BILL NUMBER: AB 11	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member De Leon
   (Coauthors: Assembly Members Beall, Carter, and Hill)

                        DECEMBER 1, 2008

   An act relating to taxation.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 11, as introduced, De Leon. Corporate reorganization: built-in
losses.
   The Corporation Tax Law, in specified conformity to federal income
tax laws, imposes certain limitations on the use of built-in losses
in conjunction with corporate reorganizations.
   This bill would clarify that a specified federal administrative
notice relating to those limitations does not apply for purposes of
California law.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


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

  SECTION 1.  (a) The Legislature finds and declares the following:
   (1) The Personal Income Tax Law (Part 10 (commencing with Section
17001) of Division 2 of the Revenue and Taxation Code) and the
Corporation Tax Law (Part 11 (commencing with Section 23001) of
Division 2 of the Revenue and Taxation Code) provide for specified
conformity to various referenced provisions of the federal Internal
Revenue Code, as enacted as of a specified date.
   (2) Those laws provide that for taxable years beginning on or
after January 1, 2005, the conformity date specified in California
law for those referenced Internal Revenue Code sections is January 1,
2005, except as otherwise specifically provided.
   (3) Included among the federal provisions conformed to as enacted
as of January 1, 2005, are the provisions of Section 382 of the
Internal Revenue Code, relating to limitations on net operating loss
carryforwards and certain built-in losses following ownership change.

   (4) As enacted as of January 1, 2005, Section 382 of the Internal
Revenue Code applied to financial institutions.
   (5) On October 20, 2008, the Internal Revenue Service issued
Notice 2008-83, 2008-42 I.R.B. 905, stating that "for purposes of
section 382(h), any deduction properly allowed after an ownership
change (as defined in section 382(g)) to a bank with respect to
losses on loans for bad debts (including any deduction for a
reasonable addition to a reserve for bad debts) shall not be treated
as a built-in loss or a deduction that is attributable to periods
before the change date."
   (6) Notice 2008-83, which precludes the application of provisions
of Section 382 of the Internal Revenue Code to financial
institutions, constitutes a substantive change to Section 382 of the
Internal Revenue Code, as enacted as of January 1, 2005.
   (7) This state conformed to Section 382 of the Internal Revenue
Code, as enacted as of January 1, 2005, but has not conformed to any
changes to Section 382 of the Internal Revenue Code set forth in
Notice 2008-83.
   (b) Inasmuch as this state has not conformed to the changes set
forth in Notice 2008-83 or otherwise modified the application of
Section 382 of the Internal Revenue Code for purposes of state income
and corporation tax laws, the Franchise Tax Board is directed not to
apply the provisions of Notice 2008-83 for purposes of the Personal
Income Tax Law or the Corporation Tax Law.