Ways     Congress Came Up With     To Pay for New Tax Breaks

The Small Business and Work Opportunity Tax Act of 2007, which was signed into law by President Bush on May 25th, provides businesses with some important new tax breaks. However, it also includes a number of new revenue raisers, tax increases and fees that will be imposed on some individuals and businesses.

You can read about the business tax breaks

Don't Open These E-Mails!      The IRS recently alerted taxpayers to the latest versions of an e-mail scam intended to fool people into believing they are under investigation by the agency.     The e-mail falsely states that the person is under a criminal probe for submitting a false tax return to the California Franchise Board. It entices people to click on a link or open an attachment to learn more information about the complaint against them.     The IRS has warned people not to click on the link or open the attachment because they contain a Trojan Horse that can take over the computer hard drive and allow someone to have access to the computer.      Similar e-mail variations suggest a customer has filed a complaint against a company and the IRS can act as an arbitrator.      The IRS explained that it does not send out unsolicited e-mails or ask for detailed personal and financial information. Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit cards, banks or other financial accounts.     Recipients of questionable e-mails claiming to come from the IRS should forward the e-mails to phishing@irs.gov .     The IRS also sees e-mail scams, known as "phishing," that involve tricking victims into revealing private personal and financial information over the Internet. Other fraudulent schemes: Taxpayers are told the IRS's "anti-fraud commission" is investigating them or the tax agency is holding a refund for them.

by clicking here. Below is a brief explanation of seven revenue raisers in the new law:

1. Unfavorable New Kiddie Tax Rules

Starting in 2008 for calendar-year individuals, the Kiddie Tax rules can potentially come into play until the year an affected child reaches age 24. For that year and for all subsequent years, the Kiddie Tax will finally cease to be a concern.

However, the new age-24 rule only applies to certain students. If the Kiddie Tax affects your child, part of his or her unearned income (typically from investments) will be taxed at your higher marginal federal income tax rates instead of at your child's lower rates. Since the Kiddie Tax rules are complicated, we will devote a full future article to explaining them.

 Effective Date: Tax years beginning after 5/25/07, which means 2008 for calendar-year individuals.

2. New Taxpayer Penalty on Erroneous Claims for Tax Refunds or Credits

The Small Business and Work Opportunity Tax Act establishes a new taxpayer penalty on bogus claims for refunds or credits. In general, the penalty amount equals 20 percent of the disallowed portion of the claim for which the taxpayer has no "reasonable basis."

 Effective Date: Problematic claims for refunds or credits filed after 5/25/07.

3. Suspension of Interest and Penalties When the IRS Fails to Issue Deficiency Notices to Taxpayers

The IRS will be allowed to accrue interest and penalties for up to 36 months after the date a problematic tax return is filed without having to issue a specific tax deficiency notice to the unsuspecting taxpayer. After 36 months, the accrual of additional interest and penalties is suspended until the IRS actually issues such a notice. Before this change, the IRS was only allowed to accrue interest and penalties for up to 18 months without issuing a specific tax deficiency notice.

 Effective Date: IRS notices that are issued six months after the new law's 5/25/07 enactment date.

4. IRS User Fees Made Permanent

The IRS is allowed to charge user fees for various "services," such as issuing private letter rulings to tell specific taxpayers how to proceed and approving accounting method changes for businesses. However, the agency's legal authority to charge such user fees was scheduled to expire after 9/30/14. The new law includes a provision that permanently extends the IRS' legal right to charge user fees.

5. Bigger Corporate Estimated Tax Payments in 2012

The Small Business and Work Opportunity Tax Act includes a strange provision that increases estimated tax payments for corporations with assets of $1 billion or more -- but it only applies to payments that will be due in July, August, and September of 2012. Those payments must be 114.25 percent of the normal amount to avoid an IRS interest charge. The amount of the payment due after the increased payment is reduced by the amount of the increase.

6. Hearings in Advance of Employment Tax Levies

Thanks to a change included in the new law, some employers will lose the right to have hearings before the IRS issues levies for unpaid employment taxes. Congress felt that some employers used the hearings to delay payment.

 Effective Date: Levies issued on or after the date that is 120 days after the new law's 5/25/07 enactment date.

7. Higher Minimum Bad Check Penalty

The new law increases the minimum penalty on taxpayers who issue bad checks or money orders to the government. The new minimum penalty equals $25 or the amount of the check or money order, whichever is less. This change only applies to checks or money orders for less than $1,250. For amounts above that, the penalty is two percent. (In the past, the minimum fee was $15 on amounts less than $750)

 Effective date Bad checks or money orders received after 5/25/07.

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