BILL ANALYSIS
AB 2177
Page 1
Date of Hearing: April 12, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 2177 (Beall) - As Amended: March 23, 2010
Majority vote. Fiscal committee.
SUBJECT : Administration of income taxes: Franchise Tax Board:
electronic communication.
SUMMARY : Authorizes the Franchise Tax Board (FTB) to implement
an alternative communication method that, at the request of a
taxpayer, would allow FTB to communicate with the taxpayer
electronically. Specifically, this bill :
1)Authorizes FTB, by regulation, to develop an alternative
communication method with taxpayers that would do all of the
following:
a) Allow FTB, at the request of a taxpayer, to provide an
electronic notification, e.g., an email, to the taxpayer
stating that a notice, statement, bill, or other
communication, which is required or authorized under
Revenue and Taxation Code (R&TC) Part 10 (commencing with
Section 17001), Part 10.2 (commencing with Section 18401),
or Part 11 (commencing with Section 23001), has been posted
to, or updated on, the taxpayer's online account.
b) Allow taxpayers to file electronically a protest,
notification, and other communication to the FTB in a
secure manner, using the FTB's website.
c) Specify that a taxpayer must designate a preferred
electronic communication method if the taxpayer wishes to
communicate with the FTB electronically.
2)Provides that sending electronic notification to a taxpayer
pursuant to his/her request does not constitute a violation of
R&TC Sections 19542 and 19542.1.
3)Prohibits the usage of the alternative communication method
for any notice, statement, bill, protest, or other
communication between the FTB and a taxpayer prior to January
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1, 2013, or prior to the successful implementation of the
Taxpayer Folder as a component of the FTB's Enterprise Data to
Revenue (EDR) project, whichever is later.
4)States that any notice, statement, bill, protest, or other
communication between FTB and a taxpayer pursuant to the
alternative communication method shall be treated as if it
were mailed by United States (U.S.) mail, postage prepaid.
5)Takes effect on January 1, 2011.
EXISTING FEDERAL LAW requires the Internal Revenue Service (IRS)
to mail correspondence to a taxpayer at the taxpayer's last
known address and provides that the "last know address" is the
address that appears on the taxpayer's recently filed federal
tax return, unless the IRS has been given clear and concise
notice of a different address. In addition, prior to mailing
correspondence to any particular taxpayer, the IRS may access
the U.S. Postal Service National Change of Address (NCOA)
database to update the taxpayer's last known address. While
existing federal law allows taxpayers to submit returns and
payments electronically, the IRS explicitly informs taxpayers
that it does not communicate with taxpayers regarding their
accounts electronically.
EXISTING STATE LAW defines "the taxpayer's last known address"
as the address that appears on the taxpayer's last return filed
with the FTB, unless the taxpayer has provided the FTB clear and
concise written or electronic notification of a different
address or the FTB has an address that it has reason to believe
is the most current address for the taxpayer. A Notice of
Proposed Assessment and final deficiency notice issued after
January 1, 2008, require a postmark (which is defined as a
postal marking made on a letter, package, or postcard indicating
the date when the item is delivered to the U.S. Postal Service).
FISCAL EFFECT : According to FTB, this bill will not impact
state income revenue.
COMMENTS :
1)Author's Statement . The author states that, "AB 2177 would
allow the FTB, at a taxpayer's request, to send a message to
the taxpayer (or their authorized representative) that a bill,
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notice, or statement can be retrieved by the taxpayer through
the secure FTB website in lieu of mailing the notice by U.S.
postal mail.
"Using secure authentication procedures, taxpayers would have
the option of accessing electronic communications through
FTB's website. The notice would be considered received by the
taxpayer when the communication is transmitted in the manner
as previously designated. No confidential information would
be transmitted electronically within the communication.
"The bill would allow the FTB to reduce postage costs, go
"green" by cutting down on paper mail, and improve
efficiencies in tax administration workloads, all while
providing the same level of services. The option for
electronic notification also ensures that taxpayers who move
frequently will be given a timely receipt of FTB notices.
"Should AB 2177 pass this legislative session, the operative
date for the provisions would begin on January 1, 2013."
2)The Purpose of this Bill . According to FTB, the sponsor of
this bill, existing state law prohibits FTB from providing
electronic correspondence to taxpayers who, otherwise, would
prefer to communicate with FTB electronically. AB 2177
resolves this problem by authorizing FTB to offer taxpayers
the option of communicating electronically and to send an
electronic notification to taxpayers when information has been
posted to, or updated on, their secure online accounts. The
notification would provide information guiding the taxpayer to
log into the secure folder on the FTB Internet website. AB
2177 would also allow a taxpayer to file a protest,
notification, or other communication with FTB in an
electronically secure manner. This bill would reduce FTB's
postage, paper, and processing time, would permit taxpayers to
address any tax issue quickly and conveniently, and would,
therefore, improve efficiency in tax administration.
3)Background . Receiving notices from a tax agency in a timely
fashion is critical to taxpayers since a failure to respond
may cause the taxpayer to forfeit certain rights and may
result in an increase in the taxpayer's tax liability. Under
current federal law, the IRS is required to send notices to
the taxpayer's "last known address." Pursuant to federal
regulations, the address that appears on the taxpayer's most
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recently filed federal tax return is considered the taxpayer's
last know address, unless the taxpayer notifies the IRS of a
different address. Under certain conditions, updated address
information received from the U.S. Postal Service NCOA
database will be considered the taxpayer's last known address.
Similarly, under California law, any notice mailed to a taxpayer
is sufficient to satisfy the due process requirement, if it is
mailed to the taxpayer's last known address. The "last known
address" rule places responsibility on the taxpayer to notify
the tax agency of any change of address, and there is no
requirement that the taxpayer actually receive most of those
notices. However, if the tax agency has reason to believe
that the address previously provided by the taxpayer is no
longer correct, the agency has a duty to exercise reasonable
diligence to ascertain the correct address.
According to the FTB, it issues approximately 17 million bills
and notices each year to taxpayers that include notices in
response to returns filed, collection notices for unpaid
liabilities, filing enforcement notices when returns are not
filed, and notices related to audit activities of taxpayer
returns. Some notices are merely correspondence regarding a
pending matter, but many have legal significance. Under
existing law, FTB is not able to mail these notices
electronically, even if the taxpayers receiving the notices
would have preferred electronic communication. In addition, a
Notice of Proposed Assessment and final deficiency notice
issued after January 1, 2008, require a postmark, and thus,
cannot be mailed electronically.
4)The "EDR" Project . Currently, a taxpayer or his/her
representative may obtain from the FTB the taxpayer's limited
confidential information by accessing "MY FTB ACCOUNT" on the
FTB's Web site. The taxpayer must use his/her social security
number and the customer service number to log into the
account, which contains certain information about the
taxpayer, including the taxpayer's estimated tax payments,
extension payments, recent payments, a summary of the last 10
tax years, California wage and withholding information, and
FTB-issued 1099-G and 1099-INT information.
According to the FTB's analysis of this bill, under the EDR
project, the FTB plans "to reconfigure its existing computer
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systems to implement service-oriented architecture and improve
the efficiency of existing processes." The "Taxpayer Folder"
is one of the components of the EDR project; it will contain
all of the relevant information regarding a particular
taxpayer. Specifically, it will contain the account data,
address data, and account history data for each taxpayer and
will include an historical record of every notice or bill
issued to the taxpayer. The Taxpayer Folder, which will be
accessible online by all taxpayers and their authorized
representatives, is expected to be completed by January 1,
2013. The EDR project is scheduled to be fully implemented by
December 31, 2016.
5)Operative Date vs. Effective Date . AB 2177, if enacted, will
be operative on or after January 1, 2011. However, the
alternative communication method authorized by this bill will
not apply to any communication between the FTB and a taxpayer
that takes place before January 1, 2013, or until the Taxpayer
Folder component of the "EDR" project is successfully
implemented, whichever is later. The Committee staff notes
that neither "Taxpayer Folder" nor "EDR" project is defined in
this bill. Further, since the phrase "successfully
implemented" may mean different things to different people,
this bill, effectively, delegates to the FTB the legislative
authority for determining the effective date of the
"successful implementation" and of this bill. The Committee
staff suggests that this bill be amended to include the
definitions of all of the abovementioned terms.
Alternatively, since the EDR project is not scheduled to be
completed before January 1, 2013, the Committee may wish to
postpone the consideration of this bill until the project is
completed and the FTB has the required capability to implement
the provisions of this bill.
6)Is Electronic Mail Secure ? It is well known that one's most
private message can be read by others as it travels through
the Internet. It appears that the "Taxpayer Folder" would
allow taxpayers, who would like to communicate with the FTB
electronically, to file a protest, notification, or submit
other information to the FTB in a secure manner. It is
unlikely, however, that taxpayers would have access to a
secure channel that would allow them to receive confidential
information safely. This bill provides, therefore, that
electronic notification sent to the taxpayer will contain no
confidential information and will only inform the taxpayer
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that a notice, statement, bill, or other communication is
available for viewing in his/her online secure account on the
FTB's website.
7)Would the Electronic Notification Satisfy the Due Process
Standard ? When the government takes an action against an
individual that directly deprives that individual of a life,
liberty, or property interest, the Due Process Clauses of the
U.S. and California Constitutions require the government to
abide by two discrete due process standards: substantive due
process and procedural due process (U.S. Constitution, Amends.
V, XIV; California Constitution, Art. I, 7). The two main
elements of procedural due process are a) adequate notice,
and, b) a meaningful opportunity to object. (See, e.g.,
Memphis Light, Gas and Water Division v. Craft (1978) 436 U.S.
1, 13; Mullane v. Central Hanover Bank & Trust Co., (1950) 339
U.S. 306, 313-14). The U.S. Supreme Court has ruled that
"[a]dequate notice under the Due Process Clause has two
components. It must inform affected parties of the action
about to be taken against them as well as of procedures
available for challenging that action." (Atkins v. Parker,
(1985) 472 U.S. 115, 152 (citing Memphis Light, Gas and Water
Division v. Craft and Mullane v. Central Hanover Trust Co.).
Under existing federal and state tax laws, the adequate notice
requirement is met when the IRS or the FTB, whichever is
applicable, mails the actual notice to the taxpayer at the
taxpayer's last known address. This bill, however, would
allow FTB to send an electronic notification to the taxpayer,
albeit with his/her consent, informing the taxpayer that a
notice, statement, bill or other communication is available
for viewing in the taxpayer's limited access secure folder on
the FTB's website. As discussed, the notification itself will
not contain, for security reasons, any substantive information
about any action to be taken by the FTB against the taxpayer.
To view the actual notice, statement, or bill that does
contain such information, the taxpayer will need to access
his/her online folder on the FTB's website. Nevertheless,
such a notice, statement, or bill will be treated as if it has
been mailed to the taxpayer by U.S. mail, postage prepaid.
Thus, a question arises as to whether sending electronic
notification, which does not contain information about the
future government action or procedures available for
challenging that action, would satisfy the due process
requirement and whether posting the actual notice in the
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taxpayer's online account may be treated as "mailed" for those
purposes.
REGISTERED SUPPORT / OPPOSITION :
Support
Franchise Tax Board (sponsor)
California Taxpayers' Association
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098