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Small Business and Work Opportunity Tax Act of 2007

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On May 24, Congress passed H.R. 2206, U.S. Troops Readiness, Veterans’ Health, and Iraq Accountability Act of 2007. On May 25, President Bush signed the legislation into law. Final supplemental spending legislation includes a long-overdue minimum wage hike for America’s workers, and a number of small business tax incentives.

Small Business Tax Relief Provisions

Work Opportunity Tax Credit

  • Extend WOTC for 3 1/2 years through September 30, 2011.
  • Expand WOTC to allow credit to employers who hire disabled veterans and individuals in counties that have suffered significant population losses.

179 Expensing

  • One-year extension through 2010.
  • Immediate increase in the expensing limit from $112,000 to $125,000 and phase-out level from $450,000 to $500,000.
  • Extend 179 expensing for Go Zone businesses through 2008.

GO Zone Low Income Housing

  • Extends enhanced credit treatment for 2 additional years through 2010 and modifies the carryover allocation and Federally subsidized rules for certain low income housing credit buildings.

GO Zone Repairs and Reconstruction

  • Treats certain qualified GO Zone repairs or reconstruction as “qualified rehabilitation” for purposes of the mortgage revenue bond and Gulf Opportunity Zone bond rules.
  • Calls for GAO study of certain tax incentives in the GO Zone.

Tip Credit

  • Allows employers to receive full tip credit despite increase in Federal minimum wage.

Family Business Tax Simplification

  • Allows an unincorporated business owned jointly by a married couple to file as a sole proprietorship instead of a partnership.
  • Ensures that both spouses receive credit for paying Social Security and Medicare taxes.

Waiver of AMT Limitations on WOTC and Tip Credit

  • Allows WOTC and the tip credit to be taken under AMT.

S Corp Package

  • Several modifications to the S corporation rules that will help small businesses keep the tax benefits of being an S Corporation.

Increase in Minimum Wage

  • Reduction in the amount of credits taxpayers claim under the FICA/tip tax credit as a result of increase in the minimum wage.

Increase in Age of Minor Children Whose Unearned Income is Taxed as Parents’ Income

  • Raises the age from under-18 to under-19 (under-24 if a student) at which a child’s unearned income in excess of $1700 is taxed at the parent’s rate.
  • Discourages the practice of transferring investments to one’s child for the purpose of avoiding higher tax rates.

Modify Interest Suspension Rules

  • Modifies the rule that the IRS must stop charging interest and filing related penalties if the IRS fails to notify the taxpayer about a deficiency within 18 months after the taxpayer filed the return – extended to 36 months

Collection Due Process

  • Eliminates the requirement that the IRS hold a collection due process hearing before issuing a levy on delinquent employment taxes so these trust fund taxes are not allowed to pyramid.
  • Taxpayers are still afforded CDP hearing once every two years.

Permanent IRS User Fees

  • Extends permanently IRS user fees.

Bad Checks

  • In general, the penalty remains at 2% of the check amount.
  • The $750 threshold is increased to $1,250 and the $15 fee is increased to $25.

Expand Preparer Penalties

  • Expands preparer penalties to all types of tax returns (e.g., employment, excise, exempt orgs., estate and gift tax).
  • Increases the amounts of the penalties, too.

Erroneous Refund Claim Penalty

  • Creates a new penalty on claims for refund that are filed without any reasonable basis.


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