BILL NUMBER: SB 401 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 28, 2009
AMENDED IN SENATE APRIL 28, 2009
INTRODUCED BY Senator Wolk
FEBRUARY 26, 2009
An act to amend Sections 19116, 19504, 19755, and 19777 of, and to
add Section 18407.5 to, the Revenue and Taxation Code, relating to
taxation.
LEGISLATIVE COUNSEL'S DIGEST
SB 401, as amended, Wolk. Administration of taxes:
potentially abusive tax avoidance transactions .
: transactions of internet.
Existing law imposes various taxes and fees, and certain penalties
in connection with tax avoidance and abusive tax shelters, including
reportable transactions.
This bill would expand the definition of reportable transactions
to include potentially abusive tax avoidance
transactions, as defined, and transactions of interest, as defined.
This bill would also make technical, nonsubstantive changes to
conform to this reference.
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 18407.5 is added to the Revenue and Taxation
Code, to read:
18407.5. (a) The term "reportable transaction," as defined in
paragraph (3) of subdivision (a) of Section 18407, shall also include
any transaction of a type that the Secretary of the Treasury under
Section 6011 of the Internal Revenue Code for federal income tax
purposes or the Franchise Tax Board under this section for California
income or franchise tax purposes determines is a transaction of
interest, and shall be reported on the return or the statement
required to be made.
(b) The term "transaction of interest" includes any transaction
that is the same as, or substantially similar to, a transaction
specifically identified by the Secretary of the Treasury under
Section 6011 of the Internal Revenue Code for federal income tax
purposes or by the Franchise Tax Board under this section for
California income or franchise tax purposes, as a transaction having
a potential for tax avoidance or evasion, including deductions,
basis, credits, entity classification, dividend elimination, or
omission of income.
(c) The Franchise Tax Board shall identify and publish
transactions of interest (whether identified by the Secretary of the
Treasury under Section 6011 of the Internal Revenue Code for federal
income tax purposes or by the Franchise Tax Board) through the use of
Franchise Tax Board Notices or other published positions. In
addition, the transactions of interest identified and published
pursuant to the preceding sentence shall be published on the Internet
Web site of the Franchise Tax Board.
(b) A transaction of interest is a transaction that is the same as
or substantially similar to one of the types of transactions that
the Franchise Tax Board has identified by notice, regulation, or
other form of published guidance as a transaction of interest. In
addition, the transactions of interest identified and published
pursuant to the preceding sentence shall be published on the Internet
Web site of the Franchise Tax Board.
(d)
(c) This section shall apply to transactions of
interest published on or after the effective date of the act adding
this section.
SEC. 2. Section 19116 of the Revenue and Taxation Code is amended
to read:
19116. (a) In the case of an individual who files a return of tax
imposed under Part 10 (commencing with Section 17001) for a taxable
year on or before the due date for the return, including extensions,
if the Franchise Tax Board does not provide a notice to the taxpayer
specifically stating the taxpayer's liability and the basis of the
liability before the close of the notification period, the Franchise
Tax Board shall suspend the imposition of any interest, penalty,
addition to tax, or additional amount with respect to any failure
relating to the return which is computed by reference to the period
of time the failure continues to exist and which is properly
allocable to the suspension period.
(b) For purposes of this section:
(1) Except as provided in subdivision (e), "notification period"
means the 18-month period beginning on the later of either of the
following:
(A) The date on which the return is filed.
(B) The due date of the return without regard to extensions.
(2) "Suspension period" means the period beginning on the day
after the close of the notification period and ending on the date
which is 15 days after the date on which notice described in
subdivision (a) is provided by the Franchise Tax Board.
(c) This section shall be applied separately with respect to each
item or adjustment.
(d) This section shall not apply to any of the following:
(1) Any penalty imposed by Section 19131.
(2) Any penalty imposed by Section 19132.
(3) Any interest, penalty, addition to tax, or additional amount
involving fraud.
(4) Any interest, penalty, addition to tax, or additional amount
with respect to any tax liability shown on the return.
(5) Any criminal penalty.
(6) Any interest, penalty, addition to tax, or additional amount
with respect to any gross misstatement.
(7) Any interest, penalty, addition to tax, or additional amount
relating to any reportable transaction with respect to which the
requirements of Section 6664(d)(2)(A) of the Internal Revenue Code
are not met, and any listed transaction, as defined in Section 6707A
(c) of the Internal Revenue Code.
(8) Any interest, penalty, addition to tax, or additional amount
relating to any potentially abusive tax avoidance
transaction, as defined in Section 19777, as amended by the act
adding this paragraph.
(e) For taxpayers required by subdivision (a) of Section 18622 to
report a change or correction by the Commissioner of Internal Revenue
or other officer of the United States or other competent authority
the following rules shall apply:
(1) The notification period under subdivision (a) shall be either
of the following:
(A) One year from the date the notice required by Section 18622 is
filed with the Franchise Tax Board by the taxpayer or the Internal
Revenue Service, if the taxpayer or the Internal Revenue Service
reports that change or correction within six months after the final
federal determination.
(B) Two years from the date when the notice required by Section
18622 is filed with the Franchise Tax Board by the taxpayer or the
Internal Revenue Service, if after the six-month period required in
Section 18622, a taxpayer or the Internal Revenue Service reports a
change or correction.
(2) The suspension period under subdivision (a) shall mean the
period beginning on the day after the close of the notification
period under paragraph (1) and ending on the date which is 15 days
after the date on which notice described in subdivision (a) is
provided by the Franchise Tax Board.
(f) For notices sent after January 1, 2004, this section does not
apply to taxpayers with taxable income greater than two hundred
thousand dollars ($200,000) that have been contacted by the Franchise
Tax Board regarding the use of a potentially abusive tax shelter,
within the meaning of Section 19777, as added by Chapter 656 of the
Statutes of 2003 and amended by Section 331 of Chapter 183 of the
Statutes of 2004.
(g) This section shall apply to taxable years ending after October
10, 1999.
(h) The amendments made to this section by Chapter 691 of the
Statutes of 2005 shall apply to notices sent after January 1, 2005.
(i) The amendments made to this section by the act adding this
subdivision shall apply to notices mailed, or amended returns filed,
on or after the effective date of the act adding this subdivision.
SEC. 3. Section 19504 of the Revenue and Taxation Code is amended
to read:
19504. (a) The Franchise Tax Board, for the purpose of
administering its duties under this part, including ascertaining the
correctness of any return; making a return where none has been made;
determining or collecting the liability of any person in respect of
any liability imposed by Part 10 (commencing with Section 17001),
Part 11 (commencing with Section 23001), or this part (or the
liability at law or in equity of any transferee in respect of that
liability); shall have the power to require by demand, that an entity
of any kind including, but not limited to, employers, persons, or
financial institutions provide information or make available for
examination or copying at a specified time and place, or both, any
book, papers, or other data which may be relevant to that purpose.
Any demand to a financial institution shall comply with the
California Right to Financial Privacy Act set forth in Chapter 20
(commencing with Section 7460) of Division 7 of Title 1 of the
Government Code. Information that may be required upon demand
includes, but is not limited to, any of the following:
(1) Addresses and telephone numbers of persons designated by the
Franchise Tax Board.
(2) Information contained on Federal Form W-2 (Wage and Tax
Statement), Federal Form W-4 (Employee's Withholding Allowance
Certificate), or State Form DE-4 (Employee's Withholding Allowance
Certificate).
(b) The Franchise Tax Board may require the attendance of the
taxpayer or of any other person having knowledge in the premises and
may take testimony and require material proof for its information and
administer oaths to carry out this part.
(c) (1) The Franchise Tax Board may issue subpoenas or subpoenas
duces tecum, which subpoenas must be signed by any member of the
Franchise Tax Board, and may be served on any person for any purpose.
(2) For taxpayers that have been contacted by the Franchise Tax
Board regarding the use of a potentially an
abusive tax avoidance transaction, as defined by Section 19777
as amended by the act amending this paragraph, the subpoena may be
signed by any member of the Franchise Tax Board, the Executive
Officer of the Franchise Tax Board, or any designee.
(d) Obedience to subpoenas or subpoenas duces tecum issued in
accordance with this section may be enforced by application to the
superior court as set forth in Article 2 (commencing with Section
11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the
Government Code.
(e) When examining a return, the Franchise Tax Board shall not use
financial status or economic reality examination techniques to
determine the existence of unreported income of any taxpayer unless
the Franchise Tax Board has a reasonable indication that there is a
likelihood of unreported income. This subdivision applies to any
examination beginning on or after October 10, 1999.
(f) The amendments made to this section shall apply to subpoenas
issued on or after the effective date of the act adding this
subdivision.
SEC. 4. Section 19755 of the Revenue and Taxation Code, as added
by Section 13 of Chapter 654 of the Statutes of 2003, is amended to
read:
19755. (a) Notwithstanding Section 19057, with respect to
proposed deficiency assessments related to a potentially
an abusive tax avoidance transaction, as defined
in Section 19777, other than a gross misstatement within the meaning
of Section 6404(g)(2)(D) of the Internal Revenue Code, a notice of a
proposed deficiency assessment may be mailed to the taxpayer within
eight years after the return was filed, or within the period
otherwise provided in Article 3 (commencing with Section 19031) of
Chapter 4 of this part, whichever expires later.
(b) This section shall apply to any return filed under this part
on or after January 1, 2000.
(c) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2009.
SEC. 5. Section 19755 of the Revenue and Taxation Code, as added
by Section 13 of Chapter 656 of the Statutes of 2003, is amended to
read:
19755. (a) Notwithstanding Section 19057, with respect to
proposed deficiency assessments related to a potentially
an abusive tax avoidance transaction, as defined
in Section 19777, other than a gross misstatement within the meaning
of Section 6404(g)(2)(D) of the Internal Revenue Code, a notice of a
proposed deficiency assessment may be mailed to the taxpayer within
eight years after the return was filed, or within the period
otherwise provided in Article 3 (commencing with Section 19031) of
Chapter 4 of this part, whichever expires later.
(b) This section shall apply to any return filed under this part
on or after January 1, 2000.
(c) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 2009.
SEC. 6. Section 19777 of the Revenue and Taxation Code is amended
to read:
19777. (a) If a taxpayer has been contacted by the Franchise Tax
Board regarding a potentially an
abusive tax avoidance transaction, and has a deficiency
attributable to an abusive tax avoidance transaction , there
shall be added to the tax an amount equal to 100 percent of the
interest payable under Section 19101 on the portion of the
deficiency attributable to that transaction for the period
beginning on the last date prescribed by law for the payment of that
tax (determined without regard to extensions) and ending on the date
the notice of proposed assessment is mailed.
(b) For purposes of this section, "potentially abusive
"abusive tax avoidance transaction" means any of
the following:
(1) A tax shelter as defined in Section 6662(d)(2)(C) of the
Internal Revenue Code. For purposes of this chapter, Section 6662(d)
(2)(C) of the Internal Revenue Code is modified by substituting the
phrase "income or franchise tax" for "federal income tax."
(2) A reportable transaction, as defined in Section 6707A(c)(1) of
the Internal Revenue Code, with respect to which the requirements of
Section 6664(d)(2)(A) of the Internal Revenue Code are not met.
(3) A listed transaction, as defined in Section 6707A(c)(2) of the
Internal Revenue Code.
(4) Any entity, investment plan or arrangement, or other plan or
arrangement which is of a type that the Secretary of the Treasury,
Internal Revenue Service, or the Franchise Tax Board determines by
regulations, notices, coordinated issue papers, or other official
public notification as having a potential for tax avoidance or
evasion.
(5)
(4) A gross misstatement, within the meaning of Section
6404(g)(2)(D) of the Internal Revenue Code.
(6)
(5) Any transaction to which Section 19774 applies.
(c) The penalty imposed by this section is in addition to any
other penalty imposed under Part 10 (commencing with Section 17001),
Part 11 (commencing with Section 23001), or this part.
(d) (1) If a taxpayer files an amended return reporting a
potentially an abusive tax avoidance
transaction, described in subdivision (b), after the taxpayer is
contacted by the Franchise Tax Board regarding that
potentially abusive tax avoidance transaction but before a
notice of proposed assessment is issued under Section 19033, then the
amount of the penalty under this section shall be 50 percent of the
interest payable under Section 19101 with respect to the amount of
any additional tax reflected in the amended return attributable to
that potentially abusive tax avoidance
transaction.
(2) If a notice of proposed assessment under Section 19033, with
respect to a potentially an abusive tax
avoidance transaction as described in subdivision (a), is issued
after the amended return described in paragraph (1) is filed, the
penalty imposed pursuant to subdivision (a) shall be applicable to
the additional tax reflected in the notice of proposed assessment
attributable to that potentially abusive tax
avoidance transaction.
(e) The provisions of paragraph (4) of subdivision (b) shall not
apply solely on the basis that a limited liability company or an "S"
corporation is used in the structure of an investment plan or
arrangement, or other plan or arrangement. If, however, a limited
liability company or an "S" corporation is used to facilitate
a potentially an abusive tax avoidance
transaction, the preceding sentence shall not apply.
(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 and to amended returns filed more than 90 days after
the effective date with respect to taxable years for which the
statute of limitations for mailing a notice of proposed assessment
has not expired as of that date.