New law contains small business tax provisions.

• Author: Nevius, Alistair M.

On May 25, 2007, President Bush signed into law the Small Business and Work Opportunity Act of 2007 (SBWOA '07) (P.L. 110-28), which included several tax provisions.

Return preparer penalties: The SBWOA '07 expands the scope of return preparer penalties and alters the standards of conduct that must be met to avoid penalties.

The new law replaces the prior-law Sec. 6694 requirement--applicable to income tax return preparers who knew or reasonably should have known of an undisclosed return position--that there be a realistic possibility that the position will be sustained on its merits, with a requirement that there be a reasonable belief that the tax treatment of the position was more likely than not the proper treatment. The SBWOA '07 expands the scope of the return preparer penalties to include preparers of estate and gift, employment and excise tax returns, and returns of exempt organizations.

The new law increases the first-tier penalty under Sec. 6694 from $250 to the greater of $1,000 or 50% of the income derived (or to be derived) by the preparer from the preparation of a return or claim with respect to which the penalty is imposed. The second-tier penalty, for return preparers who engage in specified willful or reckless conduct when preparing a return, is increased from $1,000 to the greater of $5,000 or 50% of the income derived (or to be derived) by the preparer. (See "DC Currents" on p. 472 for more on this issue and the AICPA's efforts in this area.)

Sec. 179 deduction: The SBWOA '07 also increases the Sec. 179 deduction. For 2007, the inflation-adjusted amount of the deduction had been $112,000, reduced by the amount by which qualifying property put in service during the tax year exceeds $450,000 (as adjusted for inflation). Those amounts have been increased to $125,000 and $500,000, respectively, for tax years beginning in 2007-2010. In years beginning after 2007 and before 2011, the amounts will be adjusted for inflation.

Kiddie tax: Effective for years beginning after May 25, 2007, the new law expands the applicability of the Sec. l(g)"kiddie tax" to apply to children who are 18 years old or who are full-time students over 18 but under 24. The expanded provision applies only to children whose earned income does not exceed one-half of the amount of their support.

Work opportunity credit: The SBWOA '07 extends the Sec. 51 work opportunity tax credit for 44 months for qualified individuals who begin work for an employer after...