BILL NUMBER: SB 401	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  JULY 15, 2009
	AMENDED IN ASSEMBLY  JULY 1, 2009
	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: abusive tax
avoidance transactions: transactions of interest.
   Existing law requires the Franchise Tax Board to administer
specified 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 abusive tax avoidance transactions, as defined, and
transactions of interest, as defined. This bill would also make
technical, nonsubstantive changes to conform to this expansion.
   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) 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 or regulation 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.
   (c) This section shall apply to transactions of interest published
on or after the effective date of the act adding this section and
only to taxable years beginning on or after the effective date of
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 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 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 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 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 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, "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) A gross misstatement, within the meaning of Section 6404(g)(2)
(D) of the Internal Revenue Code.
   (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 an abusive
tax avoidance transaction, described in subdivision (b), after the
taxpayer is contacted by the Franchise Tax Board regarding that
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
abusive tax avoidance transaction.
   (2) If a notice of proposed assessment under Section 19033, with
respect to 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 abusive tax avoidance
transaction.
   (e) (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. 
   (f) 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 an
abusive tax avoidance transaction, the preceding sentence shall not
apply.  
   (g) 
    (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   that  act and to
amended returns filed more than 180 days after  the 
 that  effective date with respect to taxable years
beginning on or after the effective date of  this section
  that act .