SB 25 Senate Bill - INTRODUCED

BILL NUMBER: SB 25	INTRODUCED
	BILL TEXT


INTRODUCED BY   Senators Maldonado and Runner

                        DECEMBER 4, 2006

   An act to amend Sections 17072, 17215, and 19184 of, and to add
Sections 17138.5, 17138.6, and 17216 to, the Revenue and Taxation
Code, relating to taxation, to take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 25, as introduced, Maldonado. Income tax: health savings
account.
   The Personal Income Tax Law authorizes various deductions in
computing income that is subject to tax under that law.
   This bill would allow a deduction in connection with health
savings accounts in conformity with federal law. In general, the
deduction would be an amount equal to the aggregate amount paid in
cash during the taxable year by, or on behalf of, an eligible
individual, as defined, to a health savings account of that
individual, as provided. This bill would also provide related
conformity to that federal law with respect to treatment of the
account as a tax-exempt trust, the allowance of rollovers from Archer
Medical Savings Accounts to a health savings account, and penalties
in connection therewith.
   This bill would take effect immediately as a tax levy.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  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) The deduction allowed by Section 17216, relating to health
savings accounts, is allowed in computing adjusted gross income.
 
   (d) The amendments made to this section by the act adding this
subdivision shall apply only to each taxable year beginning on or
after January 1, 2006. 
  SEC. 2.  Section 17138.5 is added to the Revenue and Taxation Code,
to read:
   17138.5.  For each taxable year beginning on or after January 1,
2006, Section 106 of the Internal Revenue Code, as amended by Section
1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to health
savings accounts, shall apply, except as otherwise provided.
  SEC. 3.  Section 17138.6 is added to the Revenue and Taxation Code,
to read:
   17138.6.  For each taxable year beginning on or after January 1,
2006, Section 125 of the Internal Revenue Code, as amended by Section
1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to health
savings accounts, shall apply, except as otherwise provided.
  SEC. 4.  Section 17215 of the Revenue and Taxation Code is amended
to read:
   17215.  (a) Section 220(a) of the Internal Revenue Code, relating
to deduction allowed, is modified to provide that the amount allowed
as a deduction shall be an amount equal to the amount allowed to that
individual as a deduction under Section 220 of the Internal Revenue
Code, relating to medical savings accounts, on the federal income tax
return filed for the same taxable year by that individual.
   (b) Section 220(f)(4) of the Internal Revenue Code, relating to
additional tax on distributions not used for qualified medical
expenses, is modified by substituting "10 percent" in lieu of "15
percent." 
   (c) Section 220(f)(5) of the Internal Revenue Code, as amended by
Section 1201(c) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to rollovers
from Archer MSAs permitted, shall apply, except as otherwise
provided.  
   (d) The amendments made to this section by the act adding this
subdivision shall apply only to each taxable year beginning on or
after January 1, 2006. 
  SEC. 5.  Section 17216 is added to the Revenue and Taxation Code,
to read:
   17216.  For each taxable year beginning on or after January 1,
2006, all of the following apply:
   (a) Section 223 of the Internal Revenue Code, as added by Section
1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to health
savings accounts, shall apply, except as otherwise provided.
   (b) Section 223(e)(1) of the Internal Revenue Code, as added by
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), shall be modified by
substituting the phrase "Section 17651" for the phrase "section 511
(relating to imposition of tax of unrelated business income of
charitable, etc., organizations)," contained therein.
   (c) Section 223(f)(4)(A) of the Internal Revenue Code, as added by
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), shall be modified by
substituting "21/2 percent" for "10 percent," contained therein.
  SEC. 6.  Section 19184 of the Revenue and Taxation Code is amended
to read:
   19184.  (a) A penalty of fifty dollars ($50) shall be imposed for
each failure, unless it is shown that the failure is due to
reasonable cause, by any person required to file who fails to file a
report at the time and in the manner required by any of the following
provisions:
   (1) Subdivision (c) of Section 17507, relating to individual
retirement accounts.
   (2) Section 220(h) of the Internal Revenue Code, relating to
medical savings accounts for taxable years beginning on or after
January 1, 1997. 
   (3) Section 223(h) of the Internal Revenue Code, as added by
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to health
savings accounts.  
   (3) 
    (4)  Subdivision (b) of Section 17140.3 or subdivision
(b) of Section 23711 relating to qualified tuition programs. 

   (4) 
    (5)  Subdivision (e) of Section 23712, relating to
Coverdell education savings accounts.
   (b) (1) Any individual who:
   (A) Is required to furnish information under Section 17508 as to
the amount designated nondeductible contributions made for any
taxable year, and
   (B) Overstates the amount of those contributions made for that
taxable year, shall pay a penalty of one hundred dollars ($100) for
each overstatement unless it is shown that the overstatement is due
to reasonable cause.
   (2) Any individual who fails to file a form required to be filed
by the Franchise Tax Board under Section 17508 shall pay a penalty of
fifty dollars ($50) for each failure unless it is shown that the
failure is due to reasonable cause.
   (c) Article 3 (commencing with Section 19031) of this chapter
(relating to deficiency assessments) shall not apply in respect of
the assessment or collection of any penalty imposed under this
section. 
   (d) The amendments made to this section by the act adding this
subdivision shall apply only to each taxable year beginning on or
after January 1, 2006. 
  SEC. 7.  (a) The amendments made by this act to Sections 17072,
17215, and 19184 of the Revenue and Taxation Code incorporate, by
reference, the provisions of Section 1201 of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (Public
Law 108-173), which added Section 223 of the Internal Revenue Code
to Part VII of Subchapter B of Chapter 1 of Subtitle A of the
Internal Revenue Code and amended Sections 62, 106, 125, and 220 of
the Internal Revenue Code, and shall apply retroactively to taxable
years beginning on or after January 1, 2006.
   (b) The Legislature finds and declares that this act fulfills a
statewide public purpose because of the following:
   The State of California has not yet conformed its state income tax
law to the provisions of Section 1201 of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (Public Law
108-173). As the result, the taxpayers who have converted their
Archer Medical Savings Accounts into health savings accounts pursuant
to Sections 220 and 223 of the Internal Revenue Code may be subject
to tax and penalties under state, but not federal, income tax laws.
This act provides necessary relief from the tax and penalties to the
taxpayers who have converted their Archer Medical Savings Accounts
into health savings accounts in taxable years beginning on or after
January 1, 2006.
   (c) If, by the operation of any law or rule of law, including res
judicata, a refund or credit of any overpayment of tax resulting from
the retroactive application of the amendments made to Sections
17072, 17215, and 19184 of the Revenue and Taxation Code by this act
is prevented at any time before the close of the two-year period
beginning on the effective date of this act, that refund or credit
may nonetheless be made or allowed, provided that the claim for
refund or credit is filed before the close of that period.
  SEC. 8.   This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.