# U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007/Title VIII/Subtitle B

==SUBTITLE B — SMALL BUSINESS TAX INCENTIVES==

### Sec. 8201. Short Title; Amendment of Code; Table of Contents.

    (a) Short Title.—
       This subtitle may be cited as the ``Small Business and Work Opportunity Tax Act of 2007´´.
    (b) Amendment of 1986 Code.—
       Except as otherwise expressly provided, whenever in this subtitle an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.—
       The table of contents of this subtitle is as follows:
          Sec. 8201. Short Title; Amendment of Code; Table of Contents.
             Part 1 — Small Business Tax Relief Provisions
                Subpart A — General Provisions
                   Sec. 8211. Extension and Modification of Work Opportunity Tax Credit.
                   Sec. 8212. Extension and Increase of Expensing for Small Business.
                   Sec. 8213. Determination of Credit for Certain Taxes Paid With Respect to Employee Cash Tips.
                   Sec. 8214. Waiver of Individual and Corporate Alternative Minimum Tax Limits on Work Opportunity Credit and Credit for Taxes Paid with Respect to Employee Cash Tips.
                   Sec. 8215. Family Business Tax Simplification.
                Subpart B — Gulf Opportunity Zone Tax Incentives
                   Sec. 8221. Extension of Increased Expensing for Qualified Section 179 Gulf Opportunity Zone Property.
                   Sec. 8222. Extension and Expansion of Low-Income Housing Credit Rules for Buildings in the Go Zones.
                   Sec. 8223. Special Tax-Exempt Bond Financing Rule for Repairs and Reconstructions of Residences in the Go Zones.
                   Sec. 8224. GAO Study of Practices Employed by State and Local Governments in Allocating and Utilizing Tax Incentives Provided Pursuant to the Gulf Opportunity Zone Act of 2005.
                Subpart C — Subchapter S Provisions
                   Sec. 8231. Capital Gain of S Corporation Not Treated as Passive Investment Income.
                   Sec. 8232. Treatment of Bank Director Shares.
                   Sec. 8233. Special Rule for Bank Required to Change from the Reserve Method of Accounting on Becoming S Corporation.
                   Sec. 8234. Treatment of the Sale of Interest in a Qualified Subchapter S Subsidiary.
                   Sec. 8235. Elimination of All Earnings and Profits Attributable to Pre-1983 Years for Certain Corporations.
                   Sec. 8236. Deductibility of Interest Expense on Indebtedness Incurred by an Electing Small Business Trust to Acquire S Corporation Stock.
             Part 2 — Revenue Provisions
                Sec. 8241. Increase in Age of Children Whose Unearned Income is Taxed as if Parent's Income.
                Sec. 8242. Suspension of Certain Penalties and Interest.
                Sec. 8243. Modification of collection due process procedures for employment tax liabilities.
                Sec. 8244. Permanent extension of IRS user fees.
                Sec. 8245. Increase in penalty for bad checks and money orders.
                Sec. 8246. Understatement of taxpayer liability by return preparers.
                Sec. 8247. Penalty for filing erroneous refund claims.
                Sec. 8248. Time for payment of corporate estimated taxes.

### PART 2 — REVENUE PROVISIONS
#### Sec. 8241. Increase in Age of Children Whose Unearned Income is Taxed as if Parent's Income.

    (a) In General.—
       Subparagraph (A) of section 1(g)(2) (relating to child to whom subsection applies) is amended to read as follows:
                      "(A) such child—
                         "(i) has not attained age 18 before the close of the taxable year, or
                         "(ii)(I) has attained age 18 before the close of the taxable year and meets the age requirements of section 152(c)(3) (determined without regard to subparagraph (B) thereof), and
                         "(II) whose earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual's support (within the meaning of section 152(c)(1)(D) after the application of section 152(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year,".
    (b) Conforming Amendment.—
       Subsection (g) of section 1 is amended by striking "Minor" in the heading thereof.
    (c) Effective Date.—
       The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

#### Sec. 8242. Suspension of Certain Penalties and Interest.

    (a) In General.—
       Paragraphs (1)(A) and (3)(A) of section 6404(g) are each amended by striking "18-month period" and inserting "36-month period".
    (b) Effective Date.—
       The amendments made by this section shall apply to notices provided by the Secretary of the Treasury, or his delegate, after the date which is 6 months after the date of the enactment of this Act.

#### Sec. 8243. Modification of Collection Due Process Procedures for Employment Tax Liabilities.

    (a) In General.—
       Section 6330(f) (relating to jeopardy and State refund collection) is amended—
          (1) by striking "; or" at the end of paragraph (1) and inserting a comma,
          (2) by adding "or" at the end of paragraph (2), and
          (3) by inserting after paragraph (2) the following new paragraph:
                   "(3) the Secretary has served a disqualified employment tax levy,".
    (b) Disqualified Employment Tax Levy.—
       Section 6330 of such Code (relating to notice and opportunity for hearing before levy) is amended by adding at the end the following new subsection:
                "(h) Disqualified Employment Tax Levy.—For purposes of subsection (f), a disqualified employment tax levy is any levy in connection with the collection of employment taxes for any taxable period if the person subject to the levy (or any predecessor thereof) requested a hearing under this section with respect to unpaid employment taxes arising in the most recent 2-year period before the beginning of the taxable period with respect to which the levy is served. For purposes of the preceding sentence, the term `employment taxes' means any taxes under chapter 21, 22, 23, or 24.".
    (c) Effective Date.—
       The amendments made by this section shall apply to levies served on or after the date that is 120 days after the date of the enactment of this Act.

#### Sec. 8244. Permanent Extension of IRS User Fees.

    Section 7528 (relating to Internal Revenue Service user fees) is amended by striking subsection (c).

#### Sec. 8245. Increase in Penalty for Bad Checks and Money Orders.

    (a) In General.—
       Section 6657 (relating to bad checks) is amended—
          (1) by striking "$750" and inserting "$1,250", and
          (2) by striking "$15" and inserting "$25".
    (b) Effective Date.—
       The amendments made by this section apply to checks or money orders received after the date of the enactment of this Act.

#### Sec. 8246. Understatement of Taxpayer Liability By Return Preparers.

    (a) Application of Return Preparer Penalties to All Tax Returns.—
          (1) Definition of tax return preparer.—
             Paragraph (36) of section 7701(a) (relating to income tax preparer) is amended—
                (A) by striking "income" each place it appears in the heading and the text, and
                (B) in subparagraph (A), by striking "subtitle A" each place it appears and inserting "this title".
          (2) Conforming amendments.—
                (A)(i) Section 6060 is amended by striking "income tax return preparers" in the heading and inserting "tax return preparers".
                      (ii) Section 6060(a) is amended—
                            (I) by striking "an income tax return preparer" each place it appears and inserting "a tax return preparer",
                            (II) by striking "each income tax return preparer" and inserting "each tax return preparer", and
                            (III) by striking "another income tax return preparer" and inserting "another tax return preparer".
                      (iii) The item relating to section 6060 in the table of sections for subpart F of part III of subchapter A of chapter 61 is amended by striking "income tax return preparers" and inserting "tax return preparers".
                      (iv) Subpart F of part III of subchapter A of chapter 61 is amended by striking "Income Tax Return Preparers" in the heading and inserting "Tax Return Preparers".
                      (v) The item relating to subpart F in the table of subparts for part III of subchapter A of chapter 61 is amended by striking "income tax return preparers" and inserting "tax return preparers".
                (B) Section 6103(k)(5) is amended—
                      (i) by striking "income tax return preparer" each place it appears and inserting "tax return preparer", and
                      (ii) by striking "income tax return preparers" each place it appears and inserting "tax return preparers".
                (C)(i) Section 6107 is amended—
                            (I) by striking "income tax return preparer" in the heading and inserting "tax return preparer",
                            (II) by striking "an income tax return preparer" each place it appears in subsections (a) and (b) and inserting "a tax return preparer",
                            (III) by striking "Income Tax Return Preparer" in the heading for subsection (b) and inserting "Tax Return Preparer", and
                            (IV) in subsection (c), by striking "income tax return preparers" and inserting "tax return preparers".
                      (ii) The item relating to section 6107 in the table of sections for subchapter B of chapter 61 is amended by striking "Income tax return preparer" and inserting "Tax return preparer".
                (D) Section 6109(a)(4) is amended—
                      (i) by striking "an income tax return preparer" and inserting "a tax return preparer", and
                      (ii) by striking "income return preparer" in the heading and inserting "tax return preparer".
                (E) Section 6503(k)(4) is amended by striking "Income tax return preparers" and inserting "Tax return preparers".
                (F)(i) Section 6694 is amended—
                (I) by striking "income tax return preparer" in the heading and inserting "tax return preparer",
                            (II) by striking "an income tax return preparer" each place it appears and inserting "a tax return preparer",
                            (III) in subsection (c)(2), by striking "the income tax return preparer" and inserting "the tax return preparer",
                            (IV) in subsection (e), by striking "subtitle A" and inserting "this title", and
                            (V) in subsection (f), by striking "income tax return preparer" and inserting "tax return preparer".
                      (ii) The item relating to section 6694 in the table of sections for part I of subchapter B of chapter 68 is amended by striking "income tax return preparer" and inserting "tax return preparer".
                (G)(i) Section 6695 is amended—
                            (I) by striking "income" in the heading, and
                            (II) by striking "an income tax return preparer" each place it appears and inserting "a tax return preparer".
                      (ii) Section 6695(f) is amended—
                            (I) by striking "subtitle A" and inserting "this title", and
                            (II) by striking "the income tax return preparer" and inserting "the tax return preparer".
                      (iii) The item relating to section 6695 in the table of sections for part I of subchapter B of chapter 68 is amended by striking "income".
                (H) Section 6696(e) is amended by striking "subtitle A" each place it appears and inserting "this title".
                (I)(i) Section 7407 is amended—
                            (I) by striking "income tax return preparers" in the heading and inserting "tax return preparers",
                            (II) by striking "an income tax return preparer" each place it appears and inserting "a tax return preparer",
                            (III) by striking "income tax preparer" both places it appears in subsection (a) and inserting "tax return preparer", and
                            (IV) by striking "income tax return" in subsection (a) and inserting "tax return".
                      (ii) The item relating to section 7407 in the table of sections for subchapter A of chapter 76 is amended by striking "income tax return preparers" and inserting "tax return preparers".
                (J)(i) Section 7427 is amended—
                            (I) by striking "income tax return preparers" in the heading and inserting "tax return preparers", and
                            (II) by striking "an income tax return preparer" and inserting "a tax return preparer".
                      (ii) The item relating to section 7427 in the table of sections for subchapter B of chapter 76 is amended to read as follows:
                            "Sec. 7427. Tax return preparers.".
    (b) Modification of Penalty for Understatement of Taxpayer's Liability by Tax Return Preparer.—
       Subsections (a) and (b) of section 6694 are amended to read as follows:
          "(a) Understatement Due to Unreasonable Positions.—
                "(1) In general.—Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of—
                      "(A) $1,000, or
                      "(B) 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
                "(2) Unreasonable position.—A position is described in this paragraph if—
                      "(A) the tax return preparer knew (or reasonably should have known) of the position,
                      "(B) there was not a reasonable belief that the position would more likely than not be sustained on its merits, and
                      "(C)(i) the position was not disclosed as provided in section 6662(d)(2)(B)(ii), or
                            "(ii) there was no reasonable basis for the position.
                "(3) Reasonable cause exception.—No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.
          "(b) Understatement Due to Willful or Reckless Conduct.—
                "(1) In general.—Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a conduct described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of—
                      "(A) $5,000, or
                      "(B) 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
                "(2) Willful or reckless conduct.—Conduct described in this paragraph is conduct by the tax return preparer which is—
                      "(A) a willful attempt in any manner to understate the liability for tax on the return or claim, or
                      "(B) a reckless or intentional disregard of rules or regulations.
                "(3) Reduction in penalty.—The amount of any penalty payable by any person by reason of this subsection for any return or claim for refund shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).".
    (c) Effective Date.—
       The amendments made by this section shall apply to returns prepared after the date of the enactment of this Act.

#### Sec. 8247. Penalty for Filing Erroneous Refund Claims.

    (a) In General.—
       Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by inserting after section 6675 the following new section:
``SEC. 6676. ERRONEOUS CLAIM FOR REFUND OR CREDIT.
    ``(a) Civil Penalty.—If a claim for refund or credit with respect to income tax (other than a claim for a refund or credit relating to the earned income credit under section 32) is made for an excessive amount, unless it is shown that the claim for such excessive amount has a reasonable basis, the person making such claim shall be liable for a penalty in an amount equal to 20 percent of the excessive amount.
    ``(b) Excessive Amount.—For purposes of this section, the term `excessive amount' means in the case of any person the amount by which the amount of the claim for refund or credit for any taxable year exceeds the amount of such claim allowable under this title for such taxable year.
    ``(c) Coordination With Other Penalties.—This section shall not apply to any portion of the excessive amount of a claim for refund or credit which is subject to a penalty imposed under part II of subchapter A of chapter 68.´´.
    (b) Conforming Amendment.—
       The table of sections for part I of subchapter B of chapter 68 is amended by inserting after the item relating to section 6675 the following new item:
             ``Sec. 6676. Erroneous claim for refund or credit.´´.
    (c) Effective Date.—
       The amendments made by this section shall apply to any claim filed or submitted after the date of the enactment of this Act.

#### Sec. 8248. Time for Payment of Corporate Estimated Taxes.

    Subparagraph (B) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 is amended by striking "106.25 percent" and inserting "114.25 percent".