-awaited updates to the Unemployment Compensation (UC) program’s computer benefits system, and set an end date of state supplemental funding for the program.
House Bill 1915, authored by Rep. Rob Kauffman (R-Franklin), will ensure proper funding is made available for the upgrades, with an end date for the department to manage operations using reoccurring federal funding along with penalty and interest fees collected from claimants and employers.
This bill now goes to the Senate for consideration.
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Local Option for Property Tax Elimination Proposal Introduced
Sen. Kim Ward (R-Westmoreland) introduced a joint resolution this week that proposes an amendment to the Pennsylvania Constitution to tackle the highly contested issue of property tax elimination.
Senate Bill 976 would ultimately permit local governments, with voter approval, to eliminate the taxes they collect on all real property and replace the lost revenue with the enactment or increase of any of the following taxing options to be levied only within that political subdivision: personal income tax, sales and use tax, or any tax authorized under the Local Tax Enabling Act.
If approved, Senate Bill 976 would allow the General Assembly to enable areas that believe property tax elimination is needed to do so, but hold harmless those taxpayers and school districts who don’t think paying more in income and sales taxes is the best answer for them.
Senate Bill 976 has been referred to the Committee on Senate Finance.
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Wolf Announces Increased Accountability on Grant Programs
Gov. Tom Wolf announced plans to implement additional accountability requirements on grant programs following the results of a recently completed audit of the Democratic National Convention related to the spending of a $10 million state special event grant.
Under the funding and monitoring requirements, grants are awarded based on specific commitments that can be easily verified at regular intervals. Where a grantee fails to create the number of jobs, expend the amount of capital, or carry out a project to which they have committed, the Department of Community and Economic Development (DCED) has standard language in its contracts that allow for the claw back of funds and a strong monitoring program.
Wolf also called on the Commonwealth Financing Authority to undertake its own immediate review of the process for approving projects by the board at its next meeting.
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November Trends Report
The Independent Fiscal Office’s (IFO) November Monthly Trends Report compares Fiscal Year 2017-2018 revenues to the IFO’s monthly estimate released in August. Through November, General Fund revenues were $26 million above estimate. This amount excludes $177 million in revenues that were expected later in the fiscal year, but were received in November.
Other revenue highlights:
- Tax revenue increased by 11.2 percent for the month.
- Corporate net income tax increased by 166.1 percent for the month. Collections were affected by a change to the filing deadline, which was extended 30 days beginning in tax year 2016.
- Nonmotor sales tax increased by 9.3 percent, bringing the three-month average growth rate to 4.4 percent and the 12-month average growth rate to 4.2 percent.
- Motor vehicle sales tax increased by 2.0 percent for the month, bringing the three-month average growth rate to 1.9 percent and the 12-month average growth rate to 2.1 percent.
- Personal income tax withholding increased by 5.4 percent for the month. Adjusted for due dates, the three- and 12-month average growth rates were 4.6 percent and 3.8 percent, respectively.
- Realty transfer tax increased by 17.7 percent for the month, bringing the three-month average growth rate to 7.5 percent and the 12-month average growth rate to 8.0 percent.
- Cigarette tax decreased by 9.2 percent for the month.
- Nontax revenue increased by 215.7 percent for the month. Collections were impacted by a $100 million state stores fund transfer that occurred at a later date in the prior fiscal year and a new $50 million slots license fee.
The report also compares collections to the prior year. November 2017 General Fund revenues of $2.31 billion reflect an increase of $318.6 million (16.0 percent) compared with the same month in 2016.
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McNeil Wins State House Special Election
In a bittersweet result, Jeanne McNeill won the Dec. 5, 2017, special election, and will fill the remaining term for her late husband, Dan McNeill, who passed away Sept. 8.
“My heart is still broken, though I know Danny would want me to do this, and told me to,” McNeill told The Morning Call. “I’m going to be strong and move forward for the people of the district, my family, and friends. And for Danny.”
McNeill won a decisive victory (68 percent of the vote) over her Republican challenger, David Molony, to represent the 133rd state House district in Harrisburg.
Republicans hold a 121 to 81 seat advantage. One seat remains open.
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