BILL NUMBER: AB 1116 CHAPTERED 08/13/01 CHAPTER 191 FILED WITH SECRETARY OF STATE AUGUST 13, 2001 APPROVED BY GOVERNOR AUGUST 12, 2001 PASSED THE SENATE JULY 21, 2001 PASSED THE ASSEMBLY APRIL 26, 2001 INTRODUCED BY Committee on Revenue and Taxation (Corbett (Chair), Harman (Vice Chair), Alquist, Aroner, Cedillo, Koretz, Matthews, and Wyland) FEBRUARY 23, 2001 An act to amend Sections 18665 and 19043 of, and to add Section 19043.5 to, the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST AB 1116, Committee on Revenue and Taxation. Income taxes: bank and corporation taxes. Existing law defines "deficiency" for purposes of the Personal Income Tax Law and the Bank and Corporation Tax Law. This bill would revise that definition to delete the provision specifying that "deficiency" includes the amount by which a credit subject to carryover is reduced by any action of the Franchise Tax Board. This bill would specify the applicable administrative procedures if the Franchise Tax Board determines that the amount of a carryover disclosed by the taxpayer on an original or amended return is more than the amount of the carryover disclosed by its own examination. This bill also would make changes with respect to the operative date of provisions effecting changes in withholding. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 18665 of the Revenue and Taxation Code is amended to read: 18665. Unless otherwise specifically provided, the provisions of any law effecting changes in withholding shall apply to withholding in the calendar year succeeding the year the provision was chaptered, or in the calendar year the provision is operative, whichever is later. SEC. 2. Section 19043 of the Revenue and Taxation Code is amended to read: 19043. (a) For purposes of this part, "deficiency" means the amount by which the tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) exceeds the excess of-- (1) The sum of-- (A) The amount shown as the tax by the taxpayer on an original or amended return, if an original or amended return was filed, plus (B) The amounts previously assessed (or collected without assessment) as a deficiency, over-- (2) The amount of rebates, as defined in paragraph (2) of subdivision (b), made. (b) For purposes of this section: (1) The tax imposed by Part 10 (commencing with Section 17001) and Part 11 (commencing with Section 23001) and the tax shown on an original or amended return shall both be determined without regard to payments on account of estimated tax, and without regard to the credit under Section 19002. (2) "Rebate" means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) was less than the excess of the amount specified in paragraph (1) of subdivision (a) over the rebates previously made. SEC. 3. Section 19043.5 is added to the Revenue and Taxation Code, to read: 19043.5. (a) (1) If the Franchise Tax Board determines that the amount of a carryover disclosed by the taxpayer on an original or amended return, including an amended return reporting federal adjustments pursuant to Section 18622, is more than the amount of the carryover disclosed by its own examination, it may mail a notice or notices to the taxpayer of the proposed carryover adjustment and the proposed adjusted carryover amount. (2) For purposes of this section, "carryover" means the amount of a credit, loss, deduction, or other item that is shown on an original or amended return for carry forward to a subsequent taxable year. (b) Except as otherwise provided in this section, the provisions of this article applicable to a proposed deficiency assessment shall be applicable to a proposed adjusted carryover amount, including protest and appeal rights as if that proposed adjusted carryover amount were a proposed deficiency assessment. (c) (1) A proposed adjusted carryover amount shall become a final adjusted carryover amount under this section following a determination of the board regarding that proposed adjusted carryover amount that becomes final pursuant to the provisions of Section 19048. (2) A final adjusted carryover amount shall be binding and conclusive with respect to the amount of that carryover for purposes of Part 10 (commencing with Section 17001), this part, and Part 11 (commencing with Section 23001), except in the following circumstances: (A) In the event of fraud, malfeasance, or misrepresentation of a material fact. (B) Subject to any provision of the Revenue and Taxation Code that expressly provides that effect be given to that provision notwithstanding any other law or rule of law. (C) Subject to any law that is, or becomes, operative with respect to a taxable year affected by the final adjusted carryover amount. (D) Subject to any final federal adjustment that is made with respect to the taxpayer's federal income tax liability for a taxable year affected by the final adjusted carryover amount. (E) In an action brought pursuant to provisions of Section 19382. (d) (1) In any case where there is a final adjusted carryover amount with respect to a carryover, the taxpayer shall report that final adjusted carryover amount on an original or amended return for any subsequent year. (2) If a taxpayer fails to comply with paragraph (1), then any adjustment required to make the amount of the carryover shown on the return for any year consistent with the final adjusted carryover amount shall be treated as arising out of a mathematical error and assessed and collected under Section 19051. (e) Except as provided in subdivision (c), this section shall not affect the determination, issuance, assessment, collection, or validity of a deficiency assessment under this part.