BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 2177 - Beall
Amended: May 26, 2010
Hearing: June 9, 2010 Fiscal: Yes
SUMMARY: This Bill Authorizes the Franchise Tax Board
(FTB) to Communicate with Taxpayers and Their
Authorized Representatives via Electronic Mail.
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
known 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,
AB 2177 - Beall
Page 5
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).
THIS BILL authorizes FTB to implement, by regulation,
an alternative communication method that, would allow FTB
to communicate with the taxpayer electronically at the
request of a taxpayer. Specifically, this bill:
Allows FTB, to provide an electronic notification,
e.g. an e-mail, of statements, bills or other
communications that have been posted to the taxpayer's
online account at the request of a taxpayer.
Requires that prior to obtaining consent from the
taxpayer to use the elective method, the FTB advise the
taxpayer of the ramifications of such an election and of
failing to take appropriate action in response to the
electronic notifications.
Allows taxpayers to file electronically a protest,
notification, and other communication to the FTB through
its website.
Will be implemented once FTB completes planned
upgrades to its online system, currently planned for 2013,
and sunsets on January 1, 2018.
FISCAL EFFECT:
The FTB states that this bill would not result in any
additional costs and that there would be some potential
postage and mailing savings related to making electronic
communication available in lieu of paper notices. The FTB
points out that the amount of savings is based on the
number of taxpayers that choose this option and is not
quantifiable at this time.
AB 2177 - Beall
Page 5
This bill would not impact state income tax revenue.
COMMENTS:
A. Purpose of the Bill
The author provides the following statement:
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, 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.
This 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.
AB 2177 - Beall
Page 5
B. 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 or
assessment of penalties and interest. 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 recently filed federal tax return is considered the
taxpayer's last known 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, including
responses 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 prefer 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. The
AB 2177 - Beall
Page 5
existing restrictions can be problematic in cases where
taxpayers move frequently.
C. FTB's 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 its Enterprise Data to Revenue (EDR) Project, the FTB
plans "to reconfigure its existing computer 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.
D. Is the electronic notification method secure?
Under FTB's EDR project, it appears that the "Taxpayer
Folder" would allow taxpayers, who would like to
AB 2177 - Beall
Page 5
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. AB 2177
provides, therefore, that electronic notification sent to
the taxpayer will contain no confidential information and
will only inform the taxpayer that a notice, statement,
bill, or other communication is available for viewing in
his/her online secure account on the FTB's website.
E. Due Process Standard
The Assembly Revenue and Taxation committee analysis
of the March 23, 2010 version of this bill questions
whether the electronic notification method under AB 2177
meets the Due Process Clauses of the U.S. and California
Constitutions. The two main elements of procedural due
process are a) adequate notice, and, b) a meaningful
opportunity to object.
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 above, 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
AB 2177 - Beall
Page 5
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
taxpayer's online account may be treated as "mailed" for
those purposes.
The April 14th and May 3rd amendments address the
due process standard by requiring the FTB to advise the
taxpayer or authorized representative of the ramifications
of electing to receive electronic notices and of failing to
take appropriate action in response to those notifications.
The amendments would further require that any communication
sent to a taxpayer or authorized representative contain
plain language stating that failure of the taxpayer or
their authorized representative to act in response to the
communication may cause the taxpayer to forego procedural
or administrative rights to challenge the proposed action
of the FTB.
AB 2177 - Beall
Page 5
AB 2177 is entering uncharted territory in allowing an
electronic communication option to taxpayers to service
their income tax needs. So while a question may arise as to
whether sending electronic notification would satisfy the
due process requirement,
AB 2177 moves FTB in the positive direction of using
technology and secure electronic processes in lieu of paper
processes for improved efficiencies in tax administration.
F. Related Legislation
On April 28, 2010, the Committee approved SB 1493
(Committee on Revenue and Taxation), which allowed
assessors to communicate with taxpayers via email regarding
specified property tax information, at the taxpayer's
request.
Support and Opposition
Support:Franchise Tax Board (Sponsor), California
Taxpayers' Association, California Manufacturers and
Technology Association, California Society of Enrolled
Agents
Oppose:None on file.
---------------------------------
Consultant: Meg Svoboda
AB 2177 - Beall
Page 5