Visit us at www.pspa-state.org

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The Magazine Of The Pennsylvania Society of Public Accountants

✓ Cruise to the Caribbean with PSPA

✓ PA State Tax Update

✓ Pension Protection Act of2006 Becomes a Law

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A Message From The PresidentAs we approach the upcoming holiday season, I would like to

wish everyone and their families a very safe and happy holidayseason. Even during this busy time of year, I hope everyone getsto relax and enjoy this special holiday season with family andfriends.

Over the past several weeks, I have had the opportunity to visitvarious PSPA chapters throughout the state, and I have enjoyed

meeting many of you. I would like to thank everyone for the warm greetings andhospitality I received at all of the chapters. If you are not attending your localchapter’s monthly meetings, you are missing out on a very valuable benefit ofmembership. Chapter meetings provide the perfect venue for obtaining quality,relevant CPE credits in either two or four hour increments. Best of all, thesemeetings offer the unique opportunity to network with your peers.

During my chapter visits, I did some informal polling regarding those memberswho have registered for our e-mail discussion group or “Listserve”. I was surprisedby the low number of members who have registered for the PSPA Listserve. Ibelieve this is a great member benefit that allows us to interact with othermembers by posting questions we may have within our practices out to otherListserve members. The greater number of members on the Listserve, the greaterpool of talent we will have to assist our colleagues in responding to thosequestions. I would encourage everyone to take the time, before tax season, to goon the PSPA website and register for the Listserve.

PSPA’s 3rd Annual Day at the Capitol proved to be a worthwhile event. PSPAmembers from across the state gathered in Harrisburg on October 5th to meettheir legislators and to hear more about PSPA’s legislative agenda. The morningkicked off with a Legislative Breakfast at the Capitol Building hosted by the SouthCentral Chapter of the PSPA. The breakfast was well attended and more thansixteen legislators dropped by to meet the many PSPA members gathered in theEast Wing Rotunda. PSPA members proceeded to engage in meetings with theirlocal legislators. Due to the revised schedule of events for this program, whichincluded holding the legislative appointments in the morning (versus theafternoon as in previous years), more than ninety percent of PSPA members inattendance were able to meet with their elected officials. Finally, attendeesconverged at the Harrisburg Hilton and Towers for lunch followed by a 2 hourLegislative Workshop. Please help the PSPA help you and consider attending thismost important event next year.

I would like to thank those chapters who have held local Legislator Appreciationevents over the last couple of months. This is a very important part of our totalLegislative Program. I have heard many positive comments regarding our localLegislative Appreciation events.

Reservations for PSPA’s 60th Annual Convention Cruise have been very steady,and we are excited about the participation. If you plan to sail with us, please makeyour reservations as soon as possible. As you may be aware, for your conveniencePSPA will be providing free bus transportation to the New York port and we needto begin working on the travel routes. We encourage you to reach out to familyand friends who may be interested in the cruise and bring them along.

Finally, I would like to thank everyone for their time and efforts over the lastcouple of months, at both the local chapter levels and the state level, in movingthe PSPA forward to becoming a stronger and more dynamic organization as wehead into 2007.

Respectfully Submitted,Daniel J. Vecchio, CPAPSPA President

PSPA OfficersDaniel J. Vecchio, CPA, President

Gerald L. Brenneman, CPA, President ElectRandy L. Brandt, CPA, 1st Vice President

Paul J. Cannataro, CPA, 2nd Vice PresidentIrving Braunstein, EA, Secretary

John J. Komarnicki, CPA. Treasurer

Board ofDirectors

Donald L. Allen, CPALamont B. Anderson, PA

Randy L. Brandt, CPARichard Brasch, Jr., CPA

Irving Braunstein, EAGerald L. Brenneman, CPAW. Raymond Bucks, CPA

M. Stephen CaskeyB. Joseph Cellini, PA

Francis J. CelliniArlan R. Christ, EA

Emile P. Cianfrani, CPADavid M. Corpora, CPA

Frank L. Corso, CPABernard A. Deverson, CPA

Penny Erbe, EADebra S. EremusDavid E. Fleck, PA

James S. Frederick, PAWilliam C. Graham, PA

Charles J. Hafer, PAJohn P. Hassler, PAJoann Y. Hauer, CPA

Joyce P. Huttman, PAMarvin R. Huttman, CPA, CFP, MST

Mary Lew Kehm, CPAFrank H. Kelly, EA

John J. Komarnicki, CPAM. Michael Lerner, PAKevin J. Matschner, EA

H. Richard Neidermyer, CPAHoward Pachter, PA

Andrew J. Piernock, Jr., ATPLinda M. Roth, CPARobert P. Skarlis, PA

Timothy Sundstrom, CPANeil C. Trama, Sr., PA

Daniel J. Vecchio, CPA

Sherry L. DeAgostino,Executive Director

Pa. Society of Public Accountants20 Erford Road, Suite 200A

Lemoyne, PA 170431(717) 737-44391(800) 270-3352

In thisIssue ...A Message From The

President..........................................2

NSA State Director’s Message....6

Pennsylvania Tax Update ..........8

Tax Corner......................................11

Pension Protection Act of

2006 Becomes a Law ................15

Chapter Meeting Dates ..............18

Seminar Dates ..............................19

Classifieds......................................20

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Membership Campaign 2006Help a Colleague Discover the Benefits of PSPA and You’ll be Rewarded!PSPA members were recently sent information on the 2006-2007 MemberReferral Program. Please use the postcard that was enclosed to send us thenames and addresses of colleagues who you believe would benefit form amembership the PSPA. We will follow up on all referrals by sending a PSPAmembership kit, a chapter meeting invitation and a $50 CPE voucher.

Gear Up 1040 SeminarEach time you refer a name to us, regardless of whether or not the individualjoins, your name will be placed in a drawing for a two-day Gear Up 1040Seminar. The more names you send us, the better your chances of winning.

5-Day Seminar PacksEach time a new, active member joins the PSPA as a result of your referral, yourname will be entered into a drawing for one of two 5-Day seminar packs. EachSeminar Pack is good for five days of seminars or 40 hours of FREE CPE.

All drawings will take place at the PSPA 60th Annual Meeting in May 2007.Please contact the PSPA Executive Office if you have any questions or if youneed additional referral cards.

Join PSPA's email discussion groupThis valuable resource is offered FREE to PSPA members. The purpose of thediscussion group is to provide members with the ability to post questions, challenges,ideas etc. via email to the entire discussion group. Members of the group then havethe opportunity to respond if they choose.

Join the PSPA Email Discussion Group by logging on to the PSPA website at www.pspa-state.org and accessing the 'members only' area of the site. From the 'members only'homepage, click on 'email discussion group' and click on 'instructions and disclaimer'at the top of the page. We suggest printing out a copy of the instructions to avoid goingback and forth between windows. Follow the simple instructions for subscribing to theservice. If you have any questions, please contact 1-800-270-3352.

PSPA Sets Sail in Celebration of its 60th Year – Join Us!

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Order CCH Guides Todaywww.psap-state.org Members Only 30% Discount on ALL Titles!

Senate Bill S.1321continues to be thefocus of NSA’s effortsto safeguard thepractice rights ofmembers. If passed,S.1321 would requireall non-Circular 230

paid tax preparers to register withthe IRS and take a new nationalexamination in order to continue inpractice. NSA Director of Federaland Legislative Affairs, Philip Ufholzreports that the turn of politicalevents resulting from the recentelections held November 7 may havemajor ramifications for NSAmembers. NSA continues to haveexcellent relationships with the newchairmen of both the House Ways &Means Committee and the SenateFinance Committee. Thesecommittees have a major influenceon issues affecting the accountingindustry, and are of significantimportance since S.1321 willundoubtedly be re-introduced in thenew Congress.

NSA Annual MeetingIn August 2006, I attended the

61st Annual Convention of theNational Society of Accountants inProvidence, Rhode Island. RobertH. Fukahara of Honolulu, HI waselected to the office of President forthe upcoming year. Andrew T.Morehead of Eaton, CO was electedas First Vice President, and James H.Nolen of Oklahoma City, OK waselected as Second Vice President.Donny J. Woods of Nashville, AR wasre-elected as Secretary/Treasurer.In addition, elections were held forall District Governors in the “even”numbered districts and all StateDirectors in the “odd” numbereddistricts. Robert H. Sommer was re-elected to serve another two-yearterm as NSA District Governor forDistrict II (Pennsylvania).

AwardsPSPA was the recipient of two

awards at NSA’s 61st AnnualConvention. The first award was forsuccessfully monitoring the StateBoard of Accountancy. PSPAcontinues to champion theprotection of the independentaccountants’ right to practicethroughout Pennsylvania. PSPA wasalso awarded the Charles W.McAllister Memorial Award asPennsylvania achieved the highestnet membership growth in NSAmembership.

Serving Aging AmericaMark your calendar now, and

make plans to attend another NSAoutstanding seminar series: ServingAging America – 2007 and captureyour share of this growing market.The program will be held at theRiviera Hotel & Casino in Las Vegas,NV June 4-9, 2007. This seminarseries is for serious practitioners whowant to expand their practice tomeet the increasing need for eldercare expertise. Serving AgingAmerica is offered in three levels:

Level 1 – Preparing You andYour Clients forRetirement(June 4-5, 2007)

Level 2 – Essentials of Estate andTrust Planning(June 6-7, 2007)

Level 3 – Elder Care Hot Topics(June 8-9, 2007)

Those completing all three levelsof Serving Aging America™ canapply for the prestigious Elder CareSpecialist® (ECS) designationconferred by the AccreditationCouncil for Accountancy andTaxation (ACAT). For moreinformation on obtaining the ECScredential, and testing requirementscall ACAT toll free at 1-888-289-7763.

Education The National Society of

Accountants & the Accounting,Financial and Tax Professionals ofNew Jersey will jointly host a two daytax seminar on December 4 & 5,2006 at the Atlantic City Hilton.The program will feature speakersfrom Jennings Seminar Speakers.Please visit the NSA web site atwww.nsacct.org for additionalinformation.

NSA Membership OfferThe National Society of

Accountants is once again offering adiscounted membership to anyPSPA member who joins NSA as anew member (Offer does not applyon renewal memberships). PSPAmembers can join NSA for $129,and save $50 off the regular $179membership fee. A membershipapplication has been included onthe opposite page for yourconvenience. If you are not an NSAmember, why not complement yourvaluable PSPA membership andexperience the benefits thatmembership in a nationalorganization has to offer. Please feelfree to contact me with anyquestions via email atrbraschcpa@verizon.net

Respectfully submitted,

Richard Brasch Jr., CPANSA State Director - Pennsylvania

NSA State Director’s Message

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PPEENNNNSSYYLLVVAANNIIAA TTAAXX UUPPDDAATTEETTaaxx HHiigghhll iigghhttss ooff 22000066--22000077 PPAA BBuuddggeett

By Sharon R. Paxton, McNees Wallace & Nurick LLC

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Use Tax ComplianceInitiative

Since Pennsylvania businesses areincreasingly purchasing items fromout-of-state vendors, via the Internetor other mail order operations, thePennsylvania Department of Revenueinitiated "a focused, proactivecampaign" to increase businesstaxpayers' awareness of, andcompliance with, Use Tax reportingobligations. After first conducting anoutreach effort to educate businessesabout Pennsylvania Use Taxobligations, the Department begandirectly contacting businessesconcerning participation in its UseTax Voluntary Compliance Program.That program is still ongoing, and theDepartment is contacting businessesby industry group. The Department'snext step will be to conduct a fieldaudit initiative to reinforce thenecessity of voluntary Use Taxcompliance. The Departmentestimates that its Use Tax complianceinitiative will increase collections by$18.3 million in fiscal year 2006-2007.

Many businesses have been unawareof their obligation to self-accrue and

remit Use Tax when they purchaseproperty from out-of-state sellers thatdo not collect and remit PennsylvaniaSales Tax. Use Tax is a lesser-knowntax that is the counterpart of SalesTax. When a business buys items thatare subject to Sales Tax, and the sellerdoes not charge Sales Tax on theinvoice, the business is responsible forreporting and paying Use Tax on suchitems directly to the Department ofRevenue. The Use Tax rate is thesame as the Sales Tax rate – i.e., 6%state tax and 1% local tax if thepurchaser is located in Philadelphiaor Allegheny County. All purchases oftangible personal property are subjectto Sales and Use Tax unless thetransaction qualifies for exemptionfrom tax based on the identity of thepurchaser, the type of property or thepurpose for which the property ispurchased (e.g., property purchasedfor resale or for use in productionoperations). Purchases of certaintypes of services are also subject toSales and Use Tax. Common businesspurchases subject to Pennsylvania UseTax include office equipment andsupplies, computer software,

computer equipment, furniture andcleaning supplies.

Use Tax obligations may result fromintracompany transactions as well asfrom direct purchases from out-of-state vendors. For example, if acompany with offices both inside andoutside of Pennsylvania sendscomputer equipment that itpurchased in another state to itsoffices in Pennsylvania, the companywould incur Pennsylvania Use Tax onsuch equipment. Pennsylvania wouldgenerally grant a credit for any salesor use tax properly paid to anotherstate on the same property. However,in the case of tax paid to a state whichcharges a sales tax rate of less than6%, the purchaser would still be liablefor reporting and remitting thedifference to Pennsylvania. Use Taxobligations also arise when a companypurchases property on a tax-exemptbasis (e.g. because it was intended tobe resold) and subsequently uses suchproperty for its own benefit.

Earlier this year, the Departmentbegan mailing self-audit Use Taxreturns to certain Pennsylvaniabusinesses permitting them to audittheir books and records for thecurrent year, as well as the previousthree years, to determine Use Taxdeficiencies for purposes ofparticipation in the Use Tax VoluntaryCompliance Program. Benefits toparticipation in the VoluntaryCompliance Program include alimited look-back period and a waiverof all penalties. If a return andpayment is postmarked by the duedate designated by the Department,penalties will be waived. After thedesignated due date, the penalty is 5percent of the unpaid tax for eachmonth or fraction of a month fromthe original due date of the return,subject to a maximum penalty of 25%of the unpaid tax. Voluntarycompliance (and the concomitant

waiver of penalties) is available only tobusinesses that are not registered withthe Department for Sales and Use Taxpurposes and for which noinvestigations or collection actionshave begun. A business may elect toparticipate in the VoluntaryCompliance Program, even if it hasnot received a notice from theDepartment of Revenue.

Use of Average RevenueMiles To ApportionCorporate Taxes

The Commonwealth has filedExceptions to the CommonwealthCourt’s April 2006 decision in FedExGround Package System v.Commonwealth, rejecting theDepartment of Revenue’s use ofaverage revenue miles in apportioningthe Corporate Net Income andFranchise Taxes of motor carriersoperating in interstate commerce.Argument on the Exceptions isexpected in November, with a furtherappeal then likely to the PennsylvaniaSupreme Court.

Section 401(3)2(b) of the TaxReform Code of 1971 provides thatthe tax of railroad, truck, bus orairline carriers is apportioned based

on the ratio of “revenue miles withinthis Commonwealth” to total “revenuemiles.” A “revenue mile” is defined asthe “average receipts derived fromtransportation by the taxpayer ofpersons or property one mile.” TheDepartment of Revenue customarilyhas divided total receipts by totalmiles, then multiplied that number byPennsylvania mileage to arrive atPennsylvania “revenue miles.”However, that method is merely ashortcut as it really results inapportionment based on a puremileage ratio and ignores varianceswhich may reflect different types ofhauling and different costs incurredin different geographic areas.

In April, a three-judge panel of theCommonwealth Court ruled thatFedEx Ground Package System shouldbe allowed to use a numerator basedon revenues actually realized frommileage traveled in Pennsylvania. Asthe company’s average receipts permile in Pennsylvania were $2.94 ascompared to $3.93 per mileeverywhere, the Department’sshortcut method substantiallyoverstated the company’s tax. Thecourt found the taxpayer's position tocomport with a plain reading of the

statute and with “the fundamentalprinciple of apportionment that thenumerator of an apportionmentfraction reflects only in-state activityand the denominator reflectseverywhere activity.” The court furtherstated that “the numerator mustreflect only Pennsylvania activity toensure that [PA] is not taxing morethan its fair share of Petitioner’sincome.”

As a practical matter, somecompanies may not readily be able tobreak out Pennsylvania revenues, ormay be charging rates that areuniform throughout their coveragearea. However, transportationcompanies with the ability to accessdetailed data should evaluate theirpast filings for refund opportunities.Until all appeals are exhausted in theFedEx case, the Commonwealth likelywill not approve refunds, but anycompanies that believe they haveoverpaid tax should file protectiverefund claims before the refundstatute of limitations expires.

Sharon R. Paxton is a member of McNeesWallace & Nurick LLC's State and LocalTax Group.

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Firm: Contact:

Address:

City: State: Zip:

Phone: Fax: Email:

Annual Fees: $_________ YIE: ________Number of accountants (with years ofexperience):

F/Time: P/Time*:5+ years: ________ ________4 years: ________ ________3 years: ________ ________2 years: ________ ________1 year: ________ ________<1 year: ________ ________

Total: ________ ________

*Average of 25 hours per week or less

In the past three years, how many firm members attended a loss control seminar ____

On what date was the firm established___________

Within the past 5 years:

Has the firm provided services to a client that is engaged in the issuance, offering,registration or sale of securities or bonds; or provided clients with forecasts orprojections for inclusion in sales literature, etc., of any securities or bonds?YES � NO �

Has any member of the firm provided services or acted as adirector/officer/committee member for any financial institution? YES � NO �

Has any member of the firm had an accounting license or authority to practiceaccounting revoked, or been subject to disciplinary action, fine reprimand, or criminalpenalty related to performance of professional services? YES � NO �

Renewal: ___/___/___ Insurer: ___________________ Limit: $ ___________ Deductible: $ ___________ Premium: $ __________What is the retroactive date on your current policy ___/___/___ � None � N/A

Approximately percentage of income received from the following activities for the last annual period:

Activity %Audit: Public Companies**

Audit: Other

ReviewCompilation

Bookkeeping

TaxBusiness ValuationComputer Consulting

Litigation Support

••Calls for a supplement

CLAIMS HISTORY (within the past five years):

Date claim(s) Reported One: ____/____/19______ Two: ____/____/19 ______ Three: ____/____/19 ____

Amount Paid, including $ ____________________ $ ____________________ $ ____________________Defense Expenses (ifclosed) $ ____________________ $ ____________________ $ ____________________Reserve amount(if open) $ ____________________ $ ____________________ $ ____________________

Please return to Custom Brokers Insurance, 3659 Green Road Suite 209, Beachwood, Ohio 44122Tel: 800-969-7475 – Fax: 216-831-6819 Email to: rditomaso@job-cbi.com – http:www.cpagold.com

Activity %Litigation Support

Management Advisory Services

Assurance ServicesFinancial Planning

Asset Management

Sale of Mutual FundsSEC/Sarbanes Oxley Related Services**Other*

Total 100%

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PA Department of RevenueNow Accepting CreditCard Payments For RealtyTransfer Tax Liabilities

The Department of Revenue isnow accepting credit card paymentsfor Realty Transfer Tax liabilitiesresulting from the issuance of a taxdetermination. Individuals andbusinesses can pay both theirdelinquent state and local RealtyTransfer Tax with a credit card viathe Internet on the Department ofRevenue’s Web site atwww.revenue.state.pa.us throughthe Department’s vendor, OfficialPayments Corporation atwww.officialpayments.com or overthe telephone at 1-800-2PAY-TAX(1-800-272-9829).

Businesses can also use theInternet or telephone to makeregular and delinquent Liquid FuelsTax and Fuels Tax payments,Corporation Tax, Sales and Use Taxand Employer Withholding Taxpayments. Individuals can use acredit card to make current yearbalance due, delinquent, quarterlyestimated and extension payments.Credit card payments are creditedto the account on the day of thetransaction, so taxpayers can avoidlate payment penalties.

Official Payments Corporation isthe vendor responsible forprocessing credit card payments forthe Department of Revenue. A 2.49percent convenience fee, based onthe tax due, is charged by thevendor to process the transaction.Visa, MasterCard, American Expressand Discover cards are accepted.

Department of RevenueIssues Clarification onSub S Election

The Department of Revenue hasclarified information relative toelecting subchapter S corporationsstatus. Under Act 67 of 2006, allfederal subchapter S corporationsare PA S corporations. Act 67 alsoincludes a provision for federalsubchapter S corporations to makean election to NOT be taxed as a PAS corporation. To make thiselection, form REV-976 (Election

Not to be Taxes as a PA SCorporation) is required.

Any federal Subchapter Scorporation that does not make thiselection, and which is a SubchapterS corporation in another state thathas a PA resident shareholder, willbe taxed as a PA S corporation andis required to file PA Corporate TaxReport and PA 20S/PA 65 (PA SCorporation/PartnershipInformation Return.)

They are not required to file theRCT-101, as previously reported inRevenue’s Tax Update #121. Inaddition, each shareholder will besubject to PA Personal Income Taxon each shareholder's pro ratashare of the S corporation income,whether distributed or not.

Charitable OrganizationsBill Goes to Full Senate

The Senate State GovernmentCommittee approved House Bill632 on Tues., Sept. 26, withoutamendments, sending it to the fullSenate for consideration.

House Bill 632 amends theSolicitation of Funds for CharitablePurposes Act of 1990 by removingthe exemption for first responderorganizations, such as veterans’,volunteer fireman’s, ambulance andrescue squad organizations.

The bill also increases the auditthreshold for organizations thatreceive annual contributions ofmore than $300,000—up from$125,000. Organizations that receiveannual contributions of between$50,000 and $300,000 would berequired to have a compilation,review or audit of their financialstatements.

IRS Announces OnlinePayment AgreementApplication

Many individuals who owedelinquent federal income taxes willnow be able to apply online for apayment agreement, the IRSannounced today. The OnlinePayment Agreement (OPA)application, now available onIRS.gov, provides an easy way tovoluntarily resolve tax liabilities.

"We think some people may feelmore comfortable working out theirpayments on line rather thantalking to a person, so we're makingthis option available," said IRSCommissioner Mark W. Everson.

Paying taxes on time and in fullavoids unnecessary penalties andinterest. However, taxpayers whocannot pay in full may request apayment agreement.

This new Web-based applicationallows eligible taxpayers or theirauthorized representatives to self-qualify, apply for, and receiveimmediate notification of approval.

Taxpayers must have filed allrequired tax returns in order to usethe online application. They shouldalso have the following informationavailable:

Balance due notice from the IRS.Social Security number or IndividualTaxpayer Identification Number.

Personal identification number,which can be established online usingthe caller identification number fromthe balance due notice.

Three payment options areavailable when applying online:

Pay in full — Taxpayers who paywithin 10 days save interest andpenalties.

Short-term extension — Receive ashort-term extension of up to 120days. No fee is charged, butadditional penalties and interest willaccrue.

Monthly payment plan — A $43user fee will be added to theamount owed, and interest andpenalty will continue to accrue onthe unpaid balance.

To access the application, use thepull-down menu under “I need to...”on the front page of this Web siteand select “Set Up a Payment Plan.”The application is available Mondaythrough Friday from 6 a.m. to 12:30a.m., Saturday from 6 a.m. to 10p.m. and Sunday from 4 p.m. tomidnight (all are Eastern Time).

IRS Announces Availabilityof 2006 SpecialEnrollment Examination

The Internal Revenue Service

TA

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CORNER

continued on page 12

12F a l l 2 0 0 6

announced that the new version of the2006 IRS Special EnrollmentExamination is ready. The test,required for those who want to becomeEnrolled Agents, has been substantiallyrevised and is being offered moreoften and in more places than in thepast. The first testing window beginsOctober 5, 2006.

The exam has been reformatted fromfour sections to three to more accuratelyreflect the current state of the art intaxpayer representation. Each of thethree new sections (Individuals,Businesses, and Representation, Practiceand Procedures) will have about 100questions.

IRS worked with ThomsonPrometric, a company specializing inassessment services, to develop the test.The exam was redesigned with newcontent derived from extensiveinvolvement by subject matter expertsfrom the Enrolled Agent community.

The examination will be offeredthroughout the year, providingcandidates the opportunity to take theexamination at a time that fits theirschedules

The test will be offered atapproximately 290 testing center sitesthroughout North America, in a highlysecure, professional testing environment

Candidates are no longer requiredto take the entire exam in one sitting

Starting in May, 2007, candidates willget their exam results before leavingthe test site

If necessary, candidates will be ableto re-take each part of the examinationseveral times each year, and there is nolonger a deadline for registering.Candidates now apply on-linethroughout the year, and pay with acredit card.

There are more than 42,000Enrolled Agents currently practicing inthe United States.

IRS Announces StandardAmounts for Telephone TaxRefunds

The Internal Revenue Serviceannounced the standard amounts thatmost long-distance customers can useto figure their telephone tax refund.These amounts, which range from $30

to $60, will enable millions ofindividual taxpayers to request thetelephone tax refund without having todig through old phone bills.

In general, anyone who paid thelong-distance telephone tax will get therefund on their 2006 federal incometax return. This includes individuals,businesses and nonprofitorganizations. The 2006 return isusually filed during 2007.

The standard amounts are based onthe total number of exemptionsclaimed on the 2006 federal incometax return. The standard amounts are$30 for a person filing a return withone exemption, $40 for twoexemptions, $50 for three exemptionsand $60 for four or more exemptions.For example, a married couple filing ajoint return with two dependentchildren (for a total of fourexemptions) will be eligible for themaximum standard amount of $60.

“The easiest way for eligibletaxpayers to get their money back is touse the standard amounts,” said IRSCommissioner Mark W. Everson.“These amounts save taxpayers fromlocating 41 months of old phone billsand analyzing these bills to determinethe taxes paid. We believe the standardamounts are both reasonable and fair.”

To get the standard amount, eligibletaxpayers only need to fill out oneadditional line on their regular 2006return. The IRS is creating a specialshort form (Form 1040EZ-T) for thosewho don’t need to file a regular return.

The standard amounts are based onactual telephone usage data, and thestandard amount applicable to a familyor other household reflects the long-distance phone tax paid by similarlysized families or households. Thosewho paid the long-distance tax onservice billed after Feb. 28, 2003 andbefore Aug. 1, 2006 are eligible for arefund.

Only individuals can use thestandard amounts. Alternatively,individual taxpayers can choose tofigure their refund using the actualamount of tax paid.

Details on requesting the telephonetax refund will be included in all 2006tax return materials and on irs.gov.

Though businesses and nonprofitsmust base their telephone tax refundon the actual amount of tax paid, the

IRS is looking for ways to make therefund process easier for thesetaxpayers. The IRS is considering anestimation method businesses andnonprofits may use for figuring the taxpaid.

"Businesses and nonprofits generallyhave more varied usage patterns thanindividuals do," Everson said. "We'vemet with a number of business andnonprofit groups to understand theirconcerns, and we plan to continue towork with them to come up with areasonable method for estimatingtelephone excise tax refund amounts."

Treasury and IRS UpdateRules on Exchanges forAnnuities

The Department of the Treasury andthe Internal Revenue Service todayissued proposed regulations that wouldaddress the tax treatment of anexchange of property for an annuitycontract. The proposed regulationswould apply the same rule toexchanges for both private annuitiesand commercial annuities.

A decades-old IRS ruling generallypostpones tax on the exchange ofappreciated property for a privateannuity, a result inconsistent with thetax treatment of exchanges forcommercial annuities or other kinds ofproperty. This ruling was originallybased in part on the assumption thatthe value of a private annuity contractcould not be determined for federalincome tax purposes. This assumptionis no longer correct. The ruling has itsroots in authorities that applied the"open transaction doctrine," which hasbeen eroded in recent years. Inaddition, the Treasury Department andthe IRS have learned that the rulinghas been relied upon inappropriatelyin a number of transactions that aredesigned to avoid U.S. income tax. Theguidance issued today proposes todeclare the ruling obsolete. Charitablegift annuities would not be affected bythe proposed guidance.

If adopted, the guidance would beeffective immediately for transactionsnot completed before today.Recognizing, however, that manylegitimate estate planning transactionsmay currently be in process, theeffective date is postponed for sixmonths for some transactions that posethe least likelihood of abuse.

Tax Cornercontinued from page 11

13F a l l 2 0 0 6

IRS Announces PensionPlan Limitations for 2007

The Internal Revenue Serviceannounced cost of living adjustmentsapplicable to dollar limitations forpension plans and other items for TaxYear 2007.

Section 415 of the Internal RevenueCode provides for dollar limitations onbenefits and contributions underqualified retirement plans. It alsorequires that the Commissionerannually adjust these limits for cost ofliving increases.

Many of the pension plan limitationswill change for 2007. For most of thelimitations, the increase in the cost-of-living index met the statutorythresholds that trigger theiradjustment. For example, thelimitation under Section 402(g)(1) onthe exclusion for elective deferralsdescribed in Section 402(g)(3) isincreased from $15,000 to $15,500.This limitation affects elective deferralsto Section 401(k) plans and to theFederal Government’s Thrift SavingsPlan, among other plans.

Effective January 1, 2007, thelimitation on the annual benefit undera defined benefit plan under Section415(b)(1)(A) is increased from$175,000 to $180,000. For participantswho separated from service beforeJanuary 1, 2007, the limitation fordefined benefit plans under Section415(b)(1)(B) is computed bymultiplying the participant'scompensation limitation, as adjustedthrough 2006, by 1.0334.

The limitation for definedcontribution plans under Section415(c)(1)(A) is increased from$44,000 to $45,000.

The Code provides that variousother dollar amounts are to beadjusted at the same time and in thesame manner as the dollar limitationof Section 415(b)(1)(A). These dollaramounts and the adjusted amounts areas follows:

The limitation under Section402(g)(1) on the exclusion for electivedeferrals described in Section402(g)(3) is increased from $15,000 to$15,500.

The annual compensation limitunder Sections 401(a)(17), 404(l),408(k)(3)(C), and 408(k)(6)(D)(ii) isincreased from $220,000 to $225,000.

The dollar limitation under Section416(i)(1)(A)(i) concerning thedefinition of key employee in a top-heavy plan is increased from $140,000to $145,000.

The dollar amount under Section409(o)(1)(C)(ii) for determining themaximum account balance in anemployee stock ownership plan subjectto a 5 year distribution period isincreased from $885,000 to $915,000,while the dollar amount used todetermine the lengthening of the 5year distribution period is increasedfrom $175,000 to $180,000.

The limitation used in the definitionof highly compensated employeeunder Section 414(q)(1)(B) remainsunchanged at $100,000.

The dollar limitation under Section414(v)(2)(B)(i) for catch-upcontributions to an applicableemployer plan other than a plandescribed in Section 401(k)(11) orSection 408(p) for individuals aged 50or over remains unchanged at $5,000.The dollar limitation under Section414(v)(2)(B)(ii) for catch-upcontributions to an applicableemployer plan described in Section401(k)(11) or Section 408(p) forindividuals aged 50 or over remainsunchanged at $2,500.

The annual compensation limitationunder Section 401(a)(17) for eligibleparticipants in certain governmentalplans that, under the plan as in effecton July 1, 1993, allowed cost of livingadjustments to the compensationlimitation under the plan underSection 401(a)(17) to be taken intoaccount, is increased from $325,000 to$335,000.

The compensation amount underSection 408(k)(2)(C) regardingsimplified employee pensions (SEPs) isincreased from $450 to $500.

The limitation on deferrals underSection 457(e)(15) concerningdeferred compensation plans of stateand local governments and tax-exemptorganizations is increased from$15,000 to $15,500.

The compensation amounts underSection 1.61 21(f)(5)(i) of the IncomeTax Regulations concerning thedefinition of “control employee” forfringe benefit valuation purposes isincreased from $85,000 to $90,000.The compensation amount under

Section 1.61 21(f)(5)(iii) is increasedfrom $175,000 to $180,000.

The limitation under Section408(p)(2)(E) regarding SIMPLEretirement accounts is increased from$10,000 to $10,500.

Administrators of defined benefit ordefined contribution plans that havereceived favorable determinationletters should not request newdetermination letters solely because ofyearly amendments to adjust maximumlimitations in the plans.

IRS Formalizes AppealsArbitration Process

The Internal Revenue Serviceannounced that the Appeals arbitrationprocess is no longer a pilot programbut part of business as usual at the IRS.In arbitration the IRS and the taxpayeragree to have a third party make adecision about a factual issue that willbe binding on both of them.

IRS Notice 2000-4 previouslyestablished a pilot program for cases inAppeals in which a taxpayer and IRScould jointly request bindingarbitration on certain unresolvedfactual issues. When a limited numberof factual issues remain unresolvedduring the course of an appeal, thetaxpayer or the IRS can requestarbitration and jointly select an Appealsor a non-IRS Arbitrator from any localor national organization that provides aroster of neutrals.

The permanent arbitrationprocedure may be used to resolveissues while a case is in Appeals, aftersettlement discussions are unsuccessfuland, generally, when all other issuesare resolved except specific factualissues for which arbitration is beingrequested.

Arbitration is not available for allissues. Some examples include legalissues, issues already in any court, issuesin a taxpayer’s case designated forlitigation, collection cases with certainexceptions, and frivolous issues.

New Filing Requirementsfor Limited LiabilityCompanies, LimitedPartnersehps and LimitedLiability Partnerships inNew York State.

Chapter 767 of the Laws of 2005

continued on page 16

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15F a l l 2 0 0 6

continued on page 19

Pension Protection Act of 2006 Becomes LawThis massive 800-plus-page law over-

hauls the funding and disclosure rulesfor defined benefit plans, revises thededuction limits for qualified plans,addresses conversions of pensionplans to cash balance plans, carries lib-eralized payout and rollover rules, andmakes a host of other changes relatingto pension plans and their beneficia-ries. It also revises key charitable giv-ing rules and makes a number ofexempt organization reforms.

Many of these changes will affectlarger corporations, but there are anumber of issues which will be ofinterest to the smaller tax practitioneras well. Following are a few examples:

• Qualified plan to IRA rolloversallowed for non-spouse beneficia-ries after 2006.

• Direct rollovers from qualifiedplans to Roth IRAs permittedafter 2007.

• Extra IRA contributions up to$3,000 allowed for employees vic-timized by employer bankruptciesstarting in 2007.

• Easing of the rules for distribu-tions on account of hardship andunforeseen circumstances.

• Key traditional and Roth IRAincome limits indexed after 2006.

• Tax refunds may be depositeddirectly to IRAs after 2006.

• Distributions to called-upreservists not subject to 10%penalty.

The following items previouslyscheduled to sunset at the end of 2010are now made permanent:

• Increases in the IRA contributionlimits, including the ability tomake catch-up contributions.

• Rules relating to deemed IRAsunder employer plans.

• Increases in the limits on contri-butions, benefits, and compensa-tion under qualified retirementplans, tax-sheltered annuities,and eligible deferred compensa-tion plans.

• Modification of the top-heavyrules.

• Elective deferrals not taken intoaccount for purposes of deduc-tion limits.

• Option to treat elective deferralsas after-tax Roth contributions.

• Catch-up 401(k), SEP and SIM-

PLE IRA contributions for individuals age 50 and older.

• Low-income saver’s credit madepermanent and indexed after2007.

In the next article we cover some ofthe New Charitable Incentives.

Complete details of the new legisla-tion as well as a special study of thekey provisions in the Pension Protec-tion Act of 2006 are available fromRIA at www.ria.thomson.com.

Reprinted with permission from Gear UpGold Rush® Newsletter, Vol. 2, Issue 9:September 06 (GUGN0906). Copyright ©2006 Practitioners Publishing Company.All Rights Reserved. The Gear Up GoldRush Newsletter is a four to six page taxnewsletter published monthly by Practition-ers Publishing Company (PPC) in collabo-ration with Gear Up. Reproduction isprohibited without written permission of thepublisher. Not assignable without consent.Contact: 800-231-1860 orGearUp.com/GoldRush

Pension Protection Act of2006 Contains NewCharitable Incentives

Included in the latest piece of legislation signed by the President areseveral provisions which affect charitable giving.

TTaaxx--FFrreeee IIRRAA DDiissttrriibbuuttiioonnss ffoorr CChhaarriittaabbllee PPuurrppoosseess

Previously, if an amount withdrawnfrom a traditional or Roth IRA isdonated to a charitable organization,the rules relating to the tax treatmentof withdrawals from IRAs apply to theamount withdrawn and the charitablecontribution is subject to the normallyapplicable limitations on deductibilityof contributions.

NNeeww llaaww.. For distributions in taxyears beginning after 2005 and before2008, the Act provides an exclusionfrom gross income for otherwise tax-able IRA distributions from a tradi-tional or Roth IRA that are qualifiedcharitable distributions. To constitutea qualified charitable distribution, thedistribution must be made (1) directlyby the IRA trustee to certain charitiesand (2) on or after the date the IRAowner reaches age 70.5.

Distributions that are excludedunder the new provision aren’t taken

into account in determining the indi-vidual’s deduction, if any, for charita-ble contributions.

The new provision clearly savestaxes for nonitemizers and can savetaxes for itemizers as well, to theextent charitable limitations wouldhave reduced the amount currentlydeductible for the contribution of theIRA.

Even if limitations would not causea reduction in the amount of the charitable deduction, the new provi-sion can still save taxes by loweringadjusted gross income, and therebymaking it less likely to lose certain taxbreaks pegged to AGI, such as medicalexpense deductions. Using IRA distri-butions, rather than other funds, tomake charitable contributions canhelp to reduce the amount of socialsecurity benefits included in grossincome.

In addition to the above, the follow-ing provisions are also included in thenew law:

• KETRA deduction for food andbook contributions extended fortwo years through 2007.

• FMV of Contributions of RealProperty for conservation pur-poses allowed up to50% of AGIand may be carried forward up to15 years.

• No deduction for clothing andhousehold items of minimal mon-etary value (socks and under-wear) or for items not in goodcondition.

• Cancelled checks or receiptsrequired for cash contributionsunder $250.

• Stiffer penalties for misstatementof valuations for contributions.

Reprinted with permission from Gear UpGold Rush® Newsletter, Vol. 2, Issue 9:September 06 (GUGN0906). Copyright ©2006 Practitioners Publishing Company.All Rights Reserved. The Gear Up GoldRush Newsletter is a four to six page taxnewsletter published monthly by Practition-ers Publishing Company (PPC) in collabo-ration with Gear Up. Reproduction isprohibited without written permission of thepublisher. Not assignable without consent.Contact: 800-231-1860 orGearUp.com/GoldRush

16F a l l 2 0 0 6

includes amendments to the LimitedLiability Company Law andPartnership Law regarding thepublication required upon theformation or authorization of domesticand foreign limited liability companies,limited partnerships and limitedliability partnerships (hereinafterreferred to as "limited liabilityentities"). The law becomes effectiveon June 1, 2006.

Chapter 44 of the Laws of 2006, alsoeffective June 1, 2006, provides furtheramendments to the Limited LiabilityCompany Law and Partnership Lawregarding publication requirementsfor limited liability entities. Theamendments provided by both lawsrelated to filing the proof ofpublication with the Department ofState are outlined below.

The Limited Liability Company Lawand the Partnership Law may be foundon the New York State Senate’s websiteat www.senate.state.ny.us.

Existing Limited LiabilityEntities

Limited liability entities which wereformed or authorized prior to June 1,2006, are deemed to have compliedwith the publication and filingrequirements in effect prior to June 1,2006 if:

• the entity was formed orauthorized on or after January 1,1999 and prior to June 1, 2006 andthe entity filed at least one affidavitof the printer or publisher of anewspaper with the Department ofState at any time prior to June 1,2006, or

• the entity was formed orauthorized prior to January 1,1999.

Limited liability entities formed orauthorized to do business in New Yorkprior to June 1, 2006, that have notbeen deemed to be in compliance withthe publication and filing requirements,are statutorily required to fulfill thepublication requirements in the mannerrequired by law prior to June 1, 2006.Failure to complete such publicationrequirements within 12 months of theeffective date of the law will result in thesuspension of the limited liability entity’s

authority to carry on, conduct ortransact any business.

Limited Liability EntitiesFormed or Authorized on orafter June 1, 2006

The Limited Liability Company Lawand the Partnership Law now includeadditional provisions regarding theselection of the correct county inwhich to publish. The applicablestatutory provisions should beconsulted prior to publishing.

Notices published by limited liabilityentities now must include informationregarding the address, if any, of the"principal business location" of thelimited liability entity.

Notices must still be published intwo newspapers, once each week, forsix consecutive weeks.

The requirement that thenewspapers for publication bedesignated by the county clerk iscontinued. However, one newspapermust be "printed daily" and the other"printed weekly."

Limited liability entities that areformed or authorized to do business inNew York after June 1, 2006, which failto comply with the publicationrequirements within 120 days aftertheir formation or qualification willhave their authority to carry on,conduct or transact any businesssuspended.

Filing RequirementsApplicable to all LimitedLiability Entities

Effective June 1, 2006, all Affidavitsof Publication submitted to theDepartment of State for filing mustinclude a Certificate of Publication.The two Affidavits of Publication of thenewspapers must be attached to theCertificate of Publication. TheDepartment of State has preparedsample forms for the filing ofCertificates of Publication.

The fee for filing a Certificate ofPublication along with the twoAffidavits of Publication will be $50.

The format for the newspaper’sAffidavits of Publication is nowprovided in the Limited LiabilityCompany Law and Partnership Law.

The Department must decline to fileany document that impairs the

Department’s ability to make an officialrecord.

Please note the following regardingCertificates of Publication andAffidavits of Publication:

1. An Affidavit of Publication mustnot include the actual clipping ofthe newspaper publication. Aphotocopy of the newspaperclipping may be attached to theAffidavit of Publication if it is ofsufficient size and otherwisesuitable for microfilming orother imaging technology. Pleasenote that the applicable statutesdo not require the actualclipping of the newspaperpublication to be attached to theAffidavit of Publication. Thestatutes only require that the textof the publication be in orannexed to the Affidavit ofPublication.

2. The Department recommendsthat newspapers print the text ofthe publication on white paperto be attached to the Affidavit ofPublication or include the text ofthe publication in the Affidavit ofPublication.

3. Small font size is not permitted.The Department recommendsthat a font size of 10 or larger beused.

4. The Affidavit of Publication andattached copy of the publication,if applicable, must be on 8.5 x 11paper.

5. An Affidavit of Publication mayinclude only one copy of the textof the publication. Theapplicable statutes do notrequire a copy of each week’spublication.

A limited liability company that is atheatrical production company isexempt from the publicationrequirements provided the words"limited liability company" appear inits name (See Section 23.03 of the Artsand Cultural Affairs Law).

The Department of State is not in aposition to provide legal adviceregarding publication or the changesin the law. Persons interested inpublication by limited liabilitycompanies, limited partnerships orlimited liability partnerships shouldconsult a private attorney.

Tax Cornercontinued from page 13

18F a l l 2 0 0 6

Chapter Meeting DatesChapter Meeting DatesBuxmont Chapter

Meetings are held on the fourth Tuesday of the month atWilliamson’s Restaurant, Route 611 & Blair Mill Road,

Willow Grove unless otherwise noted

NOVEMBER 28, 2006TOPIC: Federal Tax UpdateSPEAKER: Richard Furlong, IRSCPA: 4 Hours Tax

DECEMBER 19, 2006TOPIC: Unemployment CompensationCPA: 2 Hours Tax

Lehigh Valley ChapterMeetings are held the third Tuesday of the month at theBest Western (formerly Holiday Inn), Route 22 & 512,

Bethlehem, unless otherwise noted

NOVEMBER 21, 2006TOPIC: Employment Law UpdateSPEAKER: Donald P. Russo, Esq.CPA: 2 Hours Other

DECEMBER 19, 2006Holiday Party

Philadelphia ChapterMcCall’s Meeting & Conference Center, Upper Darby

DECEMBER 4, 2006TOPIC: Accounting for Casualty LossCPE: 6 Hours A&A

JANUARY 8, 2007TOPIC: City of Philadelphia/Local Tax Issues for 2007

FEBRUARY 2, 2007TOPIC: Tax PotpourriSPEAKER: David Zalles, Philadelphia ChapterCPA: 5 Hours Tax

South Central ChapterMeetings are held at the Holiday Inn Harrisburg -

I83 & PA Turnpike unless otherwise noted.

DECEMBER 6, 2006TOPIC: Holiday Show at Allenberry Playhouse

Santa Has A Sister

JANUARY 24, 2007TOPIC: Package XSPEAKER: Frank Kelly, EACPE: 4 Hours Tax

Southeast ChapterMeetings are held the third Wednesday of the month at the

Townhouse Restaurant in Media unless otherwise noted

NOVEMBER 28, 2006TOPIC: TBA

DECEMBER 20. 2006TOPIC: IRS UpdateSPEAKER: Richard Furlong

JANUARY 12, 2007SPEAKER: Steve Morris, Capital Financial Services

Western Pennsylvania ChapterMeetings are held at the Edgewood Country Club

JANUARY 17, 2007TOPIC: PA Sales Tax: What is New at the State and

Local Level and More UpdatesSPEAKER: Charles Potter, Esq.

Phil Cook, Esq.

FEBRUARY 21, 2007TOPIC: Tax RoundtableSPEAKER: PNC Bank

Seminar DatesSeminar DatesGear Up 1040 Individual Tax Seminar

DECEMBER 7 & 8LOCATION: Radisson Hotel, TrevoseSPONSORED BY: Buxmont ChapterCPE: 16 Hours Tax

DECEMBER 11 & 12LOCATION: Wyndam Hotel, HarrisburgSPONSORED BY: Central/SOC Joint Ed.

CommitteeCPE: 16 Hours Tax

DECEMBER 14 & 15LOCATION: Radisson Hotel, MonroevilleSPONSORED BY: Western PA ChapterCPE: 16 Hours Tax

19F a l l 2 0 0 6

How Much Are Your OldSocks Worth?

Not as much as they were lastmonth.

Under the Pension Protection Actof 2006 for contributions made afterthe enactment date, no deduction isallowed for contributions of clothingand household items that are not in“good used condition or better”. In addition, the IRS may deny adeduction for any item with minimalmonetary value, such as used socks orundergarments. A deduction may beallowed for a contribution of an itemof clothing or a household item not ingood used condition or better if theamount claimed for the item is morethan $500 and the taxpayer includeswith his return a qualified appraisalwith respect to the property.

So let me see if I understand thiscorrectly. If my old socks are not ingood condition, I cannot deductthem. But if I have so many old socks

(in poor condition) that together theyare worth more than $500 then I candeduct them but only if I get anappraisal.

So my tax planning will have tochange. From now on rather thangive away my old socks frequently, Ishall save them all in a huge pile.When the pile is worth more than$500 I will take them to be appraised.Assuming I can get that done at a reasonable cost (less than $500) thenI will get a deduction. That is, if I amstill itemizing at that time.

Wasn’t there a President whodeducted used underwear at $4 apair? But his were probably in goodcondition.

Reprinted with permission from Gear UpGold Rush® Newsletter, Vol. 2, Issue 9:September 06 (GUGN0906). Copyright ©2006 Practitioners Publishing Company.All Rights Reserved. The Gear Up GoldRush Newsletter is a four to six page taxnewsletter published monthly by Practition-ers Publishing Company (PPC) in collabo-ration with Gear Up. Reproduction isprohibited without written permission of the

publisher. Not assignable without consent.Contact: 800-231-1860 orGearUp.com/GoldRush

Pension Protection Actcontinued from page 15

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