Many small businesses will now face stiffer penalties if they fail to file their tax returns on a timely basis, thanks to the Mortgage Relief Act passed by Congress late last year.

Buried in the new law are increases in penalties for failing to file partnership tax forms. Before the passage of the Mortgage Relief Act, any partnership required to file a return that didn't file on time or didn't show all the required information was liable for a monthly penalty of $50 times the number of persons who were partners during any part of the tax year. The penalty, however, could only be imposed for five months. Now, the IRS can impose the penalty for up to 12 months and the amount per partner has been raised to $85 for the 2007 tax year and $86 for all years after that.

The Mortgage Relief Act also imposes a monthly penalty for the first time for not filing an S corporation return on a timely basis or failing to provide the information required to be shown on the return. Starting with 2007 tax years, the penalty for not filing S corp tax returns is $85 times the number of shareholders in the S corp per month, up to a maximum of 12 months.

These increases in penalties are expected to have the greatest impact on small businesses, since a large number of small business are organized as either partnerships or S corporations.

-- Herb Wolfson, Wittlen, Simon & Newman, wsnpc@msn.com

New Pennsylvania real estate regulations may result in businesses facing additional taxes when they exchange properties with other businesses.

When two businesses exchange property that is used solely for business or investment, they don't have to pay federal taxes if there is no gain or loss on either side. These "like-kind" transactions take place under Section 1031 of the Internal Revenue Code. The law requires that some like-kind transactions have a third party called an "exchange accommodation titleholder" (EAT) briefly hold title to the property before it is sold.

Under the old Pennsylvania transfer tax regulations, an EAT was considered an agent of the taxpayer. But the new regulations specifically say that an EAT is not an agent, meaning that if an EAT is used in a property exchange, the Pennsylvania Department of Revenue will assess the realty transfer tax twice, once for the sale to the EAT and once for the sale by the EAT.

There are some complicated ways around the double transfer tax dilemma, which means that businesses will have to structure future "like-kind" property exchanges in a much different way from what they are used to.

-- Kevin McKeegan, Meyer, Unkovic & Scott, kfm@muslaw.com

More and more companies of all sizes are investing in master plans for their facilities.

A master plan analyzes current and anticipated facility needs and details the actions the organization will take over a period of time, typically five years, to meet those needs. A master plan should cover space reuse, renovation, relocation, acquisition and financing.

The master planning process requires the input of all facets of the organization to develop:

• A clear definition of the market.

• An idea if and how the organization is going to grow.

• comprehensive facilities assessment, including information on the age and condition of the physical plant.

• An in-depth understanding of how evolving technology will affect space needs

-- Phil Hundley, DRS Architects, phil_hundley@drsarchitects.com