BILL NUMBER: AB 1178 AMENDED
BILL TEXT
AMENDED IN SENATE AUGUST 19, 2010
AMENDED IN SENATE AUGUST 16, 2010
AMENDED IN SENATE AUGUST 5, 2010
AMENDED IN SENATE JUNE 16, 2010
AMENDED IN SENATE MAY 27, 2010
AMENDED IN ASSEMBLY JANUARY 25, 2010
AMENDED IN ASSEMBLY JANUARY 13, 2010
AMENDED IN ASSEMBLY JANUARY 6, 2010
AMENDED IN ASSEMBLY JANUARY 4, 2010
INTRODUCED BY Assembly Member Portantino
FEBRUARY 27, 2009
An act to amend Sections 17215, 17220, 19774,
and 23701i of, and to add Sections 17131.7, 17131.9, 17131.10,
17131.11, 17131.12, 17131.13, 17131.14, 17134.1, 17201.1, 17222.1,
24343.6, and 24345.1 to, the Revenue and Taxation Code, relating to
taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1178, as amended, Portantino. Income taxes: federal conformity:
Patient Protection and Affordable Care Act: Health Care and
Education Reconciliation Act of 2010.
The Personal Income Tax Law and the Corporation Tax Law, in
specified conformity with federal income tax laws, provide certain
gross income exclusions, impose specified tax rates, and allow
various deductions and credits in computing the income that is
subject to the taxes imposed by those laws, as specified.
This bill would, under both laws, provide additional conformity
with federal income tax laws by adopting specified provisions of the
Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010 relating to gross income
exclusions for reimbursements for medical care expenses under
specified plans for dependents, Indian health care benefits, free
choice vouchers, participants in the National Health Service Corps,
student loan repayments, adoption assistance, therapeutic discovery
project credits, annual fees on branded prescriptions, unreimbursed
medical expenses, hospital insurance tax, cafeteria plans,
the economic substance doctrine and related penalties, and
tax rates on distributions from a nonqualified medical savings
accounts, as specified.
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 17131.7 is added to the Revenue and Taxation
Code, to read:
17131.7. (a) Section 105(b) of the Internal Revenue Code,
relating to amounts expended for medical care, as amended by Section
1004(d)(1) of the Health Care and Education Reconciliation Act of
2010 (Public Law 111-152), shall apply, except as otherwise provided.
(b) This section shall apply in the same manner and to the same
periods as the federal amendments referred to in subdivision (a)
apply for federal purposes, except as otherwise provided.
SEC. 2. Section 17131.9 is added to the Revenue and Taxation Code,
to read:
17131.9. For taxable years beginning on or after January 1, 2011,
Section 106(f) of the Internal Revenue Code, relating to
reimbursements for medicine restricted to prescribed drugs and
insulin, as added by Section 9003(c) of the Patient Protection and
Affordable Care Act (Public Law 111-148), shall apply, except as
otherwise provided.
SEC. 3. Section 17131.10 is added to the Revenue and Taxation
Code, to read:
17131.10. (a) For taxable years beginning on or after January 1,
2014, Section 125(f) of the Internal Revenue Code, relating to
qualified benefits defined, as amended by Section 1515 of the Patient
Protection and Affordable Care Act (Public Law 111-148), shall
apply, except as otherwise provided.
(b) For taxable years beginning on or after January 1, 2013,
Section 125(i) of the Internal Revenue Code, relating to limitation
on health flexible spending arrangements, as added by Section 9005 of
the Patient Protection and Affordable Care Act (Public Law 111-148)
and amended by Section 10902 of the Patient Protection and Affordable
Care Act (Public Law 111-148) and Section 1403 of the Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), shall
apply, except as otherwise provided.
(c) For taxable years beginning on or after January 1, 2011,
Section 125(j) of the Internal Revenue Code, relating to simple
cafeteria plans for small businesses, as added by Section 9022 of the
Patient Protection and Affordable Care Act (Public Law 111-148),
shall apply, except as otherwise provided.
SEC. 4. Section 17131.11 is added to the Revenue and Taxation
Code, to read:
17131.11. For taxable years beginning on or after January 1,
2010, Section 137 of the Internal Revenue Code, relating to adoption
assistance programs, as amended by Section 10909(a)(2) of the Patient
Protection and Affordable Care Act (Public Law 111-148), shall
apply, except as otherwise provided.
SEC. 5. Section 17131.12 is added to the Revenue and Taxation
Code, to read:
17131.12. (a) Section 139D of the Internal Revenue Code, relating
to Indian health care benefits, as added by Section 9021 of the
Patient Protection and Affordable Care Act (Public Law 111-148),
shall apply, except as otherwise provided.
(b) This section shall apply to benefits and coverage provided
after March 23, 2010.
(c) No inference shall be made with respect to the enactment the
act adding this section with respect to the exclusion from gross
income of benefits provided by either an Indian tribe or tribal
organization that are not within the scope of this section or were
provided prior to March 23, 2010.
SEC. 6. Section 17131.13 is added to the Revenue and Taxation
Code, to read:
17131.13. For taxable years beginning on or after January 1,
2014, Section 139D of the Internal Revenue Code, relating to free
choice vouchers, as added by Section 10108(f) of the Patient
Protection and Affordable Care Act (Public Law 111-148), shall apply,
except as otherwise provided.
SEC. 7. Section 17131.14 is added to the Revenue and Taxation
Code, to read:
17131.14. (a) Any grant made in any year by the Secretary of the
Treasury under Section 9023(e) of the Patient Protection and
Affordable Care Act (Public Law 111-148), to a person that places in
service qualified therapeutic discovery project property, shall not
be includable in the gross income or the alternative minimum taxable
income of the taxpayer.
(b) This section shall apply in the same manner and to the same
periods as the provisions of federal law referred to in subdivision
(a) apply for federal purposes, except as otherwise provided.
SEC. 8. Section 17134.1 is added to the Revenue and Taxation Code,
to read:
17134.1. For taxable years beginning on or after January 1, 2010,
Section 108(f)(4) of the Internal Revenue Code, relating to payments
under the National Health Service Corps loan repayment program and
certain state loan repayment programs, as amended by Section 10908 of
the Patient Protection and Affordable Care Act (Public Law 111-148),
shall apply, except as otherwise provided.
SEC. 9. Section 17201.1 is added to the Revenue and Taxation Code,
to read:
17201.1. (a) Section 162(l)(1) of the Internal Revenue Code,
relating to allowance of deduction, as amended by Section 1004(d)(2)
of the Health Care and Education Reconciliation Act of 2010 (Public
Law 111-152), shall apply, except as otherwise provided.
(b) Section 162(l)(2)(B) of the Internal Revenue Code, relating to
other coverage, as amended by Section 1004(d)(3) of the Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), shall
apply, except as otherwise provided.
(c) This section shall apply in the same manner and to the same
periods as the federal amendments referred to in subdivision (a) or
subdivision (b), respectively, apply for federal purposes, except as
otherwise provided.
SEC. 10. 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) For taxable years beginning on or after January 1, 2011,
Section 220(d)(2)(A) of the Internal Revenue Code, as amended by
Section 9003(b) of the Patient Protection and Affordable Care Act
(Public Law 111-148), shall apply, except as otherwise provided.
(c) 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" for "15 percent."
(d) For taxable years beginning on or after January 1, 2011,
Section 220(f)(4) of the Internal Revenue Code, relating to
additional tax on distributions not used for qualified medical
expenses, as amended by Section 9004 of the Patient Protection and
Affordable Care Act (Public Law 111-148), is modified by substituting
"12.5 percent" for "20 percent."
SEC. 11. Section 17220 of the Revenue and Taxation Code is amended
to read:
17220. (a) Section 164(a)(3) of the Internal Revenue Code,
relating to the deductibility of state, local, and foreign income,
war profits, and excess profits taxes, shall not apply.
(b) Section 164(b)(5) of the Internal Revenue Code, relating to
general sales taxes, shall not apply.
(c) In addition to the provisions of Section 164(c) of the
Internal Revenue Code, relating to deduction denied in case of
certain taxes, no deduction shall be allowed for any tax imposed
under Chapter 10.5 (commencing with Section 17935), Chapter 10.6
(commencing with Section 17941), or Chapter 10.7 (commencing with
Section 17951) of this part or under Part 11 (commencing with Section
23001).
(d) For taxable years beginning on or after January 1, 2013,
Section 164(f) of the Internal Revenue Code, relating to deduction
for one-half of self-employment taxes, as amended by Sections 9015(b)
and 10906(b) of the Patient Protection and Affordable Care Act
(Public Law 111-148), shall apply, except as otherwise provided.
SEC. 12. Section 17222.1 is added to the Revenue and Taxation
Code, to read:
17222.1. For taxable years beginning on or after January 1, 2011,
no deduction shall be allowed for the fees imposed on manufacturers
or importers of branded prescription drugs by Section 9008 of the
Patient Protection and Affordable Care Act (Public Law 111-148), as
amended by Section 1404 of the Health Care and Education
Reconciliation Act of 2010 (Public Law 111-152).
SEC. 13. Section 19774 of the Revenue and
Taxation Code is amended to read:
19774. (a) If a taxpayer has a noneconomic substance transaction
understatement for any taxable year, there shall be added to the tax
an amount equal to 40 percent of the amount of that understatement.
(b) (1) Subdivision (a) shall be applied by substituting "20
percent" for "40 percent" with respect to the portion of any
noneconomic substance transaction understatement with respect to
which the relevant facts affecting the tax treatment of the item are
adequately disclosed in the return or a statement attached to the
return.
(2) For taxable years beginning before January 1, 2003,
"adequately disclosed" includes the disclosure of the tax shelter
identification number on the taxpayer's return as required by
subdivision (c) of Section 18628, as applicable for the year in which
the transaction was entered into.
(c) For purposes of this section:
(1) The term "noneconomic substance transaction understatement"
means any amount which would be an understatement under Section 6662A
(b) of the Internal Revenue Code, as modified by subdivision (b) of
Section 19164.5 if Section 6662A(b) of the Internal Revenue Code were
applied by taking into account items attributable to noneconomic
substance transactions rather than items to which Section 6662A(b)
applies.
(2) A "noneconomic substance transaction" includes:
(A) The disallowance of any loss, deduction or credit, or addition
to income attributable to a determination that the disallowance or
addition is attributable to a transaction or arrangement that lacks
economic substance including a transaction or arrangement in which an
entity is disregarded as lacking economic substance. A transaction
shall be treated as lacking economic substance if the taxpayer does
not have a valid nontax California business purpose for entering into
the transaction.
(B) Any disallowance of claimed tax benefits by reason of a
transaction lacking economic substance, within the meaning of Section
7701(o) of the Internal Revenue Code, relating to clarification of
economic substance doctrine, as added by Section 1409(a) of the
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), except as otherwise provided.
(i) For purposes of this subparagraph, the phrase "apart from
state income tax effects" shall be substituted for the phrase "apart
from federal income tax effects" in each place it appears in Section
7701(o)(1) of the Internal Revenue Code.
(ii) For purposes of this subparagraph, the phrase "any federal or
local income tax effect which is related to a state income tax
effect shall be treated in the same manner as a state income tax
effect" is substituted for the phrase "any state or local income tax
effect which is related to a Federal income tax effect shall be
treated in the same manner as a Federal income tax effect" in Section
7701(o)(3) of the Internal Revenue Code.
(d) (1) If the notice of proposed assessment of additional tax has
been sent with respect to a penalty to which this section applies,
only the Chief Counsel of the Franchise Tax Board may compromise all
or any portion of that penalty.
(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.
(e) Notwithstanding anything to the contrary in this section, if a
penalty has been assessed for federal income tax purposes pursuant
to Section 6662(b)(6) of the Internal Revenue Code, as added by
Section 1409(a) of the Health Care and Education Reconciliation Act
of 2010 (Public Law 111-152), on an underpayment attributable to the
disallowance of claimed tax benefits by reason of a transaction
lacking economic substance, then a penalty shall be imposed under
this section for that portion of an understatement attributable to
that transaction, and shall not be abated unless the taxpayer can
establish that the imposition of the federal penalty under Section
6662 of the Internal Revenue Code for an underpayment attributable to
that transaction was clearly erroneous.
(f) The amendments made to this section by the act adding this
subdivision shall apply to notices mailed on or after the effective
date of the act adding this subdivision.
SEC. 14. SEC. 13. Section 23701i of
the Revenue and Taxation Code is amended to read:
23701i. (a) A voluntary employees' beneficiary association
described in Section 501(c)(9) of the Internal Revenue Code, as
amended by Section 1004(d)(4) of the Health Care and Education
Reconciliation Act of 2010 (Public Law 111-152).
(b) The amendments made to this section by the act adding this
subdivision shall apply in the same manner and to the same periods as
the federal amendments referred to in subdivision (a) apply for
federal purposes.
SEC. 15. SEC. 14. Section 24343.6 is
added to the Revenue and Taxation Code, to read:
24343.6. For taxable years beginning on or after January 1, 2014,
Section 162(a) of the Internal Revenue Code, as amended by Section
10108(f) of the Patient Protection and Affordable Care Act (Public
Law 111-148), shall apply, except as otherwise provided.
SEC. 16. SEC. 15. Section 24345.1 is
added to the Revenue and Taxation Code, to read:
24345.1. For taxable years beginning on or after January 1, 2011,
no deduction shall be allowed for fees imposed on manufacturers or
importers of branded prescription drugs by Section 9008 of the
Patient Protection and Affordable Care Act (Public Law 111-148), as
amended by Section 1404 of the Health Care and Education
Reconciliation Act of 2010 (Public Law 111-152).
SEC. 17. SEC. 1 6. This
act provides for a tax levy within the meaning of Article IV of the
Constitution and shall go into immediate effect.