Another new tax law; 2007 Small Business & Work Opportunities Tax Act: good and bad news.

This treatment also did not apply, generally, to interest or penalties accruing on underpayments resulting from listed transactions or undisclosed reportable transactions.

Note: Under Rev. Rul. 2005-4, if an individual filed an amended income tax return reporting additional tax more than 18 months after the later of (1) the original return's due date (without extensions) or (2) the date the original return was timely filed, the suspension rules applied to interest on that additional tax. The suspension period began on the day after the close of this 18-month period and ended:

* On the date the amended return was filed if the additional tax was paid with this return; or

* 21 days after the date the amended return was filed if the additional tax was not paid with the return.

New Law: The 18-month period is increased to 36 months. Consequently, the accrual of interest and certain penalties will be suspended starting 36 months after an income tax return is filed if the IRS has not sent the taxpayer a notice specifically stating the taxpayer's liability and the basis for that liability.

Effective Date: IRS notices issued after Nov. 25, 2007.

Employment Tax Levies

Old Law: The IRS was required, generally, to notify taxpayers that they had a right to a fair and impartial Collection Due Process (CDP) hearing before a levy may be made on any property or right to property. Similar rules applied for tax liens notices, although the right to a hearing arose only on the filing of the notice.

The CDP hearing was held by an impartial IRS Appeals officer, who was required to issue a determination with respect to the issues raised by the taxpayer at the hearing. The taxpayer could appeal that determination to a court.

Taxpayers were not entitled to a pre-levy CDP hearing if a levy was issued to collect a federal tax liability from a state tax refund or if collection of the federal tax was in jeopardy. However, levies related to state tax refunds or jeopardy determinations were subject to post-levy review through the CDP hearing process.

New Law: A levy issued to collect federal employment taxes will be excepted from the pre-levy CDP hearing requirement if the taxpayer, subject to the levy, requested a CDP hearing with respect to unpaid employment taxes arising in the two-year period before the beginning of the taxable period with respect to which the employment tax levy is served.

However, the taxpayer will be provided an opportunity for a hearing within a reasonable period of time after the levy.

As the IRC provides for state tax refunds or jeopardy determinations, collection by levy of employment tax liabilities will be permitted to continue during the CDP proceedings.

Effective Date: Levies issued after Sep. 21, 2007.

Increased Penalty for Bad Checks or Money Orders

Old Law: Sec. 6657 imposed a penalty on persons tendering bad checks or money orders, equal to 2 percent of the amount of the bad check or money order. For checks or money orders that were less than $750, the minimum penalty was $15 (or, if less, the amount of the check or money order).

This penalty did not apply if the person tendered the check (or money order) in good faith and with reasonable cause to believe that it would be duly paid.

New Law: The minimum penalty is increased to $25 (or, if less, the amount of the check or money), applicable to checks or money orders that are less than $1,250.

Effective Date: Checks or money orders received after May 25, 2007.

Stuart R. Josephs, CPA has a San Diego-based Tax Assistance Practice (TAP) that specializes in assisting practitioners in resolving their clients' tax questions and problems. Josephs, chair of the Federal Subcommittee of CalCPA's Committee on Taxation, can be reached at (619) 469-6999 or stuartrjosephs@yahoo.com.

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By Stuart R. Josephs, CPA