BILL NUMBER: AB 1561 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 14, 2007
AMENDED IN ASSEMBLY APRIL 10, 2007
INTRODUCED BY Assembly Member Charles Calderon
FEBRUARY 23, 2007
An act to amend Sections 17085, 17504, and 17506 of
17020.6, 17024.5, 17052.12, 17063, 17072, 17085,
17132.5, 17152, 17206, 17250, 17250.5 , 17275.5, 17501,
17551, 17952.5, 18165, 18180, 18631, 19116, 19164, 19179, 19443,
21015.5, 23045, 23051.5, 23609, 23732, 23772, 24305, 24349, 24357,
24357.1, 24357.7, 24358, 24949.5, 24990.6, and 24993 of, to add
Sections 17020.15, 17202.4, 17257, 17257.2, 17257.4, 17755, 18037.5,
18155.6, 19185, 19186, 23046.5, 23703.7, 24329, 24357.15, 24357.16,
24462, 24950.5, and 24990.8 to, and to repeal Sections 24981 and
24988 of, the Revenue and Taxation Code, relating to taxation,
to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1561, as amended, Charles Calderon. Income taxes:
pensions. Taxation: federal conformity.
The Personal Income Tax Law, in modified conformity to federal
income tax laws, provides for the specified tax treatment with
respect to certain annuities and beneficiaries of employees' trusts.
This bill would provide further conformity to federal income tax
laws by conforming to provisions of the federal Pension Protection
Act of 2006 relating to waiver of the 10% early withdrawal penalty
tax on certain distributions of pension plans for public safety
employees and distributions from governmental retirement plans for
health and long-term care insurance for public safety officers. This
bill would also make a legislative finding and declaration regarding
the public purpose served by the bill.
Under the Personal Income Tax Law and the Corporation Tax Law,
various provisions of the federal Internal Revenue Code, as enacted
as of a specified date, are referenced in various sections of the
Revenue and Taxation Code. Those laws provide that for taxable years
beginning on or after January 1, 2005, the specified date of those
referenced Internal Revenue Code sections is January 1, 2005, unless
otherwise specifically provided. Existing law requires, for any
introduced bill that proposes changes in any of those dates, that the
Franchise Tax Board prepare a complete analysis of the bill that
describes all changes to state law that will automatically occur by
reference to federal law as of the changed date. It further requires
the Franchise Tax Board to immediately update and supplement that
analysis upon any amendment to the bill, and requires that analysis
be made available to the public and be submitted to the Legislature
for publication in the daily journal of each house of the
Legislature.
This bill would change the specified date of those referenced
Internal Revenue Code sections to January 1, 2007, for taxable years
beginning on or after January 1, 2007, and thereby would make
numerous substantive changes to both the Personal Income Tax Law and
the Corporation Tax Law with respect to those areas of preexisting
conformity that are subject to changes under federal laws enacted
after January 1, 2005, and that have not been, or are not being,
excepted or modified. This bill would make certain other changes in
federal income tax laws applicable, with specified exceptions and
modifications, and make specified supplemental, technical, or
clarifying changes for purposes of the Personal Income Tax Law or the
Corporation Tax Law, or both, with respect to, among other things,
the tax treatment of certain disaster mitigation payments,
depreciation of electric transmission property and natural gas
gathering lines, amortization of certain atmospheric pollution
control facilities and geological and geophysical expenditures,
nuclear decommissioning cost provisions, a small refiner exception to
oil depletion deduction, recapture rules for amortizable Section 197
intangibles, amortization of expenses incurred in creating or
acquiring music or music copyrights, treatment of certain
self-created musical works and qualified retirement income, funding
for self-employed defined benefit pension plans and for multiemployer
defined benefit pension plans, withdrawals from retirement plans for
individuals called to active duty, waiver of an early withdrawal
penalty tax on certain distributions of pension plans for public
safety employees, allowance of additional IRA payments in certain
bankruptcy cases, inflation indexing of gross income limitations on
certain retirement savings incentives, treatment of death benefits
from corporate-owned life insurance, exemption of income from
leveraged real estate held by church plans, gratuitous transfer for
benefits of employees, deductions for charitable contributions and
tax treatment of certain payments to controlling tax-exempt
organizations, contributions of specified real property made for
conservation purposes, frivolous tax submissions, exclusion of gain
from sale of principal residence by certain employees of the
intelligence community, sale of property by judicial officers, excise
tax on UBTI of charitable remainder trusts, certain listed and
reportable transactions provisions, the taxation of certain
settlement funds, the active business requirement, loans to qualified
continuing care facilities, exception from suspension rules, and
specified federal acts. This bill would also increase the age of
minor children whose unearned income is taxed as if a parent's income
and would revise, in modified conformity with the federal income tax
laws, various provisions applicable to tax-exempt organizations.
This bill would also specify various dates on which specified
provisions apply, make findings and declarations that certain
provisions are declaratory of existing law, specify the intent and
operation in the application of provisions conforming to various
federal acts, and repeal obsolete provisions.
This bill would result in a change in state taxes for the purpose
of increasing state revenues within the meaning of Section 3 of
Article XIII A of the California Constitution, and thus would require
for passage the approval of 2/3 of the membership of each house of
the Legislature.
This bill would take effect immediately as a tax levy.
Vote: majority 2/3 . Appropriation:
no. Fiscal committee: yes. State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17020.6 of the
Revenue and Taxation Code is amended t o read:
17020.6. For purposes of this part:
(a) Section 7702 of the Internal Revenue Code, relating to life
insurance contracts, shall apply, except as otherwise provided.
(b) Section 7702A of the Internal Revenue Code, relating to
modified endowment contracts, shall apply, except as otherwise
provided.
(c) (1) Section 7702B of the Internal
Revenue Code, relating to treatment of qualified long-term care
insurance, shall apply, except as otherwise provided.
(2) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-280) to Section 7702B of the Internal
Revenue Code shall not apply.
SEC. 2. Section 17020.15 is added to the
Revenue and Taxation Code , to read:
17020.15. (a) Section 7701(o) of the Internal Revenue Code,
relating to convention or association of churches, shall apply,
except as otherwise provided.
(b) The phrase "this part" shall be substituted for "this title"
in Section 7701(o) of the Internal Revenue Code.
SEC. 3. Section 17024.5 of the Revenue
and Taxation Code is amended to read:
17024.5. (a) (1) Unless otherwise specifically provided, the
terms "Internal Revenue Code," "Internal Revenue Code of 1954," or
"Internal Revenue Code of 1986," for purposes of this part, mean
Title 26 of the United States Code, including all amendments thereto
as enacted on the specified date for the applicable taxable year as
follows:
Specified Date
of
Internal
Revenue
Taxable Year Code Sections
(A) For taxable years
beginning on or after
January 1, 1983, and on or
before December
31, 1983....................... January 15, 1983
(B) For taxable years
beginning on or after
January 1, 1984, and on or
before December
31, 1984....................... January 1, 1984
(C) For taxable years
beginning on or after
January 1, 1985, and on or
before December
31, 1985....................... January 1, 1985
(D) For taxable years
beginning on or after
January 1, 1986, and on or
before December
31, 1986....................... January 1, 1986
(E) For taxable years
beginning on or after
January 1, 1987, and on or
before December
31, 1988....................... January 1, 1987
(F) For taxable years
beginning on or after
January 1, 1989, and on or
before December
31, 1989....................... January 1, 1989
(G) For taxable years
beginning on or after
January 1, 1990, and on or
before December
31, 1990....................... January 1, 1990
(H) For taxable years
beginning on or after
January 1, 1991, and on or
before December
31, 1991....................... January 1, 1991
(I) For taxable years
beginning on or after
January 1, 1992, and on or
before December
31, 1992....................... January 1, 1992
(J) For taxable years
beginning on or after
January 1, 1993, and on or
before December
31, 1996....................... January 1, 1993
(K) For taxable years
beginning on or after
January 1, 1997, and on or
before December
31, 1997....................... January 1, 1997
(L) For taxable years
beginning on or after
January 1, 1998, and on or
before December
31, 2001....................... January 1, 1998
(M) For taxable years
beginning on or after
January 1, 2002, and on or
before December
31, 2004....................... January 1, 2001
(N) For taxable years
beginning on or after
January 1, 2005
January 1, 2005, and on or
before December
............................... January 1, 2005
31, 2006....................... January 1, 2005
(O) For taxable years
beginning on or after
January 1, 2007................ January 1, 2007
(2) (A) Unless otherwise specifically provided, for federal laws
enacted on or after January 1, 1987, and on or before the specified
date for the taxable year, uncodified provisions that relate to
provisions of the Internal Revenue Code that are incorporated for
purposes of this part shall be applicable to the same taxable years
as the incorporated provisions.
(B) In the case where Section 901 of the Economic Growth and Tax
Relief Act of 2001 (Public Law 107-16) applies to any provision of
the Internal Revenue Code that is incorporated for purposes of this
part, Section 901 of the Economic Growth and Tax Relief Act of 2001
shall apply for purposes of this part in the same manner and to the
same taxable years as it applies for federal income tax purposes.
(3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle
H (Repeal of Expired or Obsolete Provisions) of the Revenue
Reconciliation Act of 1990 (Public Law 101-508) modified numerous
provisions of the Internal Revenue Code and provisions of prior
federal acts, some of which are incorporated by reference into this
part. Unless otherwise provided, the provisions described in the
preceding sentence, to the extent that they modify provisions that
are incorporated into this part, are declaratory of existing law and
shall be applied in the same manner and for the same periods as
specified in the Revenue Reconciliation Act of 1990.
(b) Unless otherwise specifically provided, when applying any
provision of the Internal Revenue Code for purposes of this part, a
reference to any of the following is not applicable for purposes of
this part:
(1) Except as provided in Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2, an electing small business
corporation, as defined in Section 1361(b) of the Internal Revenue
Code.
(2) Domestic international sales corporations (DISC), as defined
in Section 992(a) of the Internal Revenue Code.
(3) A personal holding company, as defined in Section 542 of the
Internal Revenue Code.
(4) A foreign personal holding company, as defined in Section 552
of the Internal Revenue Code.
(5) A foreign investment company, as defined in Section 1246(b) of
the Internal Revenue Code.
(6) A foreign trust, as defined in Section 679 of the Internal
Revenue Code.
(7) Foreign income taxes and foreign income tax credits.
(8) Section 911 of the Internal Revenue Code, relating to United
States citizens living abroad.
(9) A foreign corporation, except that Section 367 of the Internal
Revenue Code shall be applicable.
(10) Federal tax credits and carryovers of federal tax credits.
(11) Nonresident aliens.
(12) Deduction for personal exemptions, as provided in Section 151
of the Internal Revenue Code.
(13) The tax on generation-skipping transfers imposed by Section
2601 of the Internal Revenue Code.
(14) The tax, relating to estates, imposed by Section 2001 or 2101
of the Internal Revenue Code.
(c) (1) The provisions contained in Sections 41 to 44, inclusive,
and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369),
relating to treatment of debt instruments, is not applicable for
taxable years beginning before January 1, 1987.
(2) The provisions contained in Public Law 99-121, relating to the
treatment of debt instruments, is not applicable for taxable years
beginning before January 1, 1987.
(3) For each taxable year beginning on or after January 1, 1987,
the provisions referred to by paragraphs (1) and (2) shall be
applicable for purposes of this part in the same manner and with
respect to the same obligations as the federal provisions, except as
otherwise provided in this part.
(d) When applying the Internal Revenue Code for purposes of this
part, regulations promulgated in final form or issued as temporary
regulations by "the secretary" shall be applicable as regulations
under this part to the extent that they do not conflict with this
part or with regulations issued by the Franchise Tax Board.
(e) Whenever this part allows a taxpayer to make an election, the
following rules shall apply:
(1) A proper election filed with the Internal Revenue Service in
accordance with the Internal Revenue Code or regulations issued by
"the secretary" shall be deemed to be a proper election for purposes
of this part, unless otherwise provided in this part or in
regulations issued by the Franchise Tax Board.
(2) A copy of that election shall be furnished to the Franchise
Tax Board upon request.
(3) (A) Except as provided in subparagraph (B), in order to obtain
treatment other than that elected for federal purposes, a separate
election shall be filed at the time and in the manner required by the
Franchise Tax Board.
(B) (i) If a taxpayer makes a proper election for federal income
tax purposes prior to the time that taxpayer becomes subject to the
tax imposed under this part or Part 11 (commencing with Section
23001), that taxpayer is deemed to have made the same election for
purposes of the tax imposed by this part, Part 10.2 (commencing with
Section 18401), and Part 11 (commencing with Section 23001), as
applicable, and that taxpayer may not make a separate election for
California tax purposes unless that separate election is expressly
authorized by this part, Part 10.2 (commencing with Section 18401),
or Part 11 (commencing with Section 23001), or by regulations issued
by the Franchise Tax Board.
(ii) If a taxpayer has not made a proper election for federal
income tax purposes prior to the time that taxpayer becomes subject
to tax under this part or Part 11 (commencing with Section 23001),
that taxpayer may not make a separate California election for
purposes of this part, Part 10.2 (commencing with Section 18401), or
Part 11 (commencing with Section 23001), unless that separate
election is expressly authorized by this part, Part 10.2 (commencing
with Section 18401), or Part 11 (commencing with Section 23001), or
by regulations issued by the Franchise Tax Board.
(iii) This subparagraph applies only to the extent that the
provisions of the Internal Revenue Code or the regulation issued by
"the secretary" authorizing an election for federal income tax
purposes apply for purposes of this part, Part 10.2 (commencing with
Section 18401) or Part 11 (commencing with Section 23001).
(f) Whenever this part allows or requires a taxpayer to file an
application or seek consent, the rules set forth in subdivision (e)
shall be applicable with respect to that application or consent.
(g) When applying the Internal Revenue Code for purposes of
determining the statute of limitations under this part, any reference
to a period of three years shall be modified to read four years for
purposes of this part.
(h) When applying, for purposes of this part, any section of the
Internal Revenue Code or any applicable regulation thereunder, all of
the following shall apply:
(1) References to "adjusted gross income" shall mean the amount
computed in accordance with Section 17072, except as provided in
paragraph (2).
(2) (A) Except as provided in subparagraph (B), references to
"adjusted gross income" for purposes of computing limitations based
upon adjusted gross income, shall mean the amount required to be
shown as adjusted gross income on the federal tax return for the same
taxable year.
(B) In the case of registered domestic partners filing a joint
return under Section 18521, adjusted gross income, for the purposes
of computing limitations based upon adjusted gross income, shall mean
the total of the amount required to be shown as adjusted gross
income on the federal tax return for the same taxable year of each
registered domestic partner.
(3) Any reference to "subtitle" or "chapter" shall mean this part.
(4) The provisions of Section 7806 of the Internal Revenue Code,
relating to construction of title, shall apply.
(5) Any provision of the Internal Revenue Code that becomes
operative on or after the specified date for that taxable year shall
become operative on the same date for purposes of this part.
(6) Any provision of the Internal Revenue Code that becomes
inoperative on or after the specified date for that taxable year
shall become inoperative on the same date for purposes of this part.
(7) Due account shall be made for differences in federal and state
terminology, effective dates, substitution of "Franchise Tax Board"
for "secretary" when appropriate, and other obvious differences.
(8) Except as otherwise provided, any reference to Section 501 of
the Internal Revenue Code shall be interpreted to also refer to
Section 23701.
(i) Any reference to a specific provision of the Internal Revenue
Code shall include modifications of that provision, if any, in this
part.
SEC. 4. Section 17052.12 of the Revenue
and Taxation Code is amended to read:
17052.12. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "net tax" (as
defined by Section 17039) for the taxable year an amount determined
in accordance with Section 41 of the Internal Revenue Code, except as
follows:
(a) For each taxable year beginning before January 1, 1997, the
reference to "20 percent" in Section 41(a)(1) of the Internal Revenue
Code is modified to read "8 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to "20 percent" in
Section 41(a)(1) of the Internal Revenue Code is modified to read "11
percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "12
percent."
(3) For each taxable year beginning on or after January 1, 2000,
the reference to "20 percent" in Section 41(a)(1) of the Internal
Revenue Code is modified to read "15 percent."
(c) Section 41(a)(2) of the Internal Revenue Code, relating to
basic research payments, shall not apply.
(d) "Qualified research" shall include only research conducted in
California.
(e) In the case where the credit allowed under this section
exceeds the "net tax," the excess may be carried over to reduce the
"net tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
(f) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
(2) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
(g) (1) For each taxable year beginning on or after January 1,
2000:
(A) The reference to "2.65 "3
percent" in Section 41(c)(4)(A)(i) of the Internal Revenue Code is
modified to read "one and forty-nine hundredths of one percent."
(B) The reference to "3.2 "4 percent"
in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified
to read "one and ninety-eight hundredths of one percent."
(C) The reference to "3.75 "5
percent" in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is
modified to read "two and forty-eight hundredths of one percent."
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
(3) Section 41(c)(6) 41(c)(7) of the
Internal Revenue Code, relating to gross receipts, is modified to
take into account only those gross receipts from the sale of property
held primarily for sale to customers in the ordinary course of the
taxpayer's trade or business that is delivered or shipped to a
purchaser within this state, regardless of f.o.b. point or any other
condition of the sale.
(4) Section 41(c)(5) of the Internal Revenue Code, relating to the
election of the alternative simplified credit, shall not apply.
(h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(j) (1) Section 41(a)(3) of the Internal Revenue Code, relating to
payments to an energy research consortium, shall not apply.
(2) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
(3) Section 41(f)(6) of the Internal Revenue Code, relating to an
energy research consortium, shall not apply.
SEC. 5. Section 17063 of the Revenue
and Taxation Code is amended to read:
17063. (a) There shall be allowed as a credit against the net tax
(as defined by Section 17039) for any taxable year an amount equal
to the minimum tax credit for that taxable year.
(b) For purposes of subdivision (a), the minimum tax credit shall
be determined in accordance with Section 53 of the Internal Revenue
Code, except as otherwise provided in this part.
(c) For purposes of this chapter, the amount determined under
Section 53(c)(1) of the Internal Revenue Code shall be the regular
tax as defined by paragraph (2) of subdivision (b) of Section 17062,
reduced by the sum of the credits allowable under this part, other
than:
(1) The credits described in paragraph (7) of subdivision (a) of
Section 17039.
(2) Any credit that reduces the tax below the tentative minimum
tax, as defined by Section 17062.
(d) Section 53(d)(1)(B)(ii)(II) of the Internal Revenue Code,
relating to credit not allowed for exclusion preferences, is modified
to include subdivision (e) of Section 17062, as a specified item.
(e) Section 53(e) of the Internal Revenue Code, relating to the
special rule for individuals with long-term unused credits, shall not
apply.
SEC. 6. Section 17072 of the Revenue
and Taxation Code is amended to read:
17072. (a) Section 62 of the Internal Revenue Code, relating to
adjusted gross income defined, shall apply, except as otherwise
provided.
(b) Section 62(a)(2)(D) of the Internal Revenue Code, relating to
certain expenses of elementary and secondary school teachers, shall
not apply.
(c) Section 62(a)(21) of the Internal Revenue Code, relating to
attorneys' fees relating to awards to whistleblowers, shall not
apply.
SEC. 7. Section 17085 of the Revenue
and Taxation Code is amended to read:
17085. Section 72 of the Internal Revenue Code, relating to
annuities and certain proceeds of life insurance contracts, is
modified as follows:
(a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
that the repeal of Section 72(d) of the Internal Revenue Code,
relating to repeal of special rule for employees' annuities, shall
apply only to the following:
(1) Any individual whose annuity starting date is after December
31, 1986.
(2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.
(b) The amount of a distribution from an individual retirement
account or annuity or employee trust or employee annuity that is
includable in gross income for federal purposes shall be reduced for
purposes of this part by the lesser of either of the following:
(1) An amount equal to the amount includable in federal gross
income for the taxable year.
(2) An amount equal to the basis in the account or annuity allowed
by Section 17507 (relating to individual retirement accounts and
simplified employee pensions), the increased basis allowed by
Sections 17504 and 17506 (relating to plans of self-employed
individuals), the increased basis allowed by Section 17501, or the
increased basis allowed by Section 17551 that is remaining after
adjustment for reductions in gross income under this provision in
prior taxable years.
(c) (1) Except as provided in paragraph (2), the amount of the
penalty imposed under this part shall be computed in accordance with
Sections 72(m), (q), (t), and (v) of the Internal Revenue Code using
a rate of 21/2 percent, in lieu of the rate provided in those
sections.
(2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts,
applies, the rate in paragraph (1) shall be 6 percent in lieu of the
21/2 percent rate specified therein.
(d) Section 72(f)(2) of the Internal Revenue Code, relating to
special rules for computing employees' contributions, shall be
applicable without applying the exceptions which immediately follow
that paragraph.
(e) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-208) to Section 72(e) of the Internal
Revenue Code, shall not apply.
SEC. 8. Section 17132.5 of the Revenue
and Taxation Code is amended to read:
17132.5. Section 101 of the Internal Revenue Code, relating to
certain death benefits, is modified as follows:
(a) Section 101(h) of the Internal Revenue Code, relating to
survivor benefits attributable to service by a public safety officer
who is killed in the line of duty, is modified to apply to amounts
received in taxable years beginning after December 31, 1996, with
respect to individuals dying after December 31, 1996.
(b) (1) Section 101 of the Internal Revenue Code, as modified by
subdivision (a) is modified to additionally provide that Section 101
(h) of the Internal Revenue Code shall not apply to survivor benefits
attributable to service by a public safety officer who is killed in
the line of duty with respect to deaths occurring before December 31,
1996, that would otherwise be eligible for exclusion pursuant to
Section 101(h) of the Internal Revenue Code, as modified by Public
Law 107-15.
(2) The amendments made to this section by the act adding
this subdivision Chapter 691 of the Statutes of 2005
shall apply to amounts paid after December 31, 2001, with
respect to deaths occurring on or before December 31, 1996.
(c) (1) Section 101 of the Internal Revenue Code, as modified by
subdivision (b), is modified to additionally provide that Section 101
(i) of the Internal Revenue Code shall apply to any astronaut whose
death occurs in the line of duty.
(2) The amendments made to this section by the act adding
this subdivision Chapter 552 of the Statutes of 2004
shall apply to amounts received in taxable years beginning
after December 31, 2002, with respect to deaths occurring after that
date.
(d) Section 101(j) of the Internal Revenue Code, relating to the
treatment of certain employer-owned life insurance contracts, shall
apply in accordance with the provisions of Section 863(d) of the
Pension Protection Act of 2006 (Public Law 109-280), relating to
effective dates, except that the phrase "January 1, 2007" shall be
substituted for the "date of the enactment of this Act" contained
therein.
SEC. 9. Section 17152 of the Revenue
and Taxation Code is amended to read:
17152. Section 121 of the Internal Revenue Code, relating to
exclusion of gain from sale of principal residence, is modified as
follows:
(a) The two-year period in Section 121(a) of the Internal Revenue
Code shall be reduced by the period of the taxpayer's service, not to
exceed 18 months, in the Peace Corps during the five-year period
ending on the date of the sale or exchange.
(b) If the taxpayer is prohibited from filing a joint return
pursuant to Section 18521, Section 121(b)(2)(A) of the Internal
Revenue Code shall nevertheless be treated as being satisfied if the
taxpayer files a joint return for federal income tax purposes for the
same taxable year. However, in no instance shall the total amount
excludable from gross income under Section 121(a) of the Internal
Revenue Code with respect to any sale or exchange exceed the maximum
amount allowed by Section 121(b) of the Internal Revenue Code.
(c) (1) If a taxpayer has, at any time, made an election for
federal purposes under Section 121(f) of the Internal Revenue Code
not to have Section 121 of the Internal Revenue Code apply to a sale
or exchange, Section 121 of the Internal Revenue Code shall not apply
to that sale or exchange for state purposes, a separate election for
state purposes shall not be allowed under paragraph (3) of
subdivision (e) of Section 17024.5, the federal election shall be
binding for purposes of this part, and that election shall be treated
as an election to include in gross income for purposes of this part
all the gain from the sale or exchange of that property, including
that amount which, but for that election, would have been excluded
from income under Section 121(a) of the Internal Revenue Code for
state purposes.
(2) If a taxpayer fails to make an election for federal purposes
under Section 121(f) of the Internal Revenue Code to not have Section
121 of the Internal Revenue Code apply to a sale or exchange, no
election under Section 121(f) of the Internal Revenue Code shall be
allowed for state purposes, Section 121 of the Internal Revenue Code
shall apply to that sale or exchange for state purposes, and a
separate election for state purposes shall not be allowed under
paragraph (3) of subdivision (e) of Section 17024.5.
(d)
(1) If a taxpayer has, at any time, made an election for federal
purposes under Section 312(d)(2) of the Taxpayer Relief Act of 1997
(Public Law 105-34), relating to sales before date of enactment, or
Section 312(d)(4) of that act, relating to binding contracts, to not
have the amendments made by Section 312 of the Taxpayer Relief Act of
1997 (Public Law 105-34) apply to a sale or exchange, the amendments
made by the act adding this subdivision shall not apply to that sale
or exchange, Sections 1, 4, and 6 of Chapter 610 of the Statutes of
1997 shall not apply to that sale or exchange, a separate election
for state purposes shall not be allowed under paragraph (3) of
subdivision (e) of Section 17024.5, and the federal election shall be
binding for purposes of this part.
(2) If a taxpayer fails to make an election for federal purposes
under Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public
Law 105-34), relating to sales before date of enactment, or Section
312(d)(4) of that act, relating to binding contracts, to not have the
amendments made by Section 312 of the Taxpayer Relief Act of 1997
(Public Law 105-34) apply to a sale or exchange, an election under
Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law
105-34), relating to sales before date of enactment, or Section 312
(d)(4) of that act, relating to binding contracts, shall not be
allowed for state purposes, the amendments made by the act adding
this subdivision shall apply to that sale or exchange, Sections 1, 4,
and 6 of Chapter 610 of the Statutes of 1997 shall apply to that
sale or exchange, and a separate election for state purposes shall
not be allowed under paragraph (3) of subdivision (e) of Section
17024.5.
(e) (1) If a taxpayer has, at any time, made or revoked an
election for federal purposes under Section 121(d)(9) of the Internal
Revenue Code to suspend the running of the five-year period
described in Sections 121(a), 121(c)(1)(B), and 121(d)(7) of the
Internal Revenue Code, that election or revocation of election to
suspend the five-year period under Section 121(d)(9) of the Internal
Revenue Code shall be applicable for state purposes, a separate
election or revocation of election for purposes of Section 121(d)(9)
of the Internal Revenue Code may not be allowed under paragraph (3)
of subdivision (e) of Section 17024.5, and the federal election or
revocation of election shall be binding for purposes of this part.
(2) If a taxpayer fails to make an election for federal purposes
under Section 121(d)(9) of the Internal Revenue Code to suspend the
running of the five-year period described in Sections 121(a), 121(c)
(1)(B), and 121(d)(7) of the Internal Revenue Code, that five-year
period may not be suspended under Section 121(d)(9) of the Internal
Revenue Code for state purposes, and a separate election for state
purposes shall not be allowed under paragraph (3) of subdivision (e)
of Section 17024.5.
(f) Section 121(d)(10) 121(d)(11) of
the Internal Revenue Code, relating to property acquired from a
decedent, shall not apply.
(g) The amendments made by Section 417 of the Tax Reform and
Health Care Act of 2006 (Public Law 109-432) to Section 121(d)(9) of
the Internal Revenue Code shall apply to sales or exchanges that
occurred on or after January 1, 2007, and before January 1, 2011.
SEC. 10. Section 17202.4 is added to the
Revenue and Taxation Code , to read:
17202.4. (a) Section 163(h)(4)(E) of the Internal Revenue Code,
relating to qualified mortgage insurance, is modified to substitute
the phrase "January 1, 2007" for "the date of the enactment of this
subparagraph" in Section 163(h)(4)(E)(ii) of the Internal Revenue
Code.
(b) The amendments made by Section 419 of the Tax Reform and
Health Care Act of 2006 (Public Law 109-432) to Section 163(h) of the
Internal Revenue Code shall apply to amounts paid or accrued on or
after January 1, 2007.
SEC. 11. Section 17206 of the Revenue
and Taxation Code is amended to read:
17206. (a) For purposes of Section 17201, Section 170 of the
Internal Revenue Code, as amended by Public Law 109-1
relating to charitable contributions and gifts ,
shall be applied to allow a taxpayer to elect to treat any
contribution described in subdivision (b) made in January 2005, as if
that contribution was made on December 31, 2004, and not in January
2005.
(b) A contribution is described in this subdivision if that
contribution is a cash contribution made for the relief of victims in
areas affected by the December 26, 2004, Indian Ocean tsunami for
which a charitable contribution deduction is allowable under Section
17201.
SEC. 12. Section 17250 of the Revenue
and Taxation Code is amended to read:
17250. (a) Section 168 of the Internal Revenue Code is modified
as follows:
(1) Any reference to "tax imposed by this chapter" in Section 168
of the Internal Revenue Code means "net tax," as defined in Section
17039.
(2) (A) Section 168(e)(3) is modified to provide that any
grapevine, replaced in a vineyard in California in any taxable year
beginning on or after January 1, 1992, as a direct result of a
phylloxera infestation in that vineyard, or replaced in a vineyard in
California in any taxable year beginning on or after January 1,
1997, as a direct result of Pierce's disease in that vineyard, shall
be "five-year property," rather than "10-year property."
(B) Section 168(g)(3) of the Internal Revenue Code is modified to
provide that any grapevine, replaced in a vineyard in California in
any taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, or replaced in a
vineyard in California in any taxable year beginning on or after
January 1, 1997, as a direct result of Pierce's disease in that
vineyard, shall have a class life of 10 years.
(C) Every taxpayer claiming a depreciation deduction with respect
to grapevines as described in this paragraph shall obtain a written
certification from an independent state-certified integrated pest
management adviser, or a state agricultural commissioner or adviser,
that specifies that the replanting was necessary to restore a
vineyard infested with phylloxera or Pierce's disease. The taxpayer
shall retain the certification for future audit purposes.
(3) Section 168(j) of the Internal Revenue Code, relating to
property on Indian reservations, shall not apply.
(4) Section 168(k) of the Internal Revenue Code, relating to
special allowance for certain property acquired after September 10,
2001, and before January 1, 2005, shall not apply.
(5) Sections 168(b)(3)(G) and 168(b)(3)(H) of the Internal Revenue
Code, relating to property to which the straight line method
applies, shall not apply.
(6) Sections 168(e)(3)(E)(iv) and 168(e)(3)(E)(v) of the Internal
Revenue Code, relating to 15-year property, shall not apply.
(7) Sections 168(e)(6) and 168(e)(7) of the Internal Revenue Code,
relating to qualified leasehold improvement property and to
qualified restaurant property, respectively, shall not apply.
(8) Section 168(l) of the Internal Revenue Code, relating to the
special allowance for cellulosic biomass ethanol plant property,
shall not apply.
(b) Section 169 of the Internal Revenue Code, relating to
amortization of pollution control facilities, is modified as follows:
(1) The deduction allowed by Section 169 of the Internal Revenue
Code shall be allowed only with respect to facilities located in this
state.
(2) The "state certifying authority," as defined in Section 169(d)
(2) of the Internal Revenue Code, means the State Air Resources
Board, in the case of air pollution, and the State Water Resources
Control Board, in the case of water pollution.
SEC. 13. Section 17250.5 of the Revenue
and Taxation Code is amended to read:
17250.5. (a) Section 167(g) of the Internal
Revenue Code, relating to depreciation under income forecast method,
shall be modified as follows:
(a)
(1) Section 167(g)(2)(C) of the Internal Revenue Code
is modified by substituting "Section 19521" in lieu of "Section 460
(b)(7)" of the Internal Revenue Code.
(b)
(2) Section 167(g)(5)(D) of the Internal Revenue Code
is modified by substituting "Part 10.2 (commencing with Section
18401) (other than Section 19136)" in lieu of "Subtitle F (other than
Sections 6654 and 6655)."
(c)
(3) Section 167(g)(5)(E) of the Internal Revenue Code,
relating to treatment of distribution costs, shall not apply.
(d)
(4) Section 167(g)(7) of the Internal Revenue Code,
relating to treatment of participators
participations and residuals, shall not apply.
(b) Section 167(h) of the Internal Revenue Code, relating to
amortization of geological and geophysical expenditures, shall apply
to amounts paid or incurred in taxable years beginning on or after
January 1, 2007.
SEC. 14. Section 17257 is added to the
Revenue and Taxation Code , to read:
17257. Section 179C of the Internal Revenue Code, relating to the
election to expense certain refineries, shall not apply.
SEC. 15. Section 17257.2 is added to the
Revenue and Taxation Code , to read:
17257.2. Section 179D of the Internal Revenue Code, relating to
the energy efficient commercial buildings deduction, shall not apply.
SEC. 16. Section 17257.4 is added to the
Revenue and Taxation Code , to read:
17257.4. Section 179E of the Internal Revenue Code, relating to
the election to expense advanced mine safety equipment, shall not
apply.
SEC. 17. Section 17275.5 of the Revenue
and Taxation Code is amended to read:
17275.5. (a) No deduction shall be denied under Section 170(f)(8)
of the Internal Revenue Code, relating to the
substantiation requirement for certain contributions, upon a showing
that the requirements in Section 170(f)(8) of the Internal Revenue
Code have been met with respect to that contribution for federal
purposes.
(b) Section 170(f)(10)(F) of the Internal Revenue Code, relating
to the excise tax on premiums paid, shall not apply.
(c) Section 170(f)(13) of the Internal Revenue Code, relating to
the fee for contributions of certain interests in buildings located
in registered historic districts, shall not apply.
(d) Section 170(f)(18) of the Internal Revenue Code, relating to
contributions to donor advised funds, shall not apply.
(e) The provisions of Section 170(e)(11)(E) of the Internal
Revenue Code, as amended by Section 1219(c)(1) of the Pension
Protection Act of 2006 (Public Law 109-280) shall apply to appraisals
prepared with respect to returns or submissions filed on or after
January 1, 2007.
SEC. 18. Section 17501 of the Revenue
and Taxation Code is amended to read:
17501. (a) Subchapter D of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to deferred compensation, shall
apply, except as otherwise provided.
(b) Notwithstanding the specified date contained in paragraph (1)
of subdivision (a) of Section 17024.5, Part I of Subchapter D of
Chapter 1 of Subtitle A of the Internal Revenue Code, relating to
pension, profitsharing, stock bonus plans, etc., and Part III of
Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue
Code, relating to rules relating to minimum funding standards and
benefit limitations, shall apply, except as otherwise provided,
without regard to taxable year to the same extent as applicable for
federal income tax purposes.
(c) The maximum amount of elective deferrals (as defined in
Section 402(g)(3)) for the taxable year that may be excluded from
gross income under Section 402(g) of the Internal Revenue Code, as
applicable for state purposes, shall not exceed the amount of
elective deferrals that may be excluded from gross income under
Section 402(g) of the Internal Revenue Code, as amended by
Title VI of the Economic Growth and Tax Relief Reconciliation Act of
2001 (Public Law 107-16) and Section 411 of the Job Creation and
Worker Assistance Act of 2002 (Public Law 107-147) in
effect on January 1, 2007 , including additional elective
deferrals under Section 414(v) of the Internal Revenue Code, as
added by Title VI of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (Public Law 107-16) and as amended by
Section 411 of the Job Creation and Worker Assistance Act of 2002
(Public Law 107-147) in effect on January 1, 2007
.
(d) (1) For taxable years beginning on or after January 1, 2002,
the basis of any person in the plan, account, or annuity shall be
increased by the amount of elective deferrals not excluded as a
result of the application of subdivision (c).
(2) Any basis described in paragraph (1) shall be recovered in the
manner specified in Section 17085.
(e) Notwithstanding the limitations provided in subdivision (c),
any income attributable to elective deferrals in taxable years
beginning on or after January 1, 2002, in conformance with Part I of
Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code,
as applicable for federal and state purposes, shall not be
includable in the gross income of the individual for whose benefit
the plan or account was established until distributed pursuant to the
plan or by operation of law.
SEC. 19. Section 17551 of the Revenue
and Taxation Code is amended to read:
17551. (a) Subchapter E of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to accounting periods and methods of
accounting, shall apply, except as otherwise provided.
(b) Section 444(c)(1) of the Internal Revenue Code, relating to
effect of election, shall not apply.
(c) (1) Notwithstanding the specified date contained in paragraph
(1) of subdivision (a) of Section 17024.5, Section 457 of the
Internal Revenue Code, relating to deferred compensation plans of
state and local governments and tax-exempt organizations, shall
apply, except as otherwise provided, without regard to taxable year
to the same extent as applicable for federal income tax purposes.
(2) The maximum deferred compensation for the taxable year that
may be excluded from gross income under Section 457 of the Internal
Revenue Code, as applicable for state purposes, shall not exceed the
amount of deferred compensation that may be excluded from gross
income under Section 457 of the Internal Revenue Code, as
amended by Title VI of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (Public Law 107-16) and as amended by
Section 411 of the Job Creation and Worker Assistance Act of 2002
(Public Law 107-147) in effect on January 1, 2007
, including additional elective deferrals under Section 414(v)
of the Internal Revenue Code, as added by Title VI of the
Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law
107-16) and Section 411 of the Job Creation and Worker Assistance
Act of 2002 (Public Law 107-147) in effect on January
1, 2007 .
(d) (1) For taxable years beginning on or after January 1, 2002,
the basis of any person in the plan shall be increased by the amount
of compensation not allowed to be excluded under subdivision (a).
(2) Any basis described in paragraph (1) shall be recovered in the
manner specified in Section 17085.
(e) Notwithstanding the limitations provided in subdivision (a),
any income attributable to compensation deferred in a plan in taxable
years beginning on or after January 1, 2002, in conformance with
Section 457 of the Internal Revenue Code, as applicable for federal
and state purposes, shall not be includable in the gross income of
the individual for whose benefit the plan was established until
distributed pursuant to the provisions of the plan or by operation of
law.
(f) Section 451(i) of the Internal Revenue Code, relating to
special rule for sales or dispositions to implement Federal Energy
Regulatory Commission or state electric restructuring policy, shall
not apply.
SEC. 20. Section 17755 is added to the
Revenue and Taxation Code , to read:
17755. Section 664(c) of the Internal Revenue Code, relating to
the taxation of trusts, shall not apply and, in lieu thereof, a
charitable remainder annuity trust and a charitable remainder
unitrust shall, for any taxable year, not be subject to any tax
imposed under this part, unless that trust, for the taxable year, has
unrelated business taxable income, within the meaning of Section
23732, determined as if Chapter 4 (commencing with Section 23701) of
Part 11, applied to that trust.
SEC. 21. Section 17952.5 of the Revenue
and Taxation Code is amended to read:
17952.5. (a) For purposes of computing "taxable income of a
nonresident or part-year resident" under paragraph (1) of subdivision
(i) of Section 17041, gross income of a nonresident, as defined in
Section 17015, from sources within this state shall not include
"qualified retirement income" received on or after January 1, 1996,
for any part of the taxable year during which the taxpayer was not a
resident of this state.
(b) For purposes of this section, "qualified retirement income"
means income from any of the following:
(1) A qualified trust under Section 401(a) of the Internal Revenue
Code that is exempt under Section 501(a) of the Internal Revenue
Code from taxation.
(2) A simplified employee pension as defined in Section 408(k) of
the Internal Revenue Code.
(3) An annuity plan described in Section 403(a) of the Internal
Revenue Code.
(4) An annuity contract described in Section 403(b) of the
Internal Revenue Code.
(5) An individual retirement plan described in Section 7701(a)(37)
of the Internal Revenue Code.
(6) An eligible deferred compensation plan as defined in Section
457 of the Internal Revenue Code.
(7) A governmental plan as defined in Section 414(d) of the
Internal Revenue Code.
(8) A trust described in Section 501(c)(18) of the Internal
Revenue Code.
(9) Any plan, program, or arrangement described in Section 3121(v)
(2)(C) of the Internal Revenue Code, or any plan, program, or
arrangement that provides for retirement payments in recognition of
prior service to be made to a retired partner, and that is
in effect immediately before retirement begins, if that income
is either of the following:
(A) Part of a series of substantially equal periodic payments (not
less frequently than annually) , which may include income
described in paragraphs (1) to (8), inclusive, made for either
of the following:
(i) The life or the life expectancy of the recipient (or the joint
lives or joint life expectancies of the recipient and the designated
beneficiary of the recipient).
(ii) A period of not less than 10 years.
(B) A payment received after termination of employment, under a
plan, program, or arrangement to which that employment relates,
maintained solely for the purpose of providing retirement benefits
for employees in excess of the limitation imposed by Section 401(a)
(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415 of the Internal
Revenue Code, or any combination of those sections, or any other
limitation on contributions or benefits in the Internal Revenue Code
on plans to which any of those sections apply.
(C) The fact that payments may be adjusted, from time to time,
pursuant to the plan, program, or arrangement to limit total
disbursements under a predetermined formula, or to provide cost of
living or similar adjustments, will not cause the periodic payments
provided under that plan, program, or arrangement to fail the
"substantially equal periodic payments" test.
(10) Any retired or retainer pay of a member or former member of a
uniform service computed under Section 1401 and following of Title
10 of the United States Code.
(c) For purposes of this section, the term "retired partner" is an
individual who is described as a partner in Section 7701(a)(2) of
the Internal Revenue Code and who is retired under that individual's
partnership agreement.
(c)
(d) This section shall apply only to any taxable year,
or portion thereof, that the provisions of Section 114 of Title 4 of
the United States Code, relating to limitation on state income
taxation of certain pension income, are effective.
(d) References to
(e) Except as otherwise provided,
references to the Internal Revenue Code are subject to
paragraph (1) of subdivision (a) of Section 17024.5 , which
identifies, for each taxable year, the effective date of the
referenced provisions of the Internal Revenue Code .
SEC. 22. Section 18037.5 is added to the
Revenue and Taxation Code , to read:
18037.5. The amendments made by Section 844 of the Pension
Protection Act of 2006 (Public Law 109-280) to Section 1035 of the
Internal Revenue Code, shall not apply.
SEC. 23. Section 18155.6 is added to the
Revenue and Taxation Code , to read:
18155.6. For taxable years beginning on or after January 1, 2007,
specific reference to Sections 1223(4) through (16) of the Internal
Revenue Code in this part shall instead be treated as a reference to
Sections 1223(3) through (15) of the Internal Revenue Code,
respectively.
SEC. 24. Section 18165 of the Revenue
and Taxation Code is amended to read:
18165. (a) Section 1245(a)(2)(C) of the
Internal Revenue Code, relating to certain deductions treated as
amortization, is modified to also refer to Sections 17252.5, 17265,
and 17266.
(b) Section 1245(b)(8) of the Internal Revenue Code, relating to
the disposition of amortizable Section 197 intangibles, shall apply
to dispositions of property on or after January 1, 2007.
SEC. 25. Section 18180 of the Revenue
and Taxation Code is amended to read:
18180. (a) Section 7872 of the Internal
Revenue Code, relating to the treatment of loans with below market
interest rates, shall apply, except as otherwise provided.
(b) Section 7872(h) of the Internal Revenue Code, relating to the
exception for loans to qualified continuing care facilities, shall
apply to calendar years beginning on or after January 1, 2007, with
respect to loans made before, on, or after that date.
SEC. 26. Section 18631 of the Revenue
and Taxation Code is amended to read:
18631. (a) This article does not apply to any payment of interest
obligations not taxable under Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001).
(b) Except as otherwise provided, every person required to file an
information return with the Secretary of the Treasury under any of
the federal sections listed in subdivision (c) may be required to
file a copy of the federal information return with the Franchise Tax
Board at the time and in the manner as it may, by forms and
instructions, require.
(c) Subdivision (b) shall apply to each of the following:
(1) Section 6034A of the Internal Revenue Code, relating to
information to beneficiaries of estates and trusts.
(2) Section 6039 of the Internal Revenue Code, relating to
information required in connection with certain options.
(3) Section 6039C of the Internal Revenue Code, relating to
returns with respect to foreign persons holding direct investments in
United States real property interests, if that person holds a direct
investment in a California real property as defined in Section
18662.
(4) Section 6041 of the Internal Revenue Code, relating to
information at source.
(5) Section 6041A of the Internal Revenue Code, relating to
returns regarding payments of remuneration for services and direct
sales, except that no return or statement shall be required with
respect to direct sales pursuant to Section 6041A(b) of the Internal
Revenue Code.
(6) Section 6042 of the Internal Revenue Code, relating to returns
regarding payments of dividends and corporate earnings and profits.
(7) Section 6045 of the Internal Revenue Code, relating to returns
of brokers.
(8) Section 6049 of the Internal Revenue Code, relating to returns
regarding payments of interest.
(9) Section 6050H of the Internal Revenue Code, relating to
returns of mortgage interest received in trade or business from
individuals.
(10) (A) Section 6050I of the Internal Revenue Code, relating to
cash received in trade or business, etc., except that Section 6050I
(g) of the Internal Revenue Code, relating to cash received by
criminal court, shall not apply.
(B) (i) The Attorney General shall, upon court order following a
showing ex parte to a magistrate of an articulable suspicion that an
individual or entity has committed a felony offense to which a
federal information return is related, be provided a copy of a
federal information return filed with the Franchise Tax Board under
this paragraph. The Attorney General may make a return or information
therefrom available to a district attorney subject to regulations
promulgated by the Attorney General. The regulations shall require
the district attorney seeking the return or information to specify in
writing the specific reasons for believing that a felony offense has
been committed to which the return or information is related.
(ii) Any information or return obtained by the Attorney General or
a district attorney pursuant to this subparagraph shall be
confidential and used only for investigative or prosecutorial
purposes.
(11) Section 6050J of the Internal Revenue Code, relating to
returns of foreclosures and abandonments of security.
(12) (A) Section 6050K of the Internal Revenue Code, relating to
returns of exchanges of certain partnership interests.
(B) In addition to
the general requirement under subparagraph (A), a transferor of a
partnership interest shall be required to notify the partnership of
that exchange in accordance with Section 6050K(c) of the Internal
Revenue Code.
(13) Section 6050L of the Internal Revenue Code, relating to
returns of certain dispositions of donated property.
(14) Section 6050N of the Internal Revenue Code, relating to
returns regarding payments of royalties.
(15) Section 6050P of the Internal Revenue Code, relating to
returns of cancellation of indebtedness by certain entities.
(16) Section 6050Q of the Internal Revenue Code, relating to
certain long-term care benefits.
(17) Section 6050R of the Internal Revenue Code, relating to
returns of certain purchases of fish.
(18) Section 6050S of the Internal Revenue Code, relating to
higher education tuition and related expenses.
(19) Section 6052 of the Internal Revenue Code, relating to
returns regarding payment of wages in the form of group-term life
insurance.
(20) Section 6034(a) of the Internal Revenue Code, relating to
returns of split-interest trusts.
(21) Section 6039I of the Internal Revenue Code, relating to
returns and records with respect to employer-owned life insurance
contracts.
(22) Section 6050V of the Internal Revenue Code, relating to
returns with respect to applicable insurance contracts in which
certain exempt organizations hold interests.
(d) Every person required to make a return under subdivision (b)
shall also furnish a statement to each person whose name is required
to be set forth in the return, as required to do so by the Internal
Revenue Code.
SEC. 27. Section 19116 of the Revenue
and Taxation Code is amended to read:
19116. (a) In the case of an individual who files a return of tax
imposed under Part 10 (commencing with Section 17001) for a taxable
year on or before the due date for the return, including extensions,
if the Franchise Tax Board does not provide a notice to the taxpayer
specifically stating the taxpayer's liability and the basis of the
liability before the close of the notification period, the Franchise
Tax Board shall suspend the imposition of any interest, penalty,
addition to tax, or additional amount with respect to any failure
relating to the return which is computed by reference to the period
of time the failure continues to exist and which is properly
allocable to the suspension period.
(b) For purposes of this section:
(1) Except as provided in subdivision (e), "notification period"
means the 18-month period beginning on the later of either of the
following:
(A) The date on which the return is filed.
(B) The due date of the return without regard to extensions.
(2) "Suspension period" means the period beginning on the day
after the close of the notification period and ending on the date
which is 15 days after the date on which notice described in
subdivision (a) is provided by the Franchise Tax Board.
(3) If, after the return for a taxable year is filed, the taxpayer
provides to the Franchise Tax Board one or more signed written
documents showing that the taxpayer owes an additional amount of tax
for the taxable year, subparagraph (A) of paragraph (1) shall be
applied by substituting the date the last of the documents was
provided for the date on which the return is filed.
(c) This section shall be applied separately with respect to each
item or adjustment.
(d) This section shall not apply to any of the following:
(1) Any penalty imposed by Section 19131.
(2) Any penalty imposed by Section 19132.
(3) Any interest, penalty, addition to tax, or additional amount
involving fraud.
(4) Any interest, penalty, addition to tax, or additional amount
with respect to any tax liability shown on the return.
(5) Any criminal penalty.
(6) Any interest, penalty, addition to tax, or additional amount
with respect to any gross misstatement.
(7) Any interest, penalty, addition to tax, or additional amount
relating to any reportable transaction with respect to which the
requirements of Section 6664(d)(2)(A) of the Internal Revenue Code
are not met, and any listed transaction, as defined in Section 6707A
(c) of the Internal Revenue Code.
(e) For taxpayers required by subdivision (a) of Section 18622 to
report a change or correction by the Commissioner of Internal Revenue
or other officer of the United States or other competent authority
the following rules shall apply:
(1) The notification period under subdivision (a) shall be either
of the following:
(A) One year from the date the notice required by Section 18622 is
filed with the Franchise Tax Board by the taxpayer or the Internal
Revenue Service, if the taxpayer or the Internal Revenue Service
reports that change or correction within six months after the final
federal determination.
(B) Two years from the date when the notice required by Section
18622 is filed with the Franchise Tax Board by the taxpayer or the
Internal Revenue Service, if after the six-month period required in
Section 18622, a taxpayer or the Internal Revenue Service reports a
change or correction.
(2) The suspension period under subdivision (a) shall mean the
period beginning on the day after the close of the notification
period under paragraph (1) and ending on the date which is 15 days
after the date on which notice described in subdivision (a) is
provided by the Franchise Tax Board.
(f) For notices sent after January 1, 2004, this section does not
apply to taxpayers with taxable income greater than two hundred
thousand dollars ($200,000) that have been contacted by the Franchise
Tax Board regarding the use of a potentially abusive tax shelter
(within the meaning of Section 19777).
(g) This section shall apply to taxable years ending after October
10, 1999.
(h) The amendments made to this section by the act adding
this subdivision Chapter 691 of the Statutes of 2005
shall apply to notices sent after January 1, 2005.
(i) The amendments made to this section by the act adding this
subdivision shall apply to documents provided on or after January 1,
2007.
SEC. 28. Section 19164 of the Revenue
and Taxation Code is amended to read:
19164. (a) (1) (A) An accuracy-related penalty shall be imposed
under this part and shall be determined in accordance with Section
6662 of the Internal Revenue Code, relating to imposition of
accuracy-related penalty on underpayments, except as otherwise
provided.
(B) (i) Except for understatements relating to reportable
transactions to which Section 19164.5 applies, in the case of any
proposed deficiency assessment issued after the last date of the
amnesty period specified in Chapter 9.1 (commencing with Section
19730) for any taxable year beginning prior to January 1, 2003, the
penalty specified in Section 6662(a) of the Internal Revenue Code
shall be computed by substituting "40 percent" for "20 percent."
(ii) Clause (i) shall not apply to any taxable year of a taxpayer
beginning prior to January 1, 2003, if, as of the start date of the
amnesty program period specified in Section 19731, the taxpayer is
then under audit by the Franchise Tax Board, or the taxpayer has
filed a protest under Section 19041, or the taxpayer has filed an
appeal under Section 19045, or the taxpayer is engaged in settlement
negotiations under Section 19442, or the taxpayer has a pending
judicial proceeding in any court of this state or in any federal
court relating to the tax liability of the taxpayer for that taxable
year.
(2) With respect to corporations, this subdivision shall apply to
all of the following:
(A) All taxable years beginning on or after January 1, 1990.
(B) Any other taxable year for which an assessment is made after
July 16, 1991.
(C) For purposes of this section, references in Section 6662(e) of
the Internal Revenue Code and the regulations thereunder, relating
to treatment of an affiliated group that files a consolidated federal
return, are modified to apply to those entities required to be
included in a combined report under Section 25101 or 25110. For these
purposes, entities included in a combined report pursuant to
paragraph (4) or (6) of subdivision (a) of Section 25110 shall be
considered only to the extent required to be included in the combined
report.
(3) Section 6662(d)(1)(B) of the Internal Revenue Code is modified
to provide that in the case of a corporation, other than an "S"
corporation, there is a substantial understatement of tax for any
taxable year if the amount of the understatement for the taxable year
exceeds the lesser of:
(A) Ten percent of the tax required to be shown on the return for
the taxable year (or, if greater, two thousand five hundred dollars
($2,500)).
(B) Five million dollars ($5,000,000).
(4) Section 6662(d)(2)(A) of the Internal Revenue Code is modified
to additionally provide that the excess determined under Section
6662(d)(2)(A) of the Internal Revenue Code shall be determined
without regard to items to which Section 19164.5 applies and without
regard to items with respect to which a penalty is imposed by Section
19774.
(5) The provisions of Sections 6662(e)(1) and 6662(h)(2) of the
Internal Revenue Code, as amended by Sections 1219(a)(1) and 1219(a)
(2) of the Pension Protection Act of 2006 (Public Law 109-280), shall
apply to returns filed on or after January 1, 2007.
(b) For purposes of Section 6662(d) of the Internal Revenue Code,
Section 6664 of the Internal Revenue Code, Section 6694(a)(1) of the
Internal Revenue Code, and this part, the Franchise Tax Board may
prescribe a list of positions for which the Franchise Tax Board
believes there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the proper tax
treatment. That list (and any revisions thereof) shall be published
through the use of Franchise Tax Board Notices or other published
positions. In addition, the "listed transactions" identified and
published pursuant to the preceding sentence shall be published on
the Web site of the Franchise Tax Board.
(c) A fraud penalty shall be imposed under this part and shall be
determined in accordance with Section 6663 of the Internal Revenue
Code, relating to imposition of fraud penalty, except as otherwise
provided.
(d) (1) Section 6664 of the Internal Revenue
Code, relating to definitions and special rules, shall apply, except
as otherwise provided.
(2) Section 6664(c)(2) of the Internal Revenue Code, as amended by
Section 1219(a)(3) of the Pension Protection Act of 2006 (Public Law
109-280), shall apply to returns filed on or after January 1, 2007.
(3) Section 6664(c)(3) of the Internal Revenue Code, as amended by
Section 1219(c)(2) of the Pension Protection Act of 2006 (Public Law
109-280), shall apply to appraisals prepared with respect to returns
or submissions filed on or after January 1, 2007.
SEC. 29. Section 19179 of the Revenue
and Taxation Code is amended to read:
19179. (a) A penalty shall be imposed for
filing a frivolous return and shall be determined in accordance with
Section 6702 of the Internal Revenue Code, except as otherwise
provided.
(a)
(b) Section 6702 of the Internal Revenue Code shall be
applied to returns required to be filed under this part.
(b) For taxpayers that have a reportable transaction, as defined
in Section 6707A(c)(1) of the Internal Revenue Code with respect to
which the requirements of Section 6664(d)(2)(A) of the Internal
Revenue Code are not met, any listed transaction, as defined in
Section 6707A(c)(2) of the Internal Revenue Code, or a gross
misstatement within the meaning of Section 6404(g)(2)(D) of the
Internal Revenue Code, Section 6702(a) of the Internal Revenue Code
is modified as follows:
(1) By substituting "$5,000" instead of "$500."
(2) By substituting the term "person" instead of the term
"individual" in each place that it appears.
(c) Section 6702 of the Internal Revenue Code is modified as
follows:
(3)
(1) (A) By
substituting the phrase "tax imposed under Part 10
(commencing with Section 17001), Part 11 (commencing with Section
23001), or this part" instead of for
the phrase "tax imposed by subtitle A" this
title" contained therein.
(4) By substituting the phrase "is based on" instead of the phrase
"is due to" contained therein.
(5)
(B) By substituting the phrase "frivolous or is based
on a position that the Franchise Tax Board has identified as
frivolous under subdivision (c) of Section 19179"
(d)" instead of the term "frivolous" contained therein.
(6)
(C) By substituting the phrase "reflects a desire to
delay or impede the administration of federal income tax laws as
determined by the Secretary of the Treasury or the administration of
the tax imposed under Part 10 (commencing with Section 17001), Part
11 (commencing with Section 23001), or this part as determined by the
Franchise Tax Board" instead of the phrase "a
"reflects a desire (which appears on the
purported return) to delay or impede the administration of
Federal income tax laws" contained therein.
(D) By substituting the phrase "is based on a position which the
Secretary of the Treasury has identified as frivolous under
subsection (c) of Section 6702 of the Internal Revenue Code or the
Franchise Tax Board has identified as frivolous under subdivision (d)"
for the phrase "is based on a position which the Secretary has
identified as frivolous under subsection (c)."
(E) By substituting the phrase "If the Franchise Tax Board
provides a person with notice that a submission is a specified
frivolous submission and the person withdraws that submission within
30 days after the notice, the penalty imposed under Section 6702(b)
(1) of the Internal Revenue Code does not apply with respect to that
submission" for the phrase "If the Secretary provides a person with
notice that a submission is a specified frivolous submission and such
person withdraws such submission within 30 days after such notice,
the penalty imposed under paragraph (1) shall not apply with respect
to such submission."
(2) Section 6702(b)(2)(B) of the Internal Revenue Code shall not
apply and, in lieu thereof, the phrase "specified submission" means
any of the following:
(A) A protest under Section 19041.
(B) A request for a hearing under Section 19044.
(C) An application under any of the following sections:
(i) Section 19008, relating to agreements for payment of tax
liability in installments.
(ii) Section 19443, relating to compromises.
(iii) Section 21004, relating to actions of the Taxpayers' Rights
Advocate.
(iv) Section 21015.5, relating to a request for review prior to
levy.
(c)
(d) (1) The Franchise Tax Board shall prescribe (and
periodically revise) a list of positions which the Secretary of the
Treasury for federal income tax purposes or the Franchise Tax Board
has identified as being frivolous for purposes of this section.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or prescribed by the Franchise Tax Board
pursuant to paragraph (1).
(d) (1) Except as provided in paragraph (3), any person who
submits a specified frivolous submission shall pay a penalty of five
thousand dollars ($5,000).
(2) For purposes of this section, all of the following shall
apply:
(A) The phrase "specified frivolous submission" means a specified
submission if any portion of that submission meets any of the
following conditions:
(i) Is based on a position which the Franchise Tax Board has
identified as frivolous under subdivision (c).
(ii) Reflects a desire to delay or impede the administration of
federal income tax laws as determined by the Secretary of the
Treasury or the administration of the tax imposed under Part 10
(commencing with Section 17001), Part 11 (commencing with Section
23001), or this part as determined by the Franchise Tax Board.
(B) The phrase "specified submission" means any of the following:
(i) A protest under Section 19041.
(ii) A request for a hearing under Section 19044.
(iii) An application under any of the following sections:
(I) Section 19008 (relating to agreements for payment of tax
liability in installments).
(II) Section 19443 (relating to compromises).
(III) Section 21004 (relating to actions of the Taxpayers' Rights
Advocate).
(3) If the Franchise Tax Board provides a person with notice that
a submission is a specified frivolous submission and the person
withdraws that submission within 30 days after the notice, the
penalty imposed under paragraph (1) does not apply with respect to
that submission.
(e) (1) The Chief Counsel of the Franchise Tax Board may rescind
all or any portion of any penalty imposed by this section if both of
the following apply:
(A) Imposing the penalty would be against equity and good
conscience.
(B) Rescinding the penalty would promote compliance with the
requirements of this part and Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001) and effective tax
administration.
(2) The exercise of authority under paragraph (1) shall be at the
sole discretion of the Chief Counsel of the Franchise Tax Board and
may not be delegated.
(3) Notwithstanding any other law or rule of law, any
determination under this subdivision may not be reviewed in any
administrative or judicial proceeding.
(f) The penalties imposed by this section shall be in addition to
any other penalty provided by law.
SEC. 30. Section 19185 is added to the
Revenue and Taxation Code , to read:
19185. (a) Section 6695A of the Internal Revenue Code, relating
to substantial and gross valuation misstatements attributable to
incorrect appraisals, shall apply, except as otherwise provided.
(b) This section shall apply to appraisals prepared with respect
to returns or submissions filed on or after January 1, 2007.
SEC. 31. Section 19186 is added to the
Revenue and Taxation Code , to read:
19186. (a) Section 6702B of the Internal Revenue Code, relating
to the fraudulent identification of exempt use property, shall apply,
except as otherwise provided.
(b) This section shall apply to identifications made after January
1, 2007.
SEC. 32. Section 19443 of the Revenue
and Taxation Code is amended to read:
19443. (a) (1) The Executive Officer and Chief Counsel of the
Franchise Tax Board, jointly, or their delegates, may compromise any
final tax liability in which the reduction of tax is seven thousand
five hundred dollars ($7,500) or less.
(2) Except as provided in paragraph (3), the Franchise Tax Board,
upon recommendation by its executive officer and chief counsel,
jointly, may compromise a final tax liability involving a reduction
in tax in excess of seven thousand five hundred dollars ($7,500). Any
recommendation for approval of an offer in compromise that is not
either approved or disapproved by the Franchise Tax Board, itself,
within 45 days of the submission of the recommendation shall be
deemed approved.
(3) The Franchise Tax Board, itself, may by resolution delegate to
the executive officer and the chief counsel, jointly, the authority
to compromise a final tax liability in which the reduction of tax is
in excess of seven thousand five hundred dollars ($7,500) but less
than ten thousand dollars ($10,000).
(b) For purposes of this section, "a final tax liability" means
any final tax liability arising under Part 10 (commencing with
Section 17001) or Part 11 (commencing with Section 23001) or related
interest, additions to tax, penalties, or other amounts assessed
under this part.
(c) For an amount to be compromised under this section, the
following conditions shall exist:
(1) The taxpayer shall establish that the:
(A) Amount offered in payment is the most that can be expected to
be paid or collected from the taxpayer's present assets or income,
and
(B) Taxpayer does not have reasonable prospects of acquiring
increased income or assets that would enable the taxpayer to satisfy
a greater amount of the liability than the amount offered, within a
reasonable period of time.
(2) The Franchise Tax Board shall have determined that acceptance
of the compromise is in the best interest of the state.
(d) A determination by the Franchise Tax Board that it would not
be in the best interest of the state to accept an offer in compromise
in satisfaction of a final tax liability shall not be subject to
administrative appeal or judicial review.
(e) When an offer in compromise is either accepted or rejected, or
the terms and conditions of a compromise agreement are fulfilled,
the Franchise Tax Board shall notify the taxpayer in writing.
(f) In the case of a joint and several liability, the acceptance
of an offer in compromise from one liable spouse shall not relieve
the other spouse from paying the entire liability. However, the
amount of the liability shall be reduced by the amount of the
accepted offer.
(g) Whenever a compromise of tax or penalties or total tax and
penalties in excess of five hundred dollars ($500) is approved, there
shall be placed on file for at least one year in the office of the
Executive Officer of the Franchise Tax Board a public record with
respect to that compromise. The public record shall include all of
the following information:
(1) The name of the taxpayer.
(2) The amount of unpaid tax, and related penalties, additions to
tax, interest, or other amounts involved.
(3) The amount offered.
(4) A summary of the reason why the compromise is in the best
interest of the state.
The public record shall not include any information that relates
to any trade secret, patent, process, style of work, apparatus,
business secret, or organizational structure, that if disclosed,
would adversely affect the taxpayer or the national defense. No list
shall be prepared and no releases distributed by the Franchise Tax
Board in connection with these statements.
(h) Any compromise made under this section may be rescinded, all
compromised liabilities may be reestablished (without regard to any
statute of limitations that otherwise may be applicable), and no
portion of the amount offered in compromise refunded, if either of
the following occurs:
(1) The Franchise Tax Board determines that any person did any of
the following acts regarding the making of the offer:
(A) Concealed from the Franchise Tax Board any property belonging
to the estate of any taxpayer or other person liable for the tax.
(B) Received, withheld, destroyed, mutilated, or falsified any
book, document, or record or made any false statement, relating to
the estate or financial condition of the taxpayer or other person
liable for the tax.
(2) The taxpayer fails to either:
(A) Comply with any of the terms and conditions relative to the
offer.
(B) File subsequent required returns and pay subsequent final tax
liabilities within 20 days after the Franchise Tax Board issues
notice and demand to the person stating that the continued failure to
file or pay the tax may result in rescission of the compromise.
(i) Notwithstanding any other provision of this section, if the
Franchise Tax Board determines that any portion of an application for
an offer-in-compromise or installment agreement submitted under this
section or Section 19008 meets the requirement of clause (i) or (ii)
of Section 6702(b)(2)(A) of the Internal Revenue Code, as modified
by Section 19179, then the Franchise Tax Board may treat that portion
as if it were never submitted and that portion shall not be subject
to any further administrative or judicial review.
(i)
(j) This section shall become operative on the
effective date of the act adding this section
Chapter 931 of the Statutes of 1999 without regard to the
taxable year at issue.
SEC. 33. Section 21015.5 of the Revenue
and Taxation Code is amended to read:
21015.5. (a) (1) No levy may be made on any property or property
right of any person unless the board has notified the person in
writing of his or her rights as described in subparagraph (C) of
paragraph (3) before the levy is made. Except as provided in
subdivision (f), the notice shall be required only once for the
taxable period to which the unpaid tax specified in subparagraph (A)
of paragraph (3) relates. The notice shall not be required if the
unpaid tax for which notice would otherwise be required under this
paragraph is consolidated for collection purposes with a preexisting
unpaid tax for which notice has been given under this paragraph.
(2) The notice required by paragraph (1) shall be made by
first-class mail to the address of record not less than 30 days
before the day of the first levy with respect to the amount of the
unpaid tax for the taxable period. Notice under paragraph (1) is not
required if previous mail to the same address was returned
undelivered with no forwarding address.
(3) The notice required under paragraph (1) shall specify, in
simple and nontechnical terms, all of the following:
(A) The amount of unpaid tax.
(B) A telephone number to call in the event of any questions.
(C) The right of the
person to request a review during the 30-day period described in
paragraph (2).
(D) The proposed action or actions that may be taken by the
Franchise Tax Board and the rights of the person with respect to the
action or actions, including a brief statement that sets forth all of
the following:
(i) The provisions of California law relating to levy and sale of
property.
(ii) The procedures applicable to the levy and sale of property
under California law.
(iii) The independent departmental administrative review available
to the taxpayers with respect to the levy and sale and the
procedures to obtain that review.
(iv) The alternatives available to taxpayers that could prevent
levy on property, including installment agreements under Section
19008.
(v) California legal requirements and procedures with respect to
the release of levy.
(b) (1) The Taxpayers' Rights Advocate shall establish procedures
for an independent departmental administrative review for taxpayers
who request review under subparagraph (C) of paragraph (3) of
subdivision (a).
(2) A person shall be entitled to only one review under this
section with respect to the taxable period to which the unpaid tax
specified in subparagraph (A) of paragraph (3) of subdivision (a)
relates.
(3) An independent departmental administrative review under this
subdivision shall be conducted by an officer or employee, or officers
or employees, who have had no prior involvement with respect to the
unpaid tax specified in subparagraph (A) of paragraph (3) of
subdivision (a) before the first review under this section or Section
19225. A taxpayer may waive the requirement of this paragraph.
Administrative review under this subdivision is not subject to
Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3
of the Government Code.
(c) (1) The person or persons conducting the independent
departmental administrative review shall obtain verification that the
requirements of any applicable law or administrative procedures have
been met by the board.
(2) The taxpayer may raise during the review any relevant issue
relating to the unpaid tax or the lien, including any of the
following:
(A) Appropriate spousal defenses.
(B) Challenges to the appropriateness of collection actions.
(C) Offers of collection alternatives, that may include the
posting of a bond, the substitution of other assets, an installment
agreement, or an offer-in-compromise.
(3) The determination of the person or persons conducting the
review under this subdivision shall take into consideration all of
the following:
(A) The verification presented under paragraph (1).
(B) The issues raised under paragraph (2).
(C) Whether any proposed collection action balances the need for
the efficient collection of taxes with the legitimate concern of the
person that any collection action not be more intrusive than
necessary.
(4) An issue may not be raised during the review if:
(A) The issue was raised and considered at a previous review under
this section or in any other administrative or judicial proceeding.
(B) The person seeking to raise the issue participated
meaningfully in the review or proceeding.
(C) The issue meets the requirement of clause (i) or (ii) of
Section 6702(b)(2)(A) of the Internal Revenue Code.
This paragraph does not apply to any issue with respect to a
change in circumstances of that person that affects the
determination.
(d) If review is requested under subparagraph (C) of paragraph (3)
of subdivision (a), the levy actions that are the subject of the
requested review shall be suspended for the period during which the
review is pending. In no event shall any period expire before the
15th day after the day upon which there is a final determination in
the review.
(e) This section does not apply if the board has made a finding
under Section 19081 or Section 19082 that the collection of tax is in
jeopardy except that the taxpayer shall be given the opportunity for
the review described in this section within a reasonable period of
time after the levy.
(f) If the board holds in abeyance the collection of a liability
imposed under Part 10 (commencing with Section 17001) or Part 10.2
(commencing with Section 18401), that is final and otherwise due and
payable, for a period in excess of six months from the date the hold
is first placed on the account, the board shall thereafter mail to
the taxpayer a notice prior to issuing a levy or filing or recording
a notice of state tax lien.
(g) This section is operative for collection actions initiated
after the date which is 180 days after the effective date of the act
adding this section.
(h) Notwithstanding any other provision of this section, if the
board determines that any portion of a request for review under this
section meets the requirement of clause (i) or (ii) of Section 6702
(b)(2)(A) of the Internal Revenue Code, as modified by Section 19179,
then the Franchise Tax Board may treat that portion as if it were
never submitted and that portion shall not be subject to any further
administrative or judicial review.
SEC. 34. Section 23045 of the Revenue
and Taxation Code is amended to read:
23045. For purposes of this part:
(a) Section 7702 of the Internal Revenue Code, relating to life
insurance contracts, shall apply, except as otherwise provided.
(b) Section 7702A of the Internal Revenue Code, relating to
modified endowment contracts, shall apply, except as otherwise
provided.
(c) (1) Section 7702B of the Internal
Revenue Code, relating to treatment of qualified long-term care
insurance, shall apply, except as otherwise provided.
(2) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-280) to Section 7702B of the Internal
Revenue Code shall not apply.
SEC. 35. Section 23046.5 is added to the
Revenue and Taxation Code , to read:
23046.5. (a) Section 7701(o) of the Internal Revenue Code,
relating to convention or association of churches, shall apply,
except as otherwise provided.
(b) The phrase "this part" shall be substituted for "this title"
in Section 7701(o) of the Internal Revenue Code.
SEC. 36. Section 23051.5 of the Revenue
and Taxation Code is amended to read:
23051.5. (a) (1) Unless otherwise specifically provided, the
terms "Internal Revenue Code," "Internal Revenue Code of 1954," or
"Internal Revenue Code of 1986," for purposes of this part, mean
Title 26 of the United States Code, including all amendments thereto,
as enacted on the specified date for the applicable taxable year as
defined in paragraph (1) of subdivision (a) of Section 17024.5.
(2) (A) Unless otherwise specifically provided, for federal laws
enacted on or after January 1, 1987, and on or before the specified
date for the taxable year, uncodified provisions that relate to
provisions of the Internal Revenue Code that are incorporated for
purposes of this part, shall be applicable to the same taxable years
as the incorporated provisions.
(B) In the case where Section 901 of the Economic Growth and Tax
Relief Act of 2001 (Public Law 107-16) applies to any provision of
the Internal Revenue Code that is incorporated for purposes of this
part, Section 901 of the Economic Growth and Tax Relief Act of 2001
(Public Law 107-16) shall apply for purposes of this part in the same
manner and to the same taxable years as it applies for federal
income tax purposes.
(3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle
H (Repeal of Expired or Obsolete Provisions) of the Revenue
Reconciliation Act of 1990 (Public Law 101-508) modified numerous
provisions of the Internal Revenue Code and provisions of prior
federal acts, some of which are incorporated by reference into this
part. Unless otherwise provided, the provisions described in the
preceding sentence, to the extent that they modify provisions that
are incorporated into this part, are declaratory of existing law and
shall be applied in the same manner and for the same periods as
specified in the Revenue Reconciliation Act of 1990.
(b) Unless otherwise specifically provided, when applying the
Internal Revenue Code for purposes of this part, a reference to any
of the following is not applicable for purposes of this part:
(1) Domestic International Sales Corporations (DISC), as defined
in Section 992(a) of the Internal Revenue Code.
(2) Foreign Sales Corporations (FSC), as defined in Section 922(a)
of the Internal Revenue Code.
(3) A personal holding company, as defined in Section 542 of the
Internal Revenue Code.
(4) A foreign personal holding company, as defined in Section 552
of the Internal Revenue Code.
(5) A foreign investment company, as defined in Section 1246(b) of
the Internal Revenue Code.
(6) A foreign trust as defined in Section 679 of the Internal
Revenue Code.
(7) Foreign income taxes and foreign income tax credits.
(8) Federal tax credits and carryovers of federal tax credits.
(c) (1) The provisions contained in Sections 41 to 44, inclusive,
and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369),
relating to treatment of debt instruments, is not applicable for
taxable years beginning before January 1, 1987.
(2) The provisions contained in Public Law 99-121, relating to the
treatment of debt instruments, is not applicable for taxable years
beginning before January 1, 1987.
(3) For taxable years beginning on and after January 1, 1987, the
provisions referred to by paragraphs (1) and (2) shall be applicable
for purposes of this part in the same manner and with respect to the
same obligations as the federal provisions, except as otherwise
provided in this part.
(d) When applying the Internal Revenue Code for purposes of this
part, regulations promulgated in final form or issued as temporary
regulations by "the secretary" shall be applicable as regulations
issued under this part to the extent that they do not conflict with
this part or with regulations issued by the Franchise Tax Board.
(e) Whenever this part allows a taxpayer to make an election, the
following rules shall apply:
(1) A proper election filed with the Internal Revenue Service in
accordance with the Internal Revenue Code or regulations issued by
"the secretary" shall be deemed to be a proper election for purposes
of this part, unless otherwise expressly provided in this part or in
regulations issued by the Franchise Tax Board.
(2) A copy of that election shall be furnished to the Franchise
Tax Board upon request.
(3) (A) Except as provided in subparagraph (B), in order to obtain
treatment other than that elected for federal purposes, a separate
election shall be filed with the Franchise Tax Board at the time and
in the manner that may be required by the Franchise Tax Board.
(B) (i) If a taxpayer makes a proper election for federal income
tax purposes prior to the time that taxpayer becomes subject to the
tax imposed under this part or Part 10 (commencing with Section
17001), that taxpayer is deemed to have made the same election for
purposes of the tax imposed by this part, Part 10 (commencing with
Section 17001), and Part 10.2 (commencing with Section 18401), as
applicable, and that taxpayer may not make a separate election for
California tax purposes unless that separate election is expressly
authorized by this part, Part 10 (commencing with Section 17001), or
Part 10.2 (commencing with Section 18401), or by regulations issued
by the Franchise Tax Board.
(ii) If a taxpayer has not made a proper election for federal
income tax purposes prior to the time that taxpayer becomes subject
to tax under this part or Part 10 (commencing with Section 17001),
that taxpayer may not make a separate California election for
purposes of this part, Part 10 (commencing with Section 17001), or
Part 10.2 (commencing with Section 18401), unless that separate
election is expressly authorized by this part, Part 10 (commencing
with Section 17001), Part 10.2 (commencing with Section 18401), or by
regulations issued by the Franchise Tax Board.
(iii) This subparagraph applies only to the extent that the
provisions of the Internal Revenue Code or regulations issued by "the
secretary" authorizing an election for federal income tax purposes
apply for purposes of this part, Part 10 (commencing with Section
17001), or Part 10.2 (commencing with Section 18401).
(f) Whenever this part allows or requires a taxpayer to file an
application or seek consent, the rules set forth in subdivision (e)
shall apply to that application or consent.
(g) When applying the Internal Revenue Code for purposes of
determining the statute of limitations under this part, any reference
to a period of three years shall be modified to read four years for
purposes of this part.
(h) When applying, for purposes of this part, any section of the
Internal Revenue Code or any applicable regulation thereunder, all of
the following shall apply:
(1) For purposes of Chapter 2 (commencing with Section 23101),
Chapter 2.5 (commencing with Section 23400), and Chapter 3
(commencing with Section 23501), the term "taxable income" shall mean
"net income."
(2) For purposes of Article 2 (commencing with Section 23731) of
Chapter 4, the term "taxable income" shall mean "unrelated business
taxable income," as defined by Section 23732.
(3) Any reference to "subtitle," "Chapter 1," or "chapter" shall
mean this part.
(4) The provisions of Section 7806 of the Internal Revenue Code,
relating to construction of title, shall apply.
(5) Any provision of the Internal Revenue Code that becomes
operative on or after the specified date for that taxable year shall
become operative on the same date for purposes of this part.
(6) Any provision of the Internal Revenue Code that becomes
inoperative on or after the specified date for that taxable year
shall become inoperative on the same date for purposes of this part.
(7) Due account shall be made for differences in federal and state
terminology, effective dates, substitution of "Franchise Tax Board"
for "secretary" when appropriate, and other obvious differences.
(8) Any provision of the Internal Revenue Code that refers to a
"corporation" shall, when applicable for purposes of this part,
include a "bank," as defined by Section 23039.
(9) Except as otherwise provided, any reference to Section 501 of
the Internal Revenue Code shall be interpreted to also refer to
Section 23701.
(i) Any reference to a specific provision of the Internal Revenue
Code shall include modifications of that provision, if any, in this
part.
SEC. 37. Section 23609 of the Revenue
and Taxation Code is amended to read:
23609. For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) an amount determined in accordance with
Section 41 of the Internal Revenue Code, except as follows:
(a) For each taxable year beginning before January 1, 1997, both
of the following modifications shall apply:
(1) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "8 percent."
(2) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "12 percent."
(b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, both of the following modifications
shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "11 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "12 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(3) For each taxable year beginning on or after January 1, 2000,
both of the following shall apply:
(A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "15 percent."
(B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
(c) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
(2) "Qualified research" and "basic research" shall include only
research conducted in California.
(d) The provisions of Section 41(e)(7)(A) of the Internal Revenue
Code, shall be modified so that "basic research," for purposes of
this section, includes any basic or applied research including
scientific inquiry or original investigation for the advancement of
scientific or engineering knowledge or the improved effectiveness of
commercial products, except that the term does not include any of the
following:
(1) Basic research conducted outside California.
(2) Basic research in the social sciences, arts, or humanities.
(3) Basic research for the purpose of improving a commercial
product if the improvements relate to style, taste, cosmetic, or
seasonal design factors.
(4) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any
deposit of ore or other mineral (including oil and gas).
(e) (1) In the case of a taxpayer engaged in any biopharmaceutical
research activities that are described in codes 2833 to 2836,
inclusive, or any research activities that are described in codes
3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial
Classification (SIC) Manual published by the United States Office of
Management and Budget, 1987 edition, or any other biotechnology
research and development activities, the provisions of Section 41(e)
(6) of the Internal Revenue Code shall be modified to include both of
the following:
(A) A qualified organization as described in Section 170(b)(1)(A)
(iii) of the Internal Revenue Code and owned by an institution of
higher education as described in Section 3304(f) of the Internal
Revenue Code.
(B) A charitable research hospital owned by an organization that
is described in Section 501(c)(3) of the Internal Revenue Code, is
exempt from taxation under Section 501(a) of the Internal Revenue
Code, is not a private foundation, is designated a "specialized
laboratory cancer center," and has received Clinical Cancer Research
Center status from the National Cancer Institute.
(2) For purposes of this subdivision:
(A) "Biopharmaceutical research activities" means those activities
that use organisms or materials derived from organisms, and their
cellular, subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
(B) "Other biotechnology research and development activities"
means research and development activities consisting of the
application of recombinant DNA technology to produce commercial
products, as well as research and development activities regarding
pharmaceutical delivery systems designed to provide a measure of
control over the rate, duration, and site of pharmaceutical delivery.
(f) In the case where the credit allowed by this section exceeds
the "tax," the excess may be carried over to reduce the "tax" in the
following year, and succeeding years if necessary, until the credit
has been exhausted.
(g) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 10 (commencing with Section
17001)."
(h) (1) For each taxable year beginning on or after January 1,
2000:
(A) The reference to "2.65 "3
percent" in Section 41(c)(4)(A)(i) of the Internal Revenue Code is
modified to read "one and forty-nine hundredths of one percent."
(B) The reference to "3.2 "4 percent"
in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified
to read "one and ninety-eight hundredths of one percent."
(C) The reference to "3.75 "5
percent" in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is
modified to read "two and forty-eight hundredths of one percent."
(2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
(3) Section 41(c)(6) 41(c)(7) of the
Internal Revenue Code, relating to gross receipts, is modified to
take into account only those gross receipts from the sale of property
held primarily for sale to customers in the ordinary course of the
taxpayer's trade or business that is delivered or shipped to a
purchaser within this state, regardless of f.o.b. point or any other
condition of the sale.
(4) Section 41(c)(5) of the Internal Revenue Code, relating to the
election of the alternative simplified credit, shall not apply.
(i) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
(j) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
(1) The last sentence shall not apply.
(2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (f), except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
(k) (1) Section 41(a)(3) of the Internal Revenue Code, relating to
payment to an energy research consortium, shall not apply.
(2) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
(3) Section 41(f)(6) of the Internal Revenue Code, relating to an
energy research consortium, shall not apply.
SEC. 38. Section 23703.7 is added to the
Revenue and Taxation Code , to read:
23703.7. Section 501(q) of the Internal Revenue Code, relating to
special rules for credit counseling organizations, shall apply,
except as otherwise provided.
(a) The phrase "Section 23701" shall be substituted for
"subsection (a)" in Section 501(q)(1) of the Internal Revenue Code.
(b) The phrase "described in Section 23701d or Section 23701f"
shall be substituted for "described in paragraph (3) or (4) of
subsection (c)" in Section 501(q)(1) of the Internal Revenue Code.
(c) The phrase "described in Section 23701d and exempt from tax
under Section 23701" shall be substituted for "described in
subsection (c)(3) and exempt from tax under subsection (a)" in each
place that it appears in Section 501(q)(1)(E) of the Internal Revenue
Code.
(d) The phrase "described in Section 23701d shall not be exempt
from tax under Section 23701" shall be substituted for "described in
paragraph (3) of subsection (c) shall not be exempt from tax under
subsection (a)" in Section 501(q)(2)(A) of the Internal Revenue Code.
(e) The phrase "described in Section 23701d and exempt from tax
under Section 23701 on January 1, 2007," shall be substituted for
"described in paragraph (3) of subsection (c) and exempt from tax
under subsection (a) on the date of the enactment of this subsection"
in Section 501(q)(2)(B)(ii) of the Internal Revenue Code.
(f) The phrase "January 1, 2007," shall be substituted for "the
date of the enactment of this subsection" in Section 501(q)(2)(B)(ii)
(I) of the Internal Revenue Code.
(g) The phrase "described in Section 23701f shall not be exempt
from tax under Section 23701" shall be substituted for "described in
paragraph (4) of subsection (c) shall not be exempt from tax under
subsection (a)" in Section 501(q)(3) of the Internal Revenue Code.
SEC. 39. Section 23732 of the Revenue
and Taxation Code is amended to read:
23732. Section 512 of the Internal Revenue Code, relating to
unrelated business taxable income, shall apply, except as otherwise
provided.
(a) Section 512(a)(2) of the Internal Revenue Code, relating to
special rules for foreign organizations, shall not be applicable.
(b) Section 512(a)(3) of the Internal Revenue Code, relating to
special rules applicable to certain organizations, shall be modified
as follows:
(1) The reference to Section 501(c)(7) of the Internal Revenue
Code, relating to clubs organized for pleasure, recreation, and other
nonprofitable purposes, shall be modified to refer to Section
23701g.
(2) The reference to Section 501(c)(9) of the Internal Revenue
Code, relating to voluntary employees' beneficiary associations,
shall be modified to refer to Section 23701i.
(3) The reference to Section 501(c)(17) of the Internal Revenue
Code, relating to trusts providing for payment of supplemental
unemployment compensation benefits, shall be modified to refer to
Section 23701n.
(4) The reference to Section 501(c)(20) of the Internal Revenue
Code, relating to qualified group legal services plans, shall be
modified to refer to Section 23701q.
(c) Section 512(d) of the
Internal Revenue Code, relating to treatment of dues of agricultural
or horticultural organizations, shall be modified by substituting
"Section 23701a" in lieu of "Section 501(c)(5)" of the Internal
Revenue Code.
(d) Section 512(b)(13)(E) of the Internal Revenue Code is modified
as follows:
(1) The phrase "tax imposed under Part 10 (commencing with Section
17001) or this part" shall be substituted for "tax imposed by this
chapter" in Section 512(b)(13)(E)(ii) of the Internal Revenue Code.
(2) The phrase "January 1, 2007," shall be substituted for "the
date of the enactment of this subparagraph" in Section 512(b)(13)(E)
(iii)(I) of the Internal Revenue Code.
(3) The amendments made by the act adding this subdivision shall
apply to payments received or accrued on or after January 1, 2007.
SEC. 40. Section 23772 of the Revenue
and Taxation Code is amended to read:
23772. (a) For the purposes of this part--
(1) Except as provided in paragraph (2), every organization exempt
from taxation under Section 23701 and every trust treated as a
private foundation because of Section 4947(a)(1) of the Internal
Revenue Code shall file an annual return, stating specifically the
items of gross income, receipts, and disbursements, and any other
information for the purpose of carrying out the laws under this part
as the Franchise Tax Board may by rules or regulations prescribe, and
shall keep any records, render under oath any statements, make any
other returns, and comply with any rules and regulations as the
Franchise Tax Board may from time to time prescribe. The return shall
be filed on or before the 15th day of the fifth full calendar month
following the close of the taxable year.
(2) Exceptions from filing--
(A) Mandatory exceptions--Paragraph (1) does not apply to--
(i) Churches, their integrated auxiliaries, and conventions or
association of churches,
(ii) Any organization (other than a private foundation as defined
in Section 23709), the gross receipts of which in each taxable year
are normally not more than twenty-five thousand dollars ($25,000), or
(iii) The exclusively religious activities of any religious order.
(B) Discretionary exceptions--The Franchise Tax Board may permit
the filing of a simplified return for organizations based on either
gross receipts or total assets or both gross receipts and total
assets, or may permit the filing of an information statement (without
fee), or may permit the filing of a group return for incorporated or
unincorporated branches of a state or national organization where it
determines that an information return is not necessary to the
efficient administration of this part.
(3) An organization that is required to file an annual information
return shall pay a filing fee of ten dollars ($10) on or before the
due date for filing the annual information return (determined with
regard to any extension of time for filing the return) required by
this section. In case of failure to pay the fee on or before the due
date, unless it is shown that the failure is due to reasonable cause,
the filing fee shall be twenty-five dollars ($25). All collection
remedies provided in Article 5 (commencing with Section 18661) of
Chapter 2 of Part 10.2 are applicable to collection of the filing
fee. However, the filing fee does not apply to the organization
described in paragraph (4).
(4) Paragraph (3) does not apply to: (A) a religious organization
exempt under Section 23701d; (B) an educational organization exempt
under Section 23701d, if that organization normally maintains a
regular faculty and curriculum and normally has a regularly organized
body of pupils or students in attendance at the place where its
educational activities are regularly carried on; (C) a charitable
organization, or an organization for the prevention of cruelty to
children or animals, exempt under Section 23701d, if that
organization is supported, in whole or in part, by funds contributed
by the United States or any state or political subdivision thereof,
or is primarily supported by contributions of the general public; (D)
an organization exempt under Section 23701d, if that organization is
operated, supervised, or controlled by or in connection with a
religious organization described in subparagraph (A).
(b) Every organization described in Section 23701d that is subject
to the requirements of subdivision (a) is required to furnish
annually information, at the time and in the manner as the Franchise
Tax Board may by rules or regulations prescribe, setting forth all of
the following:
(1) Its gross income for the year.
(2) Its expenses attributable to gross income and incurred within
the year.
(3) Its disbursements within the year for the purposes for which
it is exempt.
(4) A balance sheet showing its assets, liabilities, and net worth
as of the beginning of that year.
(5) The total of the contributions and gifts received by it during
the year, and the names and addresses of all substantial
contributors.
(6) The names and addresses of its foundation manager (within the
meaning of Section 4946 of the Internal Revenue Code) and highly
compensated employees.
(7) The compensation and other payments made during the year to
each individual described in paragraph (6).
(8) In the case of an organization with respect to which an
election under Section 23704.5 is effective for the taxable year, the
following amounts for that organization for that taxable year:
(A) The lobbying expenditures (as defined in Section 4911(c)(1) of
the Internal Revenue Code).
(B) The lobbying nontaxable amount (as defined in Section 4911(c)
(2) of the Internal Revenue Code).
(C) The grassroots expenditures (as defined in Section 4911(c)(3)
of the Internal Revenue Code).
(D) The grassroots nontaxable amount (as defined in Section 4911
(c)(4) of the Internal Revenue Code). For purposes of this paragraph,
if Section 23740 applies to the organization for the taxable year,
the organization shall furnish the amounts with respect to the
affiliated group as well as with respect to the organization.
(9) Other information with respect to direct or indirect transfers
to, and other direct or indirect transactions and relationships
with, other organizations described in Sections 23701a to 23701w,
inclusive (other than Sections 23701d, 23701k, and 23701t), as the
Franchise Tax Board may require to prevent either of the following:
(A) Diversion of funds from the organization's exempt purpose.
(B) Misallocation of revenue or expense.
(10) Any other relevant information as the Franchise Tax Board may
prescribe.
(11) Each controlling organization, within the meaning of Section
512(b)(13) of the Internal Revenue Code, which is subject to the
requirements of subdivision (a) shall include on the return required
under subdivision (a) all of the following information:
(A) Any interest, annuities, royalties, or rents received from
each controlled entity, within the meaning of Section 512(b)(13) of
the Internal Revenue Code.
(B) Any loans made to each controlled entity.
(C) Any transfers of funds between each such controlling
organization and each such controlled entity.
(12) (A) Any organization, the gross receipts of which in any
taxable year result in the organization being referred to in clause
(ii) of subparagraph (A) of paragraph (2) of subdivision (a), or
subparagraph (B) of paragraph (3) of subdivision (a), shall do both
of the following:
(i) Furnish annually, in electronic form, and at the time and in
the manner as may be prescribed by the Franchise Tax Board, the legal
name of the organization, any name under which the organization
operates or does business, the organization's mailing address and the
Web site address, if any, the organization's taxpayer identification
number, the name and address of a principal officer, and evidence of
the continuing basis for the organization's exemption from the
filing requirements under paragraph (1) of subdivision (a).
(ii) Upon termination of the existence of the organization, shall
furnish notice of the termination.
(B) This paragraph shall apply to notices and returns with respect
to annual periods beginning on or after January 1, 2007.
(13) (A) If an organization described in paragraph (1) of
subdivision (a) or paragraph (12) of this subdivision fails to file
an annual return or notice required under either subdivision (a) or
paragraph (12) of this subdivision for three consecutive years, that
organization's status as an organization exempt from tax under
Section 23701 shall be considered revoked on and after the date set
by the Franchise Tax Board for the filing of the third annual return
or notice. The Franchise Tax Board shall publish and maintain a list
of any organization for which the tax-exempt status is revoked.
(B) Any organization for which the tax-exempt status is revoked
under subparagraph (A) must apply for reinstatement of that status
regardless of whether that organization was originally required to
make such an application.
(C) If, upon application for reinstatement of status as an
organization exempt from tax under Section 23701, an organization
described in subparagraph (A) can show to the satisfaction of the
Franchise Tax Board evidence of reasonable cause for the failure
described in that subparagraph, the organization's exempt status may,
in the discretion of the Franchise Tax Board, be reinstated
effective from the date of the revocation under that subparagraph.
(D) This paragraph shall apply to notices and returns with respect
to annual periods beginning on or after January 1, 2007.
(c) For the purposes of this part--
(1) In the case of a failure to file a return required under this
section on the date and in the manner prescribed therefor (determined
with regard to any extension of time for filing), unless it is shown
that the failure is due to reasonable cause, there shall be paid (on
notice and demand by the Franchise Tax Board and in the same manner
as tax) by the exempt organization or trust failing so to file, five
dollars ($5) for each month or part thereof during which the failure
continues, but the total amount imposed hereunder on any organization
for failure to file any return may not exceed forty dollars ($40).
(2) The Franchise Tax Board may make written demand upon a private
foundation failing to file under paragraph (1) of this subdivision
specifying therein a reasonable future date by which the filing shall
be made, and if the filing is not made on or before that date, and
unless it is shown that failure so to file is due to reasonable
cause, there shall be paid (on notice and demand by the Franchise Tax
Board and in the same manner as tax) by the person failing so to
file, in addition to the penalty prescribed in paragraph (1), a
penalty of five dollars ($5) each month or part thereof after the
expiration of the time specified in the written demand during which
the failure continues, but the total amount imposed hereunder on all
persons for the failure to file shall not exceed twenty-five dollars
($25). If more than one person is liable under this paragraph for a
failure to file, all of those persons shall be jointly and severally
liable with respect to the failure. The term "person" as used herein
means any officer, director, trustee, employee, member, or other
individual who is under a duty to perform the act in respect of which
the violation occurs.
(3) This subdivision shall not apply with respect to any notice
required under paragraph (12) of subdivision (b).
SEC. 41. Section 24305 of the Revenue
and Taxation Code is amended to read:
24305. (a) Except as provided in subdivision (b)
subdivisions (b) and (c) , amounts received
under life insurance policies and contracts paid by reason of the
death of the insured but if such amounts are held by the insurer
under an agreement to pay interest thereon, the interest payments
shall be included in gross income.
(b) Proceeds of flexible premium contracts payable by reason of
death shall be excluded from gross income only in accordance with the
provisions of Section 101(f) of the Internal Revenue Code.
(c) (1) In the case of an employer-owned life insurance contract,
any amount received by reason of death of an insured shall be
excluded from gross income only in accordance with the provisions of
Section 101(j) of the Internal Revenue Code.
(2) Section 101(j) of the Internal Revenue Code, relating to
treatment of certain employer-owned life insurance contracts, shall
apply in accordance with the provisions of Section 863(d) of the
Pension Protection Act of 2006 (Public Law 109-280), relating to
effective dates, except that the phrase "January 1, 2007" shall be
substituted for the "date of the enactment of this Act" contained
therein.
SEC. 42. Section 24329 is added to the
Revenue and Taxation Code , to read:
24329. Section 139 of the Internal Revenue Code, relating to
disaster relief payments, shall apply, except as otherwise provided.
SEC. 43. Section 24349 of the Revenue
and Taxation Code is amended to read:
24349. (a) There shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear (including a
reasonable allowance for obsolescence)--
(1) Of property used in the trade or business; or
(2) Of property held for the production of income.
(b) Except as otherwise provided in subdivision (c), for taxable
years ending after December 31, 1958, the term "reasonable allowance"
as used in subdivision (a) shall include, but shall not be limited
to, an allowance computed in accordance with regulations prescribed
by the Franchise Tax Board, under any of the following methods:
(1) The straight-line method.
(2) The declining balance method, using a rate not exceeding twice
the rate that would have been used had the annual allowance been
computed under the method described in paragraph (1).
(3) The sum of the years-digits method.
(4) Any other consistent method productive of an annual allowance
that, when added to all allowances for the period commencing with the
taxpayer's use of the property and including the taxable year, does
not, during the first two-thirds of the useful life of the property,
exceed the total of those allowances that would have been used had
those allowances been computed under the method described in
paragraph (2).
Nothing in this subdivision shall be construed to limit or reduce
an allowance otherwise allowable under subdivision (a).
(c) Any grapevine replaced in a vineyard in California in a
taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, and any
grapevine replaced in a vineyard in California in a taxable year
beginning on or after January 1, 1997, as a direct result of Pierce's
disease in that vineyard, shall have a useful life of five years,
except that it shall have a class life of 10 years for purposes of
depreciation under Section 168(g)(2) of the Internal Revenue Code
where the taxpayer has made an election under Section 263A(d)(3) of
the Internal Revenue Code not to capitalize costs of the infested
vineyard. Every taxpayer claiming a deduction under this section with
respect to a grapevine as described in this subdivision shall obtain
a written certification from an independent state-certified
integrated pest management adviser, or a state agricultural
commissioner or adviser, that specifies that the replanting was
necessary to restore a vineyard infested with phylloxera or Pierce's
disease. The taxpayer shall retain the certification for future audit
purposes.
(d) For purposes of this part, the deduction for property leased
to governments and other tax-exempt entities, as defined in Section
168(h) of the Internal Revenue Code, shall be limited to the amount
determined under Section 168(g) of the Internal Revenue Code,
relating to alternative depreciation system for certain property.
(e) (1) In the case of any building erected or improvements made
on leased property, if the building or improvement is property to
which this section applies, the depreciation deduction shall be
determined under the provisions of this section.
(2) An improvement shall be treated for purposes of determining
gain or loss under this part as disposed of by the lessor when so
disposed of or abandoned if both of the following occur:
(A) The improvement is made by the lessor of leased property for
the lessee of that property.
(B) The improvement is irrevocably disposed of or abandoned by the
lessor at the termination of the lease by the lessee.
This subdivision shall not apply to any property to which Section
168 of the Internal Revenue Code does not apply for federal purposes
by reason of Section 168(f) of the Internal Revenue Code. Any
election made under Section 168(f)(1) of the Internal Revenue Code
for federal purposes with respect to that property shall be treated
as a binding election for state purposes under this subdivision with
respect to that same property and no separate election under
subdivision (e) of Section 23051.5 with respect to that property
shall be allowed.
(3) (A) In determining a lease term, both of the following shall
apply:
(i) There shall be taken into account options to renew.
(ii) Two or more successive leases which are part of the same
transaction (or a series of related transactions) with respect to the
same or substantially similar property shall be treated as one
lease.
(B) For purposes of clause (i) of subparagraph (A), in the case of
nonresidential real property or residential rental property, there
shall not be taken into account any option to renew at fair market
value determined at the time of renewal.
(f) (1) Section 167(g) of the Internal Revenue Code, relating to
depreciation under income forecast method, shall apply except as
otherwise provided.
(2) Section 167(g)(2)(C) of the Internal Revenue Code is modified
by substituting "Section 19521" in lieu of "Section 460(b)(7)" of the
Internal Revenue Code.
(3) Section 167(g)(5)(D) of the Internal Revenue Code is modified
by substituting "Part 10.2 (commencing with Section 18401) (other
than Article 2 (commencing with Section 19021) and Sections 19142 to
19150, inclusive)" in lieu of "Subtitle F (other than Sections 6654
and 6655)."
(4) Section 167(g)(5)(E) of the Internal Revenue Code, relating to
treatment of distribution costs, shall not apply.
(5) Section 167(g)(7) of the Internal Revenue Code, relating to
treatment of participations and residuals, shall not apply.
(g) (1) Section 167(h) of the Internal Revenue Code, relating to
amortization of geological and geophysical expenditures, shall apply,
except as otherwise provided.
(2) The amendments made to this section by the act adding this
subdivision shall apply to amounts paid or incurred in taxable years
beginning on or after January 1, 2007.
SEC. 44. Section 24357 of the Revenue
and Taxation Code is amended to read:
24357. (a) There shall be allowed as a deduction any charitable
contribution (as defined in Section 24359) payment of which is made
within the taxable year. A charitable contribution shall be allowable
as a deduction only if verified under regulations prescribed by the
Franchise Tax Board.
(b) (1) In the case of a corporation reporting its income on the
accrual basis, the corporation may elect to treat the contribution as
paid during that taxable year if both of the following occur:
(A) The board of directors authorizes a charitable contribution
during the taxable year.
(B) Payment of the contribution is made after the close of that
taxable year and on or before the 15th day of the third month
following the close of the taxable year.
(2) The election allowed by paragraph (1) may be made only at the
time of the filing of the return for the taxable year, and shall be
signified in the manner as the Franchise Tax Board shall by
regulations prescribe.
(c) For purposes of this section, payment of a charitable
contribution that consists of a future interest in tangible personal
property shall be treated as made only when all intervening interests
in, and rights to the actual possession or enjoyment of, the
property have expired or are held by persons other than the taxpayer
or those standing in a relationship to the taxpayer described in
Section 24428. For purposes of the preceding sentence, a fixture
which is intended to be severed from the real property shall be
treated as tangible personal property.
(d) No deduction shall be allowed under this section for traveling
expenses (including amounts expended for meals and lodging) while
away from home, whether paid directly or by reimbursement, unless
there is no significant element of personal pleasure, recreation, or
vacation in that travel.
(e) (1) Section 170(f)(8) of the Internal Revenue Code, relating
to substantiation requirement for certain contributions, shall apply,
except as otherwise provided.
(2) No deduction shall be denied under Section 170(f)(8) of the
Internal Revenue Code, relating to substantiation requirement for
certain contributions, upon a showing that the requirements in
Section 170(f)(8) of the Internal Revenue Code have been met with
respect to that contribution for federal purposes.
(f) Section 170(f)(9) of the Internal Revenue Code, relating to
the denial of the deduction for lobbying activities shall apply,
except as otherwise provided.
(g) (1) Notwithstanding any other provision of law to the
contrary, for purposes of this section and Section 24341, Section 170
of the Internal Revenue Code, as amended by Public Law
109-1 relating to charitable contributions and gifts
, shall be applied to allow a taxpayer to elect to treat any
contribution described in paragraph (2) made in January 2005, as if
that contribution was made on December 31, 2004, and not in January
2005.
(2) A contribution is described in this paragraph if that
contribution is a cash contribution made for the relief of victims in
areas affected by the December 26, 2004, Indian Ocean tsunami for
which a charitable contribution deduction is allowable under this
section.
(h) (1) Section 170(f)(11)(E) of the Internal Revenue Code,
relating to a qualified appraisal and appraiser, shall apply, except
as otherwise provided.
(2) This subdivision shall apply to appraisals prepared with
respect to returns or submissions filed on or after January 1, 2007.
(i) (1) Section 170(f)(16) of the Internal Revenue Code, relating
to contributions of clothing and household items, shall apply, except
as otherwise provided.
(2) This subdivision shall apply to contributions made on or after
January 1, 2007.
(j) (1) Section 170(f)(17) of the Internal Revenue Code, relating
to recordkeeping, shall apply, except as otherwise provided.
(2) This subdivision shall apply to contributions made in taxable
years beginning on or after January 1, 2007.
(k) (1) Section 170(o) of the Internal Revenue Code, relating to
special rules for fractional gifts, shall apply, except as otherwise
provided.
(2) This subdivision shall apply to contributions made on or after
January 1, 2007.
SEC. 45. Section 24357.1 of the Revenue
and Taxation Code is amended to read:
24357.1. (a) The amount of any charitable contribution of
property otherwise taken into account under Section 24357 shall be
reduced by the amount of gain that would have been realized if the
property contributed had been sold by the taxpayer at its fair market
value (determined at the time of that contribution).
(b) For purposes of subdivision (a), in the case of a charitable
contribution of less than the taxpayer's entire interest in the
property contributed, the taxpayer's adjusted basis in that property
shall be allocated between the interest contributed and any interest
not contributed in accordance with regulations prescribed by the
Franchise Tax Board.
(c) The provisions of subdivision (a) shall apply in the case of a
charitable contribution of tangible personal property if either of
the following conditions is satisfied:
(1) The use by the donee is unrelated to the purpose or function
constituting the basis for its exemption under Section 501 of the
Internal Revenue Code or Section 23701, or, in the case of a
governmental unit, to any purpose or function described in Section
24359.
(2) The tangible personal property is applicable property, as
defined in subparagraph (B) of paragraph (2) of subdivision (d), that
is sold, exchanged, or otherwise disposed of by the donee before the
last day of the taxable year in which the contribution was made and
with respect to which the donee has not made a certification in
accordance with paragraph (3) of subdivision (d).
(d) (1) In the case of an applicable disposition of applicable
property, there shall be included in the income of the donor of that
property for the taxable year of the donor in which the applicable
disposition occurs an amount equal to the excess, if any, of the
following amount:
(A) The amount of the deduction allowed to the donor under Section
24357 with respect to that property, over
(B) The donor's basis in that property at the time that property
was contributed.
(2) For purposes of this subdivision, both of the following
definitions apply:
(A) "Applicable disposition" means any sale, exchange or other
disposition by the donee of applicable property after the last day of
the taxable year of the donor in which that property was
contributed, and before the last day of the three-year period
beginning on the date of the contribution of that property, unless
the donee makes a certification in accordance with paragraph (3).
(B) "Applicable property" means charitable deduction property, as
defined in Section 6050L(a)(2)(A) of the Internal Revenue Code, that
is tangible personal property, the use of which identified by the
donee as related to the purpose or function constituting the basis of
the donee's exemption under Section 501 of the Internal Revenue Code
or Section 23701, and for which a deduction in excess of the donor's
basis is allowed.
(3) A certification meets the requirements of this paragraph if it
is a written statement, which is signed under penalty of perjury by
an officer of the donee organization, that meets either of the
following conditions:
(A) Certifies that the use of the property by the donee was
related to the purpose or function constituting the basis for the
donee's exemption under Section 501 of the Internal Revenue Code or
Section 23701 and describes how the property was used and how that
use furthered that purpose or function.
(B) States the intended use of the property by the donee at the
time of the contribution and certifies that the intended use has
become impossible or infeasible to implement.
(e) (1) For purposes of Section 24357 and subdivision (a), and
notwithstanding Section 24912, in the case of a charitable
contribution of taxidermy property that is made by the person who
prepared, stuffed, or mounted the property, or by any person who paid
or incurred the cost of such preparation, stuffing, or mounting,
only the cost of the preparing, stuffing, or mounting shall be
included in the basis of that property.
(2) For purposes of this section, the term "taxidermy property"
means any work of art that satisfies all of the following
requirements:
(A) Is the reproduction or preservation of an animal, in whole or
in part.
(B) Is prepared, stuffed, or mounted for purposes of recreating
one or more characteristics of the animal.
(C) Contains a part of the body of the dead animal.
(f) The amendments made to this section by the act adding this
subdivision shall apply to contributions made on or after January 1,
2007, without regard to taxable year.
SEC. 46. Section 24357.7 of the Revenue
and Taxation Code is amended to read:
24357.7. (a) (1) For purposes of paragraph (3) of subdivision (b)
of Section 24357.2, the term "qualified conservation contribution"
means a contribution--
(A) Of a qualified real property interest,
(B) To a qualified organization,
(C) Exclusively for conservation purposes.
(2) For purposes of this subdivision, the term "qualified real
property interest" means any of the following interests in real
property:
(i) The entire interest of the donor other than a qualified
mineral interest.
(ii) A remainder interest.
(iii) A restriction (granted in perpetuity) on the use which may
be made of the real property.
(b) For purposes of subdivision (a), the term "qualified
organization" means an organization which:
(1) Is described in subdivision (a) or (b) of Section 24359, or
(2) Is described in Section 23701(d), and--
(A) Meets the requirements of Section 509(a)(2) of the Internal
Revenue Code, or
(B) Meets the requirements of Section 509(a)(3) of the Internal
Revenue Code and is controlled by an organization described in
paragraph (1) or in subparagraph (A).
(c) For purposes of this section, the term "conservation purpose"
means any of the following:
(1) The preservation of land areas for outdoor recreation by, or
the education of, the general public.
(2) The protection of a relatively natural habitat of fish,
wildlife, or plants, or similar ecosystem.
(3) The preservation of open space (including farm land and forest
land) where that preservation is for any of the following:
(A) For the scenic enjoyment of the general public.
(B) Pursuant to a clearly delineated federal, state, or local
governmental conservation policy, and will yield a significant public
benefit.
(C) The preservation of a historically important land area or a
certified historic structure.
(d) In the case of any contribution of a qualified real property
interest, which is a restriction with respect to the exterior of a
building described in paragraph (2) of subdivision (e), that
contribution shall not be considered to be exclusively for
conservation purposes unless all of the following conditions are met:
(1) That interest includes a restriction that preserves the entire
exterior of the building, including the front, sides, rear, and
height of the building, and prohibits any change in the exterior of
the building which is inconsistent with the historical character of
that exterior.
(2) The donor and donee enter into a written agreement certifying,
under penalty of perjury, that the donee is a qualified
organization, as defined in subdivision (b), with a purpose of
environmental protection, land conservation, open-space preservation,
and has the resources to manage and enforce the restriction and a
commitment to do so.
(3) In the case of any contribution made in a taxable year
beginning on or after January 1, 2007, the taxpayer includes with the
taxpayer's return for the taxable year of the contribution all of
the following information:
(A) A qualified appraisal, within the meaning of Section 170(f)
(11)(E) of the Internal Revenue Code, of the qualified property
interest.
(B) Photographs of the entire exterior of the building.
(C) A description of all restrictions on the development of the
building.
(d)
(e) The term "certified historic structure" means
any building, structure, or land area which
either of the following :
(1) Is Any building, structure, or land
area that is listed in the National Register
, or .
(2) Is (A) Any
building that is located in a registered historic district (as
defined in Section 47(c)(3)(B)) of the Internal Revenue Code and is
certified by the Secretary of the Interior to the secretary as being
of historic significance to the district.
A
(B) A building, structure, or
land area satisfies the preceding sentence
the requirements of paragraph (A) if it satisfies that
sentence those requirements either at the time
of the transfer or on the due date (including extensions) for filing
the transferor's return under this part for the taxable year in which
the transfer is made.
(e)
(f) For purposes of this section:
(1) A contribution shall not be treated as exclusively for
conservation purposes unless the conservation purpose is protected in
perpetuity.
(2) (A) Except as provided in subparagraph (B), in the case of a
contribution of any interest where there is a retention of a
qualified mineral interest, this subdivision shall not be treated as
met if at any time there may be extraction or removal of minerals by
any surface mining method.
(B) With respect to any contribution of property in which the
ownership of the surface estate and mineral interests has been and
remains separated, paragraph (1) shall be treated as met if the
probability of surface mining occurring on that property is so remote
as to be negligible.
(f)
(g) For purposes of this section, the term "qualified
mineral interest" means-- means either of the
following:
(1) Subsurface oil, gas, or other minerals ; and
.
(2) The right to access to those minerals.
(h) The amendments made to this section by the act adding this
subdivision shall apply to contributions made on or after January 1,
2007.
SEC. 47. Section 24357.15 is added to the
Revenue and Taxation Code , to read:
24357.15. (a) In the case of a qualified food inventory
contribution, the amount otherwise allowed as a deduction under
Section 24357 shall be decreased by that amount of the reduction
provided by Section 24357.1, which shall be no greater than the sum
of the following:
(1) One-half of the amount computed pursuant to Section 24357.1,
computed without regard to this section.
(2) The amount, if any, by which the charitable contribution
deduction under Section 24357 for any qualified food inventory
contribution, computed by taking into account the amount determined
by paragraph (1), but without regard to this paragraph, exceeds twice
the basis of that property.
(b) For purposes of this section, "qualified food inventory
contribution" means a charitable contribution by a corporation of
tangible personal property described in paragraph (1) of Section 1221
of the Internal Revenue Code, that is food from any trade or
business of the taxpayer but only if all of the following conditions
are met:
(1) The contribution is to an organization which is described in
Section 23701d and which is exempt under Section 23701, other than a
private foundation, as defined in Section 23709, which is not an
operating foundation, as defined in Section 4942(j)(3) of the
Internal Revenue Code.
(2) The use of the property by the donee is related to the purpose
or function constituting the basis for its exemption under Section
23701 and the property is to be used by the donee solely for the care
of the ill, the needy, or infants.
(3) The property is not transferred by the donee in exchange for
money, other property, or services.
(4) The taxpayer receives from the donee a written statement
representing that its use and disposition of the property will be in
accordance with the provisions of paragraphs (2) and (3).
(5) In the case where the property is subject to regulation under
the Federal Food, Drug, and Cosmetic Act, as amended, that property
must fully satisfy the applicable requirements of that act and
regulations promulgated thereunder on the date of the transfer and
for 180 days prior thereto.
(6) The property must only consist of food that is apparently
wholesome food.
(7) The contribution is made on or after January 1, 2007, and on
or before December 31, 2007.
(c) In the case of a taxpayer, other than a "C" corporation, the
aggregate amount of those contributions for any taxable year which
may be taken into account under Section 24357 shall not exceed 10
percent of the taxpayer's aggregate net income for that taxable year
from all trades or businesses from which those contributions were
made for that taxable year, computed without regard to this section.
(d) For purposes of this section, the term "apparently wholesome
food" has the meaning given to that term by section 22(b)(2) of the
Bill Emerson Good Samaritan Food Donation Act (42 U.S.C. 1791(B)(2)),
as in effect on August 28, 2005.
SEC. 48. Section 24357.16 is added to the
Revenue and Taxation Code , to read:
24357.16. (a) In the case of a qualified book inventory
contribution, the amount otherwise allowed as a deduction under
Section 24357 shall be decreased by that amount of the reduction
provided by Section 24357.1, which shall be no greater than the sum
of the following:
(1) One-half of the amount computed pursuant to Section 24357.1,
computed without regard to this section.
(2) The amount, if any, by which the charitable contribution
deduction under Section 24357 for any qualified book inventory
contribution, computed by taking into account the amount determined
by paragraph (1), but without regard to this paragraph, exceeds twice
the basis of that property.
(b) For purposes of this section, "qualified book inventory
contribution" means a charitable contribution by a corporation, other
than a corporation which is an "S" corporation, of tangible personal
property described in paragraph (1) of Section 1221 of the Internal
Revenue Code, but only if all of the following conditions are met:
(1) The contribution is a charitable contribution of books to a
public school which is an educational organization described in
Section 170(b)(1)(A)(ii) of the Internal Revenue Code and which
provides elementary education or secondary education, kindergarten
and grades 1 to 12, inclusive, in California.
(2) The use of the property by the donee is related to the purpose
or function constituting the basis for its exemption under Section
23701.
(3) The property is not transferred by the donee in exchange for
money, other property, or services.
(4) The taxpayer receives from the donee a written statement
representing that its use and disposition of the property will be in
accordance with the provisions of paragraphs (1) and (2).
(5) This section shall not apply to any contribution unless, in
addition to the certifications required by paragraph (4), the donee
certifies in writing all of the following:
(A) The books are suitable, in terms of currency, content, and
quantity, for use in the donee's educational programs.
(B) The donee will use the books in its educational programs.
(6) The contribution is made on or after January 1, 2007, and on
or before December 31, 2007.
SEC. 49. Section 24358 of the Revenue
and Taxation Code is amended to read:
24358. (a) In the case of a corporation, the total deductions
under Section 24357 for any taxable year , other than for
contributions to which subdivision (b) applies, shall not
exceed 10 percent of the taxpayer's net income computed without
regard to any of the following:
(1) Subdivision (e) of Section 23802, relating to a deduction for
built-in gains and passive investment income.
(2) Sections 24357 to 24359, inclusive, relating to the deduction
for contributions.
(3) Article 2 (commencing with Section 24401) of Chapter 7 (except
Sections 24407 to 24409, inclusive, relating to organizational
expenses).
(b) (1) Section 170(b)(2)(B) of the Internal Revenue Code,
relating to qualified conservation contributions by certain corporate
farmers and ranchers, shall apply, except as otherwise provided.
(2) The phrase "made on or after January 1, 2007" shall be
substituted for "made after the date of the enactment of this
subparagraph" in Section 170(b)(2)(B)(i)(II) of the Internal Revenue
Code.
(b)
(c) Section 170(d)(2) of the Internal Revenue Code,
relating to carryovers of excess contributions, shall apply
with respect to excess contributions made during taxable years
beginning on or after January 1, 1996 ,
except as otherwise provided .
SEC. 50. Section 24462 is added to the
Revenue and Taxation Code , to read:
24462. (a) Section 355(b) of the Internal Revenue Code, relating
to special rule with respect to the active business requirement under
Section 355(b) of the Internal Revenue Code, is modified as follows:
(1) The phrase "January 1, 2007," shall be substituted for "the
date of the enactment of this paragraph" in Section 355(b)(3)(A) of
the Internal Revenue Code.
(2) The phrase "January 1, 2007," shall be substituted for "the
date of the enactment of this paragraph" in Section 355(b)(3)(C)(i)
of the Internal Revenue Code.
(3) The phrase "January 1, 2007," shall be substituted for "the
date of the enactment of this paragraph" in Section 355(b)(3)(D) of
the Internal Revenue Code.
(b) Section 355(g) of the Internal Revenue Code, relating to
sections not applying to distributions involving disqualified
investment corporations, is modified by substituting the phrase
"January 1, 2007," for "the date of the enactment of this subsection"
in Section 355(g)(2)(A)(i) of the Internal Revenue Code.
(c) The provisions of Section 507(b) of Public Law 109-222,
relating to effective dates, shall apply and are modified as follows:
(1) The phrase "January 1, 2007," shall be substituted for "the
date of the enactment of this Act" in Section 507(b)(1) of Public Law
109-222.
(2) The phrase "January 1, 2007," shall be substituted for "such
date of enactment" in Section 507(b)(2)(A) of Public Law 109-222.
(d) The amendments made by the act adding this subdivision shall
apply as of the dates specified in this section, without regard to
taxable year.
SEC. 51. Section 24949.5 of the Revenue
and Taxation Code is amended to read:
24949.5. (a) For purposes of Sections 24943 through 24946,
Section 1033(h) of the Internal Revenue Code, relating to special
rules for property damaged by presidentially declared disasters,
shall apply, except as otherwise provided.
(b) For purposes of Sections 24943 through 24946, Section 1033(i)
of the Internal Revenue Code, relating to nonrecognition not to apply
if corporation acquires replacement property from related person,
shall apply, except as otherwise provided.
(c) For purposes of Sections 24943 through 24946, Section 1033(j)
of the Internal Revenue Code, relating to sales or exchanges to
implement microwave relocation policy, shall apply, except as
otherwise provided.
(d) For purposes of Sections 24943 to 24946, inclusive, Section
1033(k) of the Internal Revenue Code, relating to sales or exchanges
under certain hazard mitigation programs, shall apply, except as
otherwise provided.
SEC. 52. Section 24950.5 is added to the
Revenue and Taxation Code , to read:
24950.5. The amendments made by Section 844 of the Pension
Protection Act of 2006 (Public Law 109-280) to Section 1035 of the
Internal Revenue Code shall not apply.
SEC. 53. Section 24981 of the Revenue
and Taxation Code is repealed.
24981. Section 1081 of the Internal Revenue Code, relating to
nonrecognition of gain or loss on exchanges or distributions in
obedience to orders of the federal Securities and Exchange
Commission, shall apply, except as otherwise provided.
SEC. 54. Section 24988 of the Revenue
and Taxation Code is repealed.
24988. For purposes of Section 24981, Section 1082 of the
Internal Revenue Code, relating to basis for determining gain or
loss, shall apply, except as otherwise provided.
SEC. 55. Section 24990.6 of the Revenue
and Taxation Code is amended to read:
24990.6. (a) Section 1245(a)(2)(C) of the
Internal Revenue Code, relating to certain deductions treated as
amortization, is modified to also refer to Sections 24356.2, 24356.3,
and 24356.4.
(b) Section 1245(b)(8) of the Internal Revenue Code, relating to
the disposition of amortizable Section 197 intangibles, shall apply
to dispositions of property on or after January 1, 2007.
SEC. 56. Section 24990.8 is added to the
Revenue and Taxation Code , to read:
24990.8. For taxable years beginning on or after January 1, 2007,
specific reference to Sections 1223(4) to (16), inclusive, of the
Internal Revenue Code in this part shall instead be treated as a
reference to Sections 1223(3) to (15), inclusive, of the Internal
Revenue Code, respectively.
SEC. 57. Section 24993 of the Revenue
and Taxation Code is amended to read:
24993. (a) Section 7872 of the Internal
Revenue Code, relating to the treatment of loans with below market
interest rates, shall apply, except as otherwise provided.
(b) Section 7872(h) of the Internal Revenue Code, relating to the
exception for loans to qualified continuing care facilities, shall
apply to calendar years beginning on or after January 1, 2007, with
respect to loans made before, on, or after that date.
SEC. 58. Section 426 of Division A of the Tax
Reform and Health Care Act of 2006 (Public Law 109-432), Section 1 of
the Disaster Mitigation Payments Act of 2005 (Public Law 109-7), and
Sections 402 to 413, inclusive, of the Gulf Opportunity Zone Act of
2005 (Subtitle A of Title IV of Public Law 109-135) enacted numerous
technical corrections and clarifications to provisions of the
Internal Revenue Code, including technical corrections and
clarifications relating to the Tax Increase Prevention and
Reconciliation Act of 2005 (Public Law 109-222), the Energy Tax
Incentives Act (Title XIII of the Energy Policy Act of 2005) (Public
Law 109-58), the Working Families Tax Relief Act of 2004 (Public Law
108-311), the American Jobs Creation Act of 2004 (Public Law
108-311), the American Jobs Creation Act of 2004 (Public Law
108-357), the Jobs and Growth Tax Relief Reconciliation Act of 2003
(Public Law 108-27), the Victims of Terrorism Tax Relief Act of 2001
(Public Law 107-134), the Economic Growth and Tax Relief
Reconciliation Act of 2001 (Public Law 107-16), the Internal Revenue
Service Restructuring and Reform Act of 1998) (Public Law 105-206),
the Taxpayer Relief Act of 1997 (Public Law 105-34), the Omnibus
Budget Reconciliation Act of 1990 (Public Law 101-508), the Omnibus
Budget Reconciliation Act of 1987 (Revenue Act of 1987) (Public Law
100-203), some of which are incorporated by reference into Part 10
(commencing with Section 17001), Part 10.2 (commencing with Section
18401), and Part 11 (commencing with Section 23001) of Division 2 of
the Revenue and Taxation Code. Unless otherwise specifically
provided, the technical corrections and clarifications described in
the preceding sentence, to the extent that they correct or clarify
provisions that are incorporated by specific reference into the
Revenue and Taxation Code, are declaratory of existing law and shall
be applied in the same manner and for the same periods as specified
in the Disaster Mitigation Payments Act of 2005 (Public Law 109-7),
the Gulf Opportunity Zone Act of 2005 (Subtitle A of Title IV of
Public Law 109-135), the Tax Reform and Health Care Act of 2006
(Public Law 109-432), or if later, the specified date of
incorporation.
SEC. 59. (a) Except as provided in subdivision
(b), the amendments made to Sections 19179, 19443 and 21015.5 of the
Revenue and Taxation Code by this act shall apply to returns filed,
submissions made, and issues raised on or after the effective date of
this act or January 1, 2008, whichever is later.
(b) The amendments made to Sections 19179, 19443 and 21015.5 of
the Revenue and Taxation Code by this act shall be applicable for
submissions made or issues raised after the date on which the
Secretary of the Treasury or the Franchise Tax Board first prescribe
a list under Section 6702(c) of the Internal Revenue Code or
subdivision (c) of Section 19179 of the Revenue and Taxation Code,
respectively.
SEC. 60. The Legislature finds and declares that
the amendments made by this act to the Revenue and Taxation Code,
incorporating, by reference, the amendments made by Sections 827 and
828 of the Pension Protection Act of 2006 (Public Law 109-280) to
Section 72 of the Internal Revenue Code, shall apply in the same
manner and for the same periods as specified in Sections 827 and 828
of the Pension Protection Act of 2006 (Public Law 109-280). The
Legislature finds and declares that this act serves a public purpose
by providing equitable treatment for reservists called to active duty
and emergency service personnel, and ultimately, benefitting all of
the citizens of this state.
SEC. 61. (a) Except as provided in subdivision
(b), the amendments made by the enactment of this act to the Revenue
and Taxation Code, incorporating, by reference, the amendments made
by Section 1220 of the Pension Protection Act of 2006 (Public Law
109-280) to Sections 501 and 513 of the Internal Revenue Code, shall
apply in the same manner and for the same periods as specified in
Section 1220(c) of the Pension Protection Act of 2006 (Public Law
109-280).
(b) The provisions of Section 1220(c) of the Pension Protection
Act of 2006 (Public Law 109-280), relating to effective
date, are modified as follows:
(1) The phrase "beginning on or after January 1, 2007" shall be
substituted for "beginning after the date of the enactment of this
Act" in Section 1220(c)(1) of Public Law 109-280.
(2) The phrase "described in Section 23701d or Section 23701f"
shall be substituted for " described in paragraph (3) or (4) of
section 501(c) of the Internal Revenue Code of 1986" in Section 1220
(c)(2) of Public Law 109-280.
(3) The phrase "January 1, 2007" shall be substituted for "the
date of the enactment of this Act" in each place that it appears in
Section 1220(c)(2) of Public Law 109-280.
SEC. 62. The Legislature finds and declares that
the amendments made by this act to Section 17952.5 of the Revenue and
Taxation Code make that code compatible with the technical changes
made by Public Law 109-264 to Section 114 of title 4 of the United
States Code, relating to limitation on state income taxation of
certain pension income, and do not constitute a change in, but are
declaratory of, existing law and shall be applied in the same manner
and for the same periods as specified in Section 1 of Public Law
109-264. The Legislature finds and declares that this act and the
retroactive application contained in the preceding sentence are
necessary to clarify that the Legislature intended for Chapter 506 of
the Statutes of 1996 to apply to certain retired partners.
Additionally, the Legislature finds and declares that this act serves
a public purpose by ensuring the fair and consistent application of
California law to "qualified retirement income" received on or after
January 1, 1996, for any part of the taxable year during which the
taxpayer was not a resident of this state and, thereby, preventing
unnecessary litigation to determine the taxability of that "qualified
retirement income."
SEC. 63. The Legislature finds and declares that
the amendments made by this act to Section 24949.5 of the Revenue and
Taxation Code, the addition of Section 24329 to the Revenue and
Taxation Code, and the incorporation by reference of the amendments
made by Section 1 of the Disaster Mitigation Payments Act of 2005
(Public Law 109-7), which amended Section 139 and 1033 of the
Internal Revenue Code, in the Revenue and Taxation Code, conform
California law to the amendments made to Sections 139 and 1033 of the
Internal Revenue Code by Section 1 of the Disaster Mitigation
Payments Act of 2005 (Public Law 109-7) and do not constitute a
change in, but are declaratory of, existing law and shall be applied
in the same manner and for the same periods as specified in Section 1
of the Disaster Mitigation Payments Act of 2005 (Public Law 109-7).
The Legislature finds and declares that this act and the retroactive
application contained in the preceding sentence are necessary to
clarify that, when the Legislature enacted the exclusion from gross
income for disaster relief payments in Chapter 807 of the Statutes of
2002, it intended to exclude disaster mitigation payments from gross
income and treat sales and exchanges under certain hazard mitigation
programs as involuntary conversions. Additionally, the Legislature
finds and declares that this act serves a public purpose by ensuring
the fair and consistent application of California law to all property
owners, many of whom are low-income people, that have taken or will
take necessary preventive measures to mitigate risk of harm and
property damage from disasters, thereby saving lives and reducing the
need for future taxpayer assistance.
SEC. 64. This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.
SECTION 1. Section 17085 of the Revenue and
Taxation Code is amended to read:
17085. Section 72 of the Internal Revenue Code, relating to
annuities and certain proceeds of life insurance contracts, is
modified as follows:
(a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
that the repeal of Section 72(d) of the Internal Revenue Code,
relating to repeal of special rule for employees' annuities, shall
apply only to the following:
(1) Any individual whose annuity starting date is after December
31, 1986.
(2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.
(b) The amount of a distribution from an individual retirement
account or annuity or employee trust or employee annuity that is
includable in gross income for federal purposes shall be reduced for
purposes of this part by the lesser of either of the following:
(1) An amount equal to the amount includable in federal gross
income for the taxable year.
(2) An amount equal to the basis in the account or annuity allowed
by Section 17507 (relating to individual retirement accounts and
simplified employee pensions), the increased basis allowed by
Sections 17504 and 17506 (relating to plans of self-employed
individuals), the increased basis allowed by Section 17501, or the
increased basis allowed by Section 17551 that is remaining after
adjustment for reductions in gross income under this provision in
prior taxable years.
(c) (1) Except as provided in paragraph (2), the amount of the
penalty imposed under this part shall be computed in accordance with
Sections 72(m), (q), (t), and (v) of the Internal Revenue Code using
a rate of 21/2 percent, in lieu of the rate provided in those
sections.
(2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts,
applies, the rate in paragraph (1) shall be 6 percent in lieu of the
21/2 percent rate specified therein.
(d) Section 72(f)(2) of the Internal Revenue Code, relating to
special rules for computing employees' contributions, shall be
applicable without applying the exceptions which immediately follow
that paragraph.
(e) The amendments to Section 72(t) of the Internal Revenue Code
made by Section 828 of Public Law 109-280 shall apply to this part
for the same transactions and the same years as they are applicable
for federal purposes.
SEC. 2. Section 17504 of the Revenue and
Taxation Code is amended to read:
17504. (a) The provisions of Section 402 of the Internal Revenue
Code, relating to taxability of beneficiaries of employees' trusts,
shall be modified as follows:
(1) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
as otherwise provided.
(2) The basis of any person in an employees' trust shall include
the amount of any contributions made prior to January 1, 1987, which
were not allowed as a deduction under former Sections 17503 and 17513
(including predecessor Section 17524 repealed by Chapter 488 of the
Statutes of 1983) relating to special limitations for self-employed
individuals.
(b) (1) There is hereby imposed a tax on lump-sum distributions
computed in accordance with the provisions of Section 402(d) of the
Internal Revenue Code using the rates and brackets prescribed in
subdivision (a) of Section 17041 (without regard to Section 17045) in
lieu of the rates and brackets in Section 1(c) of the Internal
Revenue Code. The recipient of the lump-sum distribution shall be
liable for the tax imposed by this paragraph.
(2) For purposes of this part, the provisions of Section 1122(h)
of Public Law 99-514, as modified by Section 1011A(b) of Public Law
100-647, shall apply, except as modified by each of the following:
(A) The provisions of Section 1122(h)(3)(B) of Public Law 99-514
shall be modified to refer to Section 17041 rather than Section 1 of
the Internal Revenue Code of 1986.
(B) The provisions of Section 1122(h)(3)(B)(ii) of Public Law
99-514 shall be modified to provide a tax rate of 5.5 percent rather
than a tax rate of 20 percent.
(C) The provisions of Section 1122(h)(5) of Public Law 99-514
shall be modified to refer to Section 17041 rather than Section 1 of
the Internal Revenue Code of 1954.
(3) For purposes of this section, a taxpayer shall elect the same
special lump-sum distribution averaging method for purposes of this
part as that elected for federal purposes under Section 402(d)(4)(B)
of the Internal Revenue Code.
(4) The provisions of Section 1124(a) of Public Law 99-514, as
amended by Section 1011A(d) of Public Law 100-647, shall apply.
(5) The provisions of Section 1124(c) of Public Law 99-514, as
added by Section 1011A(d) of Public Law 100-647, shall apply.
(c) The amendments to Section 402 of the Internal Revenue Code
made by Section 845 of Public Law 109-280 shall apply to this part
for the same transactions and the same years as they are applicable
for federal purposes.
SEC. 3. Section 17506 of the Revenue and
Taxation Code is amended to read:
17506. (a) The provisions of Section 403 of the Internal Revenue
Code, relating to taxation of employee annuities, shall be modified
to provide that the basis of any person in an employee annuity shall
include the amount of any contributions made prior to January 1,
1987, which were not allowed as a deduction under former Sections
17503 and 17513 of the Revenue and Taxation Code (including
predecessor Section 17524 repealed by Chapter 488 of the Statutes of
1983) relating to special limitations for self-employed individuals.
(b) The amendments to Section 72(t) of the Internal Revenue Code
made by Section 828 of Public Law 109-280 shall apply to this part
for the same transactions and the same years as they are applicable
for federal purposes.
SEC. 4. The Legislature finds and declares that
this act serves a public purpose by providing equitable treatment
for emergency service personnel that will ultimately benefit all of
the citizens of this state.
SEC. 5. This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.