BILL NUMBER: AB 1416 CHAPTERED 09/09/04 CHAPTER 412 FILED WITH SECRETARY OF STATE SEPTEMBER 9, 2004 APPROVED BY GOVERNOR SEPTEMBER 9, 2004 PASSED THE ASSEMBLY AUGUST 16, 2004 PASSED THE SENATE JULY 2, 2004 AMENDED IN SENATE JUNE 17, 2004 AMENDED IN SENATE AUGUST 28, 2003 AMENDED IN ASSEMBLY MAY 13, 2003 AMENDED IN ASSEMBLY APRIL 29, 2003 INTRODUCED BY Assembly Member Bermudez FEBRUARY 21, 2003 An act to amend Sections 7099.1 and 21028 of the Revenue and Taxation Code, and to amend Section 13019 of the Unemployment Insurance Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST AB 1416, Bermudez. Confidentiality: taxpayer communications. Under existing law, the Employment Development Department, the State Board of Equalization, and the Franchise Tax Board administer various taxes and fees. Existing law, in modified conformity with federal income tax laws, provides that, with respect to tax advice, certain protections that apply to a communication between a client and an attorney also apply to communications between a taxpayer and any federally authorized tax practitioner that appears before those state agencies to the extent that the communication would be considered a privileged communication if it were made between a client and an attorney. Existing law provides for the repeal of these provisions on January 1, 2005. This bill would provide that these provisions would be repealed on January 1, 2009. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 7099.1 of the Revenue and Taxation Code is amended to read: 7099.1. (a) (1) With respect to tax advice, the protections of confidentiality that apply to a communication between a client and an attorney, as set forth in Article 3 (commencing with Section 950) of Chapter 4 of Division 8 of the Evidence Code, shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a client and an attorney. (2) Paragraph (1) may only be asserted in any noncriminal tax matter before the State Board of Equalization. (3) For purposes of this section: (A) "Federally authorized tax practitioner" means any individual who is authorized under federal law to practice before the Internal Revenue Service if the practice is subject to federal regulation under Section 330 of Title 31 of the United States Code, as provided by federal law as of January 1, 2000. (B) "Tax advice" means advice given by an individual with respect to a state tax matter, which may include federal tax advice if it relates to the state tax matter. For purposes of this subparagraph, "federal tax advice" means advice given by an individual within the scope of his or her authority to practice before the federal Internal Revenue Service on noncriminal tax matters. (C) "Tax shelter" means a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement if a significant purpose of that partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax. (b) The privilege under subdivision (a) shall not apply to any written communication between a federally authorized tax practitioner and a director, shareholder, officer, or employee, agent, or representative of a corporation in connection with the promotion of the direct or indirect participation of the corporation in any tax shelter, or in any proceeding to revoke or otherwise discipline any license or right to practice by any governmental agency. (c) This section shall be operative for communications made on or after the effective date of the act adding this section. (d) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date. SEC. 2. Section 21028 of the Revenue and Taxation Code is amended to read: 21028. (a) (1) With respect to tax advice, the protections of confidentiality that apply to a communication between a client and an attorney, as set forth in Article 3 (commencing with Section 950) of Chapter 4 of Division 8 of the Evidence Code, shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a client and an attorney. (2) Paragraph (1) may only be asserted in any noncriminal tax matter before the Franchise Tax Board. (3) For purposes of this section: (A) "Federally authorized tax practitioner" means any individual who is authorized under federal law to practice before the Internal Revenue Service if the practice is subject to federal regulation under Section 330 of Title 31 of the United States Code, as provided by federal law as of January 1, 2000. (B) "Tax advice" means advice given by an individual with respect to a state tax matter, which may include federal tax advice if it relates to the state tax matter. For purposes of this subparagraph, "federal tax advice" means advice given by an individual within the scope of his or her authority to practice before the federal Internal Revenue Service on noncriminal tax matters. (C) "Tax shelter" means a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement if a significant purpose of that partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax or the avoidance or evasion of the tax imposed under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001). (b) The privilege under subdivision (a) does not apply to any written communication between a federally authorized tax practitioner and any person, or any director, officer, employee, agent, or representative of the person, or any other person holding a capital or profits interest in the person in connection with the promotion of the direct or indirect participation of the person in any tax shelter (as defined in Section 1274(b)(3)(B) of the Internal Revenue Code, as modified by subdivision (g) of Section 19164), or in any proceeding to revoke or otherwise discipline any license or right to practice by any governmental agency. (c) This section shall be operative for communications made on or after the effective date of the act adding this section. (d) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date. SEC. 3. Section 13019 of the Unemployment Insurance Code is amended to read: 13019. (a) (1) With respect to tax advice, the protections of confidentiality that apply to a communication between a client and an attorney, as set forth in Article 3 (commencing with Section 950) of Chapter 4 of Division 8 of the Evidence Code, shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a client and an attorney. (2) Paragraph (1) may only be asserted in any noncriminal tax matter before the Employment Development Department. (3) For purposes of this section: (A) "Federally authorized tax practitioner" means any individual who is authorized under federal law to practice before the Internal Revenue Service if the practice is subject to federal regulation under Section 330 of Title 31 of the United States Code, as provided by federal law as of January 1, 2000. (B) "Tax advice" means advice given by an individual with respect to a state tax matter, which may include federal tax advice if it relates to the state tax matter. For purposes of this subparagraph, "federal tax advice" means advice given by an individual within the scope of his or her authority to practice before the federal Internal Revenue Service on noncriminal tax matters. (C) "Tax shelter" means a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement if a significant purpose of that partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax. (b) The privilege under subdivision (a) shall not apply to any written communication between a federally authorized tax practitioner and a director, shareholder, officer, or employee, agent, or representative of a corporation in connection with the promotion of the direct or indirect participation of the corporation in any tax shelter, or in any proceeding to revoke or otherwise discipline any license or right to practice by any governmental agency. (c) This section shall be operative for communications made on or after the effective date of the act adding this section. (d) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.