BILL NUMBER: SB 401	ENROLLED
	BILL TEXT

	PASSED THE SENATE  APRIL 8, 2010
	PASSED THE ASSEMBLY  APRIL 8, 2010
	AMENDED IN ASSEMBLY  APRIL 6, 2010
	AMENDED IN ASSEMBLY  APRIL 5, 2010
	AMENDED IN ASSEMBLY  AUGUST 31, 2009
	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
   (Principal coauthor: Senator Calderon)
   (Principal coauthors: Assembly Members V. Manuel Perez and
Portantino)

                        FEBRUARY 26, 2009

   An act to amend Sections 17008.5, 17020.6, 17024.5, 17041,
17052.12, 17062, 17063, 17072, 17085, 17132.5, 17144.5, 17152, 17206,
17250, 17250.5, 17255, 17275.5, 17276, 17501, 17551, 17952.5, 18165,
18180, 18631, 19116, 19131, 19134, 19164, 19166, 19172, 19179,
19443, 21015.5, 23045, 23051.5, 23456, 23609, 23712, 23732, 23772,
24305, 24356, 24357, 24357.1, 24357.7, 24358, 24416, 24949.5,
24990.6, and 24993 of, to add Sections 17020.15, 17131.3, 17132.8,
17204, 17225, 17257, 17257.2, 17257.4, 17275.2, 17275.3, 17279.6,
17560.5, 17681.3, 17755, 18031.5, 18037.5, 18151.5, 18155.6, 19172.5,
19185, 19186, 23046.5, 23703.7, 24303, 24329, 24349.2, 24462,
24831.3, 24941.5, 24950.5, 24990.2, and 24990.8 to, and to repeal
Sections 24355.3, 24981, and 24988 of, the Revenue and Taxation Code,
relating to taxation.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 401, Wolk. Taxation: federal conformity.
   Under the Personal Income Tax Law and the Corporation Tax Law,
various provisions of the federal Internal Revenue Code, as enacted
as of a specified date, are referenced in various sections of the
Revenue and Taxation Code. Those laws provide that for taxable years
beginning on or after January 1, 2005, the specified date of those
referenced Internal Revenue Code sections is January 1, 2005, unless
otherwise specifically provided. Existing law requires, for any
introduced bill that proposes changes in any of those dates, that the
Franchise Tax Board prepare a complete analysis of the bill that
describes all changes to state law that will automatically occur by
reference to federal law as of the changed date. It further requires
the Franchise Tax Board to immediately update and supplement that
analysis upon any amendment to the bill, and requires that analysis
be made available to the public and be submitted to the Legislature
for publication in the daily journal of each house of the
Legislature.
   This bill would change the specified date of those referenced
Internal Revenue Code sections to January 1, 2010, for taxable years
beginning on or after January 1, 2010, and thereby would make
numerous substantive changes to both the Personal Income Tax Law and
the Corporation Tax Law with respect to those areas of preexisting
conformity that are subject to changes under federal laws enacted
after January 1, 2005, and that have not been, or are not being,
excepted or modified. This bill would make certain other changes in
federal income tax laws applicable, with specified exceptions and
modifications, and make specified supplemental, technical, or
clarifying changes for purposes of the Personal Income Tax Law or the
Corporation Tax Law, or both, with respect to, among other things,
the tax treatment of qualifying income of publicly traded
partnerships, certain disaster mitigation payments, depreciation of
electric transmission property and natural gas gathering lines,
nuclear decommissioning cost provisions, a small refiner exception to
oil depletion deduction, recapture rules for amortizable Section 197
intangibles, amortization of expenses incurred in creating or
acquiring music or music copyrights, treatment of certain
self-created musical works and qualified retirement income, funding
for self-employed defined benefit pension plans and for multiemployer
defined benefit pension plans, withdrawals from retirement plans for
individuals called to active duty, waiver of an early withdrawal
penalty tax on certain distributions of pension plans for public
safety employees, allowance of additional IRA payments in certain
bankruptcy cases, inflation indexing of gross income limitations on
certain retirement savings incentives, treatment of death benefits
from corporate-owned life insurance, exemption of income from
leveraged real estate held by church plans, gratuitous transfer for
benefits of employees, exclusion from gross income of specified
grants for renewable energy property, exclusion from gross income
with respect to a specified tragic event, discharge of qualified
principal residence indebtedness, penalties for bad checks, penalty
for understatement of taxpayer's liability by a tax preparer,
frivolous tax submissions, exclusion of gain from sale of principal
residence by certain employees of the intelligence community, sale of
property by judicial officers, excise tax on UBTI of charitable
remainder trusts, certain listed and reportable transactions
provisions, the taxation of certain settlement funds, the active
business requirement, loans to qualified continuing care facilities,
exception from suspension rules, and specified federal acts. This
bill would also increase the age of children whose unearned income is
taxed as if a parent's income, would increase the penalty for
willful failure to file specified returns, and would revise, in
modified conformity with the federal income tax laws, various
provisions applicable to tax-exempt organizations.
   This bill would also specify various dates on which specified
provisions apply, make findings and declarations that certain
provisions are declaratory of existing law, specify the intent and
operation in the application of provisions conforming to various
federal acts, repeal obsolete provisions, and declare that the
retroactive application of specified provisions serves public
purposes, as defined.
   Because this bill would require specific documents to be filed
under the penalty of perjury, thus changing the definition of a
crime, it would impose a state-mandated local program by expanding
the crime of perjury.
   The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 17008.5 of the Revenue and Taxation Code is
amended to read:
   17008.5.  Section 7704 of the Internal Revenue Code, relating to
certain publicly traded partnerships treated as corporations, shall
apply, except as otherwise provided.
   (a) Section 7704(a) of the Internal Revenue Code shall not apply
to an electing 1987 partnership, as defined in Section 23038.5, which
is subject to the tax imposed by Section 23038.5.
   (b) The amendment made to this section by Chapter 611 of the
Statutes of 1997 shall apply to taxable years beginning on or after
January 1, 1998.
   (c) Section 7704(d) of the Internal Revenue Code, relating to
qualifying income, shall apply, except as otherwise provided, without
regard to taxable year to the same extent as applicable for federal
income tax purposes.
   (d) The amendment to this section by the act amending this
subdivision shall apply to taxable years beginning on or after
January 1, 2010.
  SEC. 2.  Section 17020.6 of the Revenue and Taxation Code is
amended to read:
   17020.6.  For purposes of this part:
   (a) Section 7702 of the Internal Revenue Code, relating to life
insurance contracts, shall apply, except as otherwise provided.
   (b) Section 7702A of the Internal Revenue Code, relating to
modified endowment contract defined, shall apply, except as otherwise
provided.
   (c) (1) Section 7702B of the Internal Revenue Code, relating to
treatment of qualified long-term care insurance, shall apply, except
as otherwise provided.
   (2) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-280) to Section 7702B of the Internal
Revenue Code shall not apply.
  SEC. 3.  Section 17020.15 is added to the Revenue and Taxation
Code, to read:
   17020.15.  (a) Section 7701(n) of the Internal Revenue Code,
relating to convention or association of churches, shall apply,
except as otherwise provided.
   (b) The phrase "this part" shall be substituted for "this title"
in Section 7701(n) of the Internal Revenue Code.
  SEC. 4.  Section 17024.5 of the Revenue and Taxation Code is
amended to read:
   17024.5.  (a) (1) Unless otherwise specifically provided, the
terms "Internal Revenue Code," "Internal Revenue Code of 1954," or
"Internal Revenue Code of 1986," for purposes of this part, mean
Title 26 of the United States Code, including all amendments thereto
as enacted on the specified date for the applicable taxable year as
follows:
                                   Specified Date
                                         of
                                      Internal
                                      Revenue
           Taxable Year            Code Sections
(A) For taxable years
beginning on or after
January 1, 1983, and on or
before December
31, 1983....................... January 15, 1983
(B) For taxable years
beginning on or after
January 1, 1984, and on or
before December
31, 1984....................... January 1, 1984
(C) For taxable years
beginning on or after
January 1, 1985, and on or
before December
31, 1985....................... January 1, 1985
(D) For taxable years
beginning on or after
January 1, 1986, and on or
before December
31, 1986....................... January 1, 1986
(E) For taxable years
beginning on or after
January 1, 1987, and       on
or before December
31, 1988....................... January 1, 1987
(F) For taxable years
beginning on or after
January 1, 1989, and on or
before December
31, 1989....................... January 1, 1989
(G) For taxable years
beginning on or       after
January 1, 1990, and on or
before December
31, 1990....................... January 1, 1990
(H) For taxable years
beginning on or after
January 1, 1991, and on or
before December
31, 1991....................... January 1, 1991
(I) For taxable years
beginning on or after
January 1, 1992, and on or
before December
31, 1992....................... January 1, 1992
(J) For taxable years
beginning on or after
January 1, 1993, and on or
before December
31, 1996....................... January 1, 1993
(K) For taxable years
beginning on or after
January 1, 1997, and on or
before December
31, 1997....................... January 1, 1997
(L) For taxable years
beginning on or after
January 1, 1998, and on or
before December
31, 2001....................... January 1, 1998
(M) For taxable years
beginning on or after
January 1, 2002, and       on
or before December
31, 2004....................... January 1, 2001
(N) For taxable years
beginning on or after
January 1, 2005, and on or
before December
31, 2009....................... January 1, 2005
(O) For taxable years
beginning on or after
January 1, 2010................ January 1, 2009


   (2) (A) Unless otherwise specifically provided, for federal laws
enacted on or after January 1, 1987, and on or before the specified
date for the taxable year, uncodified provisions that relate to
provisions of the Internal Revenue Code that are incorporated for
purposes of this part shall be applicable to the same taxable years
as the incorporated provisions.
   (B) In the case where Section 901 of the Economic Growth and Tax
Relief Act of 2001 (Public Law 107-16) applies to any provision of
the Internal Revenue Code that is incorporated for purposes of this
part, Section 901 of the Economic Growth and Tax Relief Act of 2001
shall apply for purposes of this part in the same manner and to the
same taxable years as it applies for federal income tax purposes.
   (3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle
H (Repeal of Expired or Obsolete Provisions) of the Revenue
Reconciliation Act of 1990 (Public Law 101-508) modified numerous
provisions of the Internal Revenue Code and provisions of prior
federal acts, some of which are incorporated by reference into this
part. Unless otherwise provided, the provisions described in the
preceding sentence, to the extent that they modify provisions that
are incorporated into this part, are declaratory of existing law and
shall be applied in the same manner and for the same periods as
specified in the Revenue Reconciliation Act of 1990.
   (b) Unless otherwise specifically provided, when applying any
provision of the Internal Revenue Code for purposes of this part, a
reference to any of the following is not applicable for purposes of
this part:
   (1) Except as provided in Chapter 4.5 (commencing with Section
23800) of Part 11 of Division 2, an electing small business
corporation, as defined in Section 1361(b) of the Internal Revenue
Code.
   (2) Domestic international sales corporations (DISC), as defined
in Section 992(a) of the Internal Revenue Code.
   (3) A personal holding company, as defined in Section 542 of the
Internal Revenue Code.
   (4) A foreign personal holding company, as defined in Section 552
of the Internal Revenue Code.
   (5) A foreign investment company, as defined in Section 1246(b) of
the Internal Revenue Code.
   (6) A foreign trust, as defined in Section 679 of the Internal
Revenue Code.
   (7) Foreign income taxes and foreign income tax credits.
   (8) Section 911 of the Internal Revenue Code, relating to citizens
or residents of the United States living abroad.
   (9) A foreign corporation, except that Section 367 of the Internal
Revenue Code shall be applicable.
   (10) Federal tax credits and carryovers of federal tax credits.
   (11) Nonresident aliens.
   (12) Deduction for personal exemptions, as provided in Section 151
of the Internal Revenue Code.
   (13) The tax on generation-skipping transfers imposed by Section
2601 of the Internal Revenue Code.
   (14) The tax, relating to estates, imposed by Section 2001 or 2101
of the Internal Revenue Code.
   (c) (1) The provisions contained in Sections 41 to 44, inclusive,
and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369),
relating to treatment of debt instruments, is not applicable for
taxable years beginning before January 1, 1987.
   (2) The provisions contained in Public Law 99-121, relating to the
treatment of debt instruments, is not applicable for taxable years
beginning before January 1, 1987.
   (3) For each taxable year beginning on or after January 1, 1987,
the provisions referred to by paragraphs (1) and (2) shall be
applicable for purposes of this part in the same manner and with
respect to the same obligations as the federal provisions, except as
otherwise provided in this part.
   (d) When applying the Internal Revenue Code for purposes of this
part, regulations promulgated in final form or issued as temporary
regulations by "the secretary" shall be applicable as regulations
under this part to the extent that they do not conflict with this
part or with regulations issued by the Franchise Tax Board.
   (e) Whenever this part allows a taxpayer to make an election, the
following rules shall apply:
   (1) A proper election filed with the Internal Revenue Service in
accordance with the Internal Revenue Code or regulations issued by
"the secretary" shall be deemed to be a proper election for purposes
of this part, unless otherwise provided in this part or in
regulations issued by the Franchise Tax Board.
   (2) A copy of that election shall be furnished to the Franchise
Tax Board upon request.
   (3) (A) Except as provided in subparagraph (B), in order to obtain
treatment other than that elected for federal purposes, a separate
election shall be filed at the time and in the manner required by the
Franchise Tax Board.
   (B) (i) If a taxpayer makes a proper election for federal income
tax purposes prior to the time that taxpayer becomes subject to the
tax imposed under this part or Part 11 (commencing with Section
23001), that taxpayer is deemed to have made the same election for
purposes of the tax imposed by this part, Part 10.2 (commencing with
Section 18401), and Part 11 (commencing with Section 23001), as
applicable, and that taxpayer may not make a separate election for
California tax purposes unless that separate election is expressly
authorized by this part, Part 10.2 (commencing with Section 18401),
or Part 11 (commencing with Section 23001), or by regulations issued
by the Franchise Tax Board.
   (ii) If a taxpayer has not made a proper election for federal
income tax purposes prior to the time that taxpayer becomes subject
to tax under this part or Part 11 (commencing with Section 23001),
that taxpayer may not make a separate California election for
purposes of this part, Part 10.2 (commencing with Section 18401), or
Part 11 (commencing with Section 23001), unless that separate
election is expressly authorized by this part, Part 10.2 (commencing
with Section 18401), or Part 11 (commencing with Section 23001), or
by regulations issued by the Franchise Tax Board.
   (iii) This subparagraph applies only to the extent that the
provisions of the Internal Revenue Code or the regulation issued by
"the secretary" authorizing an election for federal income tax
purposes apply for purposes of this part, Part 10.2 (commencing with
Section 18401) or Part 11 (commencing with Section 23001).
   (f) Whenever this part allows or requires a taxpayer to file an
application or seek consent, the rules set forth in subdivision (e)
shall be applicable with respect to that application or consent.
   (g) When applying the Internal Revenue Code for purposes of
determining the statute of limitations under this part, any reference
to a period of three years shall be modified to read four years for
purposes of this part.
   (h) When applying, for purposes of this part, any section of the
Internal Revenue Code or any applicable regulation thereunder, all of
the following shall apply:
   (1) References to "adjusted gross income" shall mean the amount
computed in accordance with Section 17072, except as provided in
paragraph (2).
   (2) (A) Except as provided in subparagraph (B), references to
"adjusted gross income" for purposes of computing limitations based
upon adjusted gross income, shall mean the amount required to be
shown as adjusted gross income on the federal tax return for the same
taxable year.
   (B) In the case of registered domestic partners and former
registered domestic partners, adjusted gross income, for the purposes
of computing limitations based upon adjusted gross income, shall
mean the adjusted gross income on a federal tax return computed as if
the registered domestic partner or former registered domestic
partner was treated as a spouse or former spouse, respectively, for
federal income tax purposes, and used the same filing status that was
used on the state tax return for the same taxable year.
   (3) Any reference to "subtitle" or "chapter" shall mean this part.

   (4) The provisions of Section 7806 of the Internal Revenue Code,
relating to construction of title, shall apply.
   (5) Any provision of the Internal Revenue Code that becomes
operative on or after the specified date for that taxable year shall
become operative on the same date for purposes of this part.
   (6) Any provision of the Internal Revenue Code that becomes
inoperative on or after the specified date for that taxable year
shall become inoperative on the same date for purposes of this part.
   (7) Due account shall be made for differences in federal and state
terminology, effective dates, substitution of "Franchise Tax Board"
for "secretary" when appropriate, and other obvious differences.
   (8) Except as otherwise provided, any reference to Section 501 of
the Internal Revenue Code shall be interpreted to also refer to
Section 23701.
   (i) Any reference to a specific provision of the Internal Revenue
Code shall include modifications of that provision, if any, in this
part.
  SEC. 5.  Section 17041 of the Revenue and Taxation Code is amended
to read:
   17041.  (a) (1) There shall be imposed for each taxable year upon
the entire taxable income of every resident of this state who is not
a part-year resident, except the head of a household as defined in
Section 17042, taxes in the following amounts and at the following
rates upon the amount of taxable income computed for the taxable year
as if the resident were a resident of this state for the entire
taxable year and for all prior taxable years for any carryover items,
deferred income, suspended losses, or suspended deductions:
If the taxable income      The tax is:
is:
Not over $3,650........ 1% of the taxable income
Over $3,650 but         $36.50 plus 2% of the
not                     excess
over $8,650............ over $3,650
Over $8,650 but         $136.50 plus 4% of the
not                     excess
over $13,650........... over $8,650
Over $13,650 but        $336.50 plus 6% of the
not                     excess
over $18,950........... over $13,650
Over $18,950 but        $654.50 plus 8%       of
not                     the
over $23,950........... excess
                         over $18,950
                         $1,054.50 plus 9.3% of
Over $23,950........... the
                         excess
                         over $23,950


   (2) For taxable years beginning on or after January 1, 2009, and
before January 1, 2011, the percentages specified in the table in
paragraph (1) shall be increased by adding 0.25 percent to each
percentage.
   (b) (1) There shall be imposed for each taxable year upon the
taxable income of every nonresident or part-year resident, except the
head of a household as defined in Section 17042, a tax as calculated
in paragraph (2).
   (2) The tax imposed under paragraph (1) shall be calculated by
multiplying the "taxable income of a nonresident or part-year
resident," as defined in subdivision (i), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (a) on the
entire taxable income of the nonresident or part-year resident as if
the nonresident or part-year resident were a resident of this state
for the taxable year and as if the nonresident or part-year resident
were a resident of this state for all prior taxable years for any
carryover items, deferred income, suspended losses, or suspended
deductions, divided by the amount of that income.
   (c) (1) There shall be imposed for each taxable year upon the
entire taxable income of every resident of this state who is not a
part-year resident for that taxable year, when the resident is the
head of a household, as defined in Section 17042, taxes in the
following amounts and at the following rates upon the amount of
taxable income computed for the taxable year as if the resident were
a resident of the state for the entire taxable year and for all prior
taxable years for carryover items, deferred income, suspended
losses, or suspended deductions:
If the taxable income       The tax is:
is:
Not over $7,300......... 1% of the taxable
                          income
Over $7,300 but          $73 plus 2% of the
not                      excess
over $17,300............ over $7,300
Over $17,300 but         $273 plus 4% of the
not                      excess
over $22,300............ over $17,300
Over $22,300 but         $473 plus 6% of the
not                      excess
over $27,600............ over $22,300
Over $27,600 but         $791 plus 8% of the
not                      excess
over $32,600............ over $27,600
                          $1,191 plus 9.3% of the
Over $32,600............ excess
                          over $32,600


   (2) For taxable years beginning on or after January 1, 2009, and
before January 1, 2011, the percentages specified in the table in
paragraph (1) shall be increased by adding 0.25 percent to each
percentage.
   (d) (1) There shall be imposed for each taxable year upon the
taxable income of every nonresident or part-year resident when the
nonresident or part-year resident is the head of a household, as
defined in Section 17042, a tax as calculated in paragraph (2).
   (2) The tax imposed under paragraph (1) shall be calculated by
multiplying the "taxable income of a nonresident or part-year
resident," as defined in subdivision (i), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (c) on the
entire taxable income of the nonresident or part-year resident as if
the nonresident or part-year resident were a resident of this state
for the taxable year and as if the nonresident or part-year resident
were a resident of this state for all prior taxable years for any
carryover items, deferred income, suspended losses, or suspended
deductions, divided by the amount of that income.
   (e) There shall be imposed for each taxable year upon the taxable
income of every estate, trust, or common trust fund taxes equal to
the amount computed under subdivision (a) for an individual having
the same amount of taxable income.
   (f) The tax imposed by this part is not a surtax.
   (g) (1) Section 1(g) of the Internal Revenue Code, relating to
certain unearned income of children taxed as if parent's income,
shall apply, except as otherwise provided.
   (2) Section 1(g)(7)(B)(ii)(II) of the Internal Revenue Code is
modified, for purposes of this part, by substituting "1 percent" for
"10 percent."
   (h) For each taxable year beginning on or after January 1, 1988,
the Franchise Tax Board shall recompute the income tax brackets
prescribed in subdivisions (a) and (c). That computation shall be
made as follows:
   (1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index for all items from June of the
prior calendar year to June of the current calendar year, no later
than August 1 of the current calendar year.
   (2) The Franchise Tax Board shall do both of the following:
   (A) Compute an inflation adjustment factor by adding 100 percent
to the percentage change figure that is furnished pursuant to
paragraph (1) and dividing the result by 100.
   (B) Multiply the preceding taxable year income tax brackets by the
inflation adjustment factor determined in subparagraph (A) and round
off the resulting products to the nearest one dollar ($1).
   (i) (1) For purposes of this part, the term "taxable income of a
nonresident or part-year resident" includes each of the following:
   (A) For any part of the taxable year during which the taxpayer was
a resident of this state (as defined by Section 17014), all items of
gross income and all deductions, regardless of source.
   (B) For any part of the taxable year during which the taxpayer was
not a resident of this state, gross income and deductions derived
from sources within this state, determined in accordance with Article
9 of Chapter 3 (commencing with Section 17301) and Chapter 11
(commencing with Section 17951).
   (2) For purposes of computing "taxable income of a nonresident or
part-year resident" under paragraph (1), the amount of any net
operating loss sustained in any taxable year during any part of which
the taxpayer was not a resident of this state shall be limited to
the sum of the following:
   (A) The amount of the loss attributable to the part of the taxable
year in which the taxpayer was a resident.
   (B) The amount of the loss which, during the part of the taxable
year the taxpayer is not a resident, is attributable to California
source income and deductions allowable in arriving at taxable income
of a nonresident or part-year resident.
   (3) For purposes of computing "taxable income of a nonresident or
part-year resident" under paragraph (1), any carryover items,
deferred income, suspended losses, or suspended deductions shall only
be includable or allowable to the extent that the carryover item,
deferred income, suspended loss, or suspended deduction was derived
from sources within this state, calculated as if the nonresident or
part-year resident, for the portion of the year he or she was a
nonresident, had been a nonresident for all prior years.
  SEC. 6.  Section 17052.12 of the Revenue and Taxation Code is
amended to read:
   17052.12.  For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "net tax" (as
defined by Section 17039) for the taxable year an amount determined
in accordance with Section 41 of the Internal Revenue Code, except as
follows:
   (a) For each taxable year beginning before January 1, 1997, the
reference to "20 percent" in Section 41(a)(1) of the Internal Revenue
Code is modified to read "8 percent."
   (b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to "20 percent" in
Section 41(a)(1) of the Internal Revenue Code is modified to read "11
percent."
   (2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "12
percent."
   (3) For each taxable year beginning on or after January 1, 2000,
the reference to "20 percent" in Section 41(a)(1) of the Internal
Revenue Code is modified to read "15 percent."
   (c) Section 41(a)(2) of the Internal Revenue Code shall not apply.

   (d) "Qualified research" shall include only research conducted in
California.
   (e) In the case where the credit allowed under this section
exceeds the "net tax," the excess may be carried over to reduce the
"net tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
   (f) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
   (2) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
   (g) (1) For each taxable year beginning on or after January 1,
2000:
   (A) The reference to "3 percent" in Section 41(c)(4)(A)(i) of the
Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
   (B) The reference to "4 percent" in Section 41(c)(4)(A)(ii) of the
Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one percent."
   (C) The reference to "5 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one percent."
   (2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
   (3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
   (4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of alternative simplified credit, shall not apply.
   (h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
   (i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
   (1) The last sentence shall not apply.
   (2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
   (j) Section 41(a)(3) of the Internal Revenue Code shall not apply.

   (k) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
   (l) Section 41(f)(6), relating to energy research consortium,
shall not apply.
  SEC. 7.  Section 17062 of the Revenue and Taxation Code is amended
to read:
   17062.  (a) In addition to the other taxes imposed by this part,
there is hereby imposed for each taxable year, a tax equal to the
excess, if any, of--
                                                   (1) The tentative
minimum tax for the taxable year, over
   (2) The regular tax for the taxable year.
   (b) For purposes of this chapter, each of the following shall
apply:
   (1) The tentative minimum tax shall be computed in accordance with
Sections 55 to 59, inclusive, of the Internal Revenue Code, except
as otherwise provided in this part.
   (2) The regular tax shall be the amount of tax imposed by Section
17041 or 17048, before reduction for any credits against the tax,
less any amount imposed under paragraph (1) of subdivision (d) and
paragraph (1) of subdivision (e) of Section 17560.
   (3) (A) The provisions of Section 55(b)(1) of the Internal Revenue
Code shall be modified to provide that the tentative minimum tax for
the taxable year shall be equal to the following percent of so much
of the alternative minimum taxable income for the taxable year as
exceeds the exemption amount, before reduction for any credits
against the tax:
   (i) For any taxable year beginning on or after January 1, 1991,
and before January 1, 1996, 8.5 percent.
   (ii) For any taxable year beginning on or after January 1, 1996,
and before January 1, 2009, 7 percent.
   (iii) For taxable years beginning on and after January 1, 2009,
and before January 1, 2011, 7.25 percent.
   (iv) For any taxable year beginning on or after January 1, 2011, 7
percent.
   (B) In the case of a nonresident or part-year resident, the
tentative minimum tax shall be computed by multiplying the
alternative minimum taxable income of the nonresident or part-year
resident, as defined in subparagraph (C), by a rate (expressed as a
percentage) equal to the tax computed under subdivision (b) on the
alternative minimum taxable income of the nonresident or part-year
resident as if the nonresident or part-year resident were a resident
of this state for the taxable year and as if the nonresident or
part-year resident were a resident of this state for all prior
taxable years for any carryover items, deferred income, suspended
losses, or suspended deductions, divided by the amount of that
income.
   (C) For purposes of this section, the term "alternative minimum
taxable income of a nonresident or part-year resident" includes each
of the following:
   (i) For any period during which the taxpayer was a resident of
this state (as defined by Section 17014), all items of alternative
minimum taxable income (as modified for purposes of this chapter),
regardless of source.
   (ii) For any period during which the taxpayer was not a resident
of this state, alternative minimum taxable income (as modified for
purposes of this chapter) which were derived from sources within this
state, determined in accordance with Article 9 of Chapter 3
(commencing with Section 17301) and Chapter 11 (commencing with
Section 17951).
   (iii) For purposes of computing "alternative minimum taxable
income of a nonresident or part-year resident," any carryover items,
deferred income, suspended losses, or suspended deductions shall only
be allowable to the extent that the carryover item, suspended loss,
or suspended deduction was derived from sources within this state.
   (4) The provisions of Section 55(b)(2) of the Internal Revenue
Code, relating to alternative minimum taxable income, shall be
modified to provide that alternative minimum taxable income shall not
include the income, adjustments, and items of tax preference
attributable to any trade or business of a qualified taxpayer.
   (A) For purposes of this paragraph, "qualified taxpayer" means a
taxpayer who meets both of the following:
   (i) Is the owner of, or has an ownership interest in, a trade or
business.
   (ii) Has aggregate gross receipts, less returns and allowances, of
less than one million dollars ($1,000,000) during the taxable year
from all trades or businesses of which the taxpayer is the owner or
has an ownership interest, in the amount of that taxpayer's
proportionate interest in each trade or business.
   (B) For purposes of this paragraph, "aggregate gross receipts,
less returns and allowances" means the sum of the gross receipts of
the trades or businesses that the taxpayer owns and the proportionate
interest of the gross receipts of the trades or businesses that the
taxpayer owns and of pass-through entities in which the taxpayer
holds an interest.
   (C) For purposes of this paragraph, "gross receipts, less returns
and allowances" means the sum of the gross receipts from the
production of business income, as defined in subdivision (a) of
Section 25120, and the gross receipts from the production of
nonbusiness income, as defined in subdivision (d) of Section 25120.
   (D) For purposes of this paragraph, "proportionate interest"
means:
   (i) In the case of a pass-through entity that reports a profit for
the taxable year, the taxpayer's profit interest in the entity at
the end of the taxpayer's taxable year.
   (ii) In the case of a pass-through entity that reports a loss for
the taxable year, the taxpayer's loss interest in the entity at the
end of the taxpayer's taxable year.
   (iii) In the case of a pass-through entity that is sold or
liquidates during the taxable year, the taxpayer's capital account
interest in the entity at the time of the sale or liquidation.
   (E) (i) For purposes of this paragraph, "proportionate interest"
includes an interest in a pass-through entity.
   (ii) For purposes of this paragraph, "pass-through entity" means
any of the following:
   (I) A partnership, as defined by Section 17008.
   (II) An "S" corporation, as provided in Chapter 4.5 (commencing
with Section 23800) of Part 11.
   (III) A regulated investment company, as provided in Section
24871.
   (IV) A real estate investment trust, as provided in Section 24872.

   (V) A real estate mortgage investment conduit, as provided in
Section 24874.
   (5) For taxable years beginning on or after January 1, 1998,
Section 55(d)(1) of the Internal Revenue Code, relating to exemption
amount for taxpayers other than corporations is modified, for
purposes of this part, to provide the following exemption amounts in
lieu of those contained therein:
   (A) Fifty-seven thousand two hundred sixty dollars ($57,260) in
the case of either of the following:
   (i) A joint return.
   (ii) A surviving spouse.
   (B) Forty-two thousand nine hundred forty-five dollars ($42,945)
in the case of an individual who is both of the following:
   (i) Not a married individual.
   (ii) Not a surviving spouse.
   (C) Twenty-eight thousand six hundred thirty dollars ($28,630) in
the case of either of the following:
   (i) A married individual who files a separate return.
   (ii) An estate or trust.
   (6) For taxable years beginning on or after January 1, 1998,
Section 55(d)(3) of the Internal Revenue Code, relating to phaseout
of exemption amount, is modified, for purposes of this part, to
provide the following phaseout of exemption amounts in lieu of those
contained therein:
   (A) Two hundred fourteen thousand seven hundred twenty-five
dollars ($214,725) in the case of a taxpayer described in
subparagraph (A) of paragraph (5).
   (B) One hundred sixty-one thousand forty-four dollars ($161,044)
in the case of a taxpayer described in subparagraph (B) of paragraph
(5).
   (C) One hundred seven thousand three hundred sixty-two dollars
($107,362) in the case of a taxpayer described in subparagraph (C) of
paragraph (5).
   (7) For each taxable year beginning on or after January 1, 1999,
the Franchise Tax Board shall recompute the exemption amounts
prescribed in paragraph (5) and the phaseout of exemption amounts
prescribed in paragraph (6). Those computations shall be made as
follows:
   (A) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index for all items from June of the
prior calendar year to June of the current calendar year, no later
than August 1 of the current calendar year.
   (B) The Franchise Tax Board shall do both of the following:
   (i) Compute an inflation adjustment factor by adding 100 percent
to the percentage change figure that is furnished pursuant to
subparagraph (A) and dividing the result by 100.
   (ii) Multiply the preceding taxable year exemption amounts and the
phaseout of exemption amounts by the inflation adjustment factor
determined in clause (i) and round off the resulting products to the
nearest one dollar ($1).
   (c) (1) (A) Section 56(a)(6) of the Internal Revenue Code as in
effect on January 1, 1997, relating to installment sales of certain
property, shall not apply to payments received in taxable years
beginning on or after January 1, 1997, with respect to dispositions
occurring in taxable years beginning after December 31, 1987.
   (B) This paragraph shall not apply to taxable years beginning on
or after January 1, 1998.
   (2) Section 56(b)(1)(E) of the Internal Revenue Code, relating to
standard deduction and deduction for personal exemptions not allowed,
is modified, for purposes of this part, to deny the standard
deduction allowed by Section 17073.5.
   (3) Section 56(b)(3) of the Internal Revenue Code, relating to
treatment of incentive stock options, shall be modified to
additionally provide the following:
   (A) Section 421 of the Internal Revenue Code shall not apply to
the transfer of stock acquired pursuant to the exercise of a
California qualified stock option under Section 17502.
   (B) Section 422(c)(2) of the Internal Revenue Code shall apply in
any case where the disposition and inclusion of a California
qualified stock option for purposes of this chapter are within the
same taxable year and that section shall not apply in any other case.

   (C) The adjusted basis of any stock acquired by the exercise of a
California qualified stock option shall be determined on the basis of
the treatment prescribed by this paragraph.
   (d) The provisions of Section 57(a)(5) of the Internal Revenue
Code, relating to tax-exempt interest shall not apply.
   (e) Section 57(a) of the Internal Revenue Code is modified to
include as an item of tax preference an amount equal to one-half of
the amount excluded from gross income for the taxable year under
Section 18152.5.
   (f) The provisions of Section 59(a) of the Internal Revenue Code,
relating to the alternative minimum tax foreign tax credit, shall not
apply.
   (g) The provisions of Section 56(d)(3), relating to net operating
loss attributable to federally declared disasters, shall not apply.
  SEC. 8.  Section 17063 of the Revenue and Taxation Code is amended
to read:
   17063.  (a) There shall be allowed as a credit against the net tax
(as defined by Section 17039) for any taxable year an amount equal
to the minimum tax credit for that taxable year.
   (b) For purposes of subdivision (a), the minimum tax credit shall
be determined in accordance with Section 53 of the Internal Revenue
Code, except as otherwise provided in this part.
   (c) For purposes of this chapter, the amount determined under
Section 53(c)(1) of the Internal Revenue Code shall be the regular
tax as defined by paragraph (2) of subdivision (b) of Section 17062,
reduced by the sum of the credits allowable under this part, other
than:
   (1) The credits described in paragraph (7) of subdivision (a) of
Section 17039.
   (2) Any credit that reduces the tax below the tentative minimum
tax, as defined by Section 17062.
   (d) Section 53(d)(1)(B)(ii)(II) of the Internal Revenue Code is
modified to include subdivision (e) of Section 17062, as a specified
item.
   (e) Section 53(e) of the Internal Revenue Code, relating to the
special rule for individuals with long-term unused credits, shall not
apply.
  SEC. 9.  Section 17072 of the Revenue and Taxation Code is amended
to read:
   17072.  (a) Section 62 of the Internal Revenue Code, relating to
adjusted gross income defined, shall apply, except as otherwise
provided.
   (b) Section 62(a)(2)(D) of the Internal Revenue Code, relating to
certain expenses of elementary and secondary school teachers, shall
not apply.
   (c) Section 62(a)(21) of the Internal Revenue Code, relating to
attorneys fees relating to awards to whistleblowers, shall not apply.

  SEC. 10.  Section 17085 of the Revenue and Taxation Code is amended
to read:
   17085.  Section 72 of the Internal Revenue Code, relating to
annuities; certain proceeds of endowment and life insurance
contracts, is modified as follows:
   (a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
that the repeal of Section 72(d) of the Internal Revenue Code,
relating to repeal of special rule for employees' annuities, shall
apply only to the following:
   (1) Any individual whose annuity starting date is after December
31, 1986.
   (2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.
   (b) The amount of a distribution from an individual retirement
account or annuity or employee trust or employee annuity that is
includable in gross income for federal purposes shall be reduced for
purposes of this part by the lesser of either of the following:
   (1) An amount equal to the amount includable in federal gross
income for the taxable year.
   (2) An amount equal to the basis in the account or annuity allowed
by Section 17507 (relating to individual retirement accounts and
simplified employee pensions), the increased basis allowed by
Sections 17504 and 17506 (relating to plans of self-employed
individuals), the increased basis allowed by Section 17501, or the
increased basis allowed by Section 17551 that is remaining after
adjustment for reductions in gross income under this provision in
prior taxable years.
   (c) (1) Except as provided in paragraph (2), the amount of the
penalty imposed under this part shall be computed in accordance with
Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as
applicable for federal income tax purposes for the same taxable year,
using a rate of 21/2 percent, in lieu of the rate provided in those
sections.
   (2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts, as
applicable for federal income tax purposes for the same taxable year,
applies, the rate in paragraph (1) shall be 6 percent in lieu of the
21/2 percent rate specified therein.
   (d) Section 72(f)(2) of the Internal Revenue Code shall be
applicable without applying the exceptions which immediately follow
that paragraph.
   (e) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-280) to Section 72(e) of the Internal
Revenue Code, shall not apply.
  SEC. 11.  Section 17131.3 is added to the Revenue and Taxation
Code, to read:
   17131.3.  Any grant made in any taxable year by the Secretary of
the Treasury under Section 1603 of the American Recovery and
Reinvestment Tax Act of 2009 (Public Law 111-5) to a person that
places in service specified energy property shall not be includable
in the gross income or the alternative minimum taxable income of the
taxpayer, but shall be taken into account in determining the basis of
the property to which that grant relates, except that the basis of
that property shall be reduced using rules prescribed under Section
50(c) of the Internal Revenue Code in the same manner as a credit
allowed under Section 48(a) of the Internal Revenue Code, and
adjusted in accordance with rules applied by the Secretary of the
Treasury under Section 1603(f) of the American Recovery and
Reinvestment Tax Act of 2009 (Public Law 111-5).
  SEC. 12.  Section 17132.5 of the Revenue and Taxation Code is
amended to read:
   17132.5.  Section 101 of the Internal Revenue Code, relating to
certain death benefits, is modified as follows:
   (a) Section 101(h) of the Internal Revenue Code, relating to
survivor benefits attributable to service by a public safety officer
who is killed in the line of duty, is modified to apply to amounts
received in taxable years beginning after December 31, 1996, with
respect to individuals dying after December 31, 1996.
   (b) (1) Section 101 of the Internal Revenue Code, as modified by
subdivision (a) is modified to additionally provide that Section 101
(h) of the Internal Revenue Code shall not apply to survivor benefits
attributable to service by a public safety officer who is killed in
the line of duty with respect to deaths occurring before December 31,
1996, that would otherwise be eligible for exclusion pursuant to
Section 101(h) of the Internal Revenue Code, as modified by Public
Law 107-15.
   (2) The amendments made to this section by Chapter 691 of the
Statutes of 2005 shall apply to amounts paid after December 31, 2001,
with respect to deaths occurring on or before December 31, 1996.
   (c) (1) Section 101 of the Internal Revenue Code, as modified by
subdivision (b), is modified to additionally provide that Section 101
(i) of the Internal Revenue Code shall apply to any astronaut whose
death occurs in the line of duty.
   (2) The amendments made to this section by Chapter 552 of the
Statutes of 2004 shall apply to amounts received in taxable years
beginning after December 31, 2002, with respect to deaths occurring
after that date.
   (d) Section 101(j) of the Internal Revenue Code, relating to the
treatment of certain employer-owned life insurance contracts, shall
apply in accordance with the provisions of Section 863 of the Pension
Protection Act of 2006 (Public Law 109-280), relating to effective
dates, except that the phrase "January 1, 2010," shall be substituted
for "the date of the enactment of this Act" contained therein.
  SEC. 13.  Section 17132.8 is added to the Revenue and Taxation
Code, to read:
   17132.8.  (a) For purposes of this part, Part 10.2 (commencing
with Section 18401), and Part 11 (commencing with Section 23001),
gross income shall not include any amount received from the Virginia
Polytechnic Institute and State University, out of amounts
transferred from the Hokie Spirit Memorial Fund established by the
Virginia Tech Foundation, an organization organized and operated as
described in Section 501(c)(3) of the Internal Revenue Code, if that
amount is paid on account of the events on April 16, 2007, at that
university.
   (b) This section shall apply without regard to taxable year.
  SEC. 14.  Section 17144.5 of the Revenue and Taxation Code is
amended to read:
   17144.5.  (a) Section 108(a)(1)(E) of the Internal Revenue Code,
is modified to provide that the amount excluded from gross income
shall not exceed $500,000 ($250,000 in the case of a married
individual filing a separate return).
   (b) Section 108(h)(2) of the Internal Revenue Code, is modified by
substituting the phrase "(within the meaning of section 163(h)(3)
(B), applied by substituting '$800,000 ($400,000' for '$1,000,000
($500,000' in clause (ii) thereof)" for the phrase "(within the
meaning of section 163(h)(3)(B), applied by substituting '$2,000,000
($1,000,000' for '$1,000,000 ($500,000' in clause (ii) thereof)"
contained therein.
   (c) This section shall apply to discharges of indebtedness
occurring on or after January 1, 2007, and, notwithstanding any other
law to the contrary, no penalties or interest shall be due with
respect to the discharge of qualified principal residence
indebtedness during the 2007 or 2009 taxable year regardless of
whether or not the taxpayer reports the discharge on his or her
return for the 2007 or 2009 taxable year.
  SEC. 15.  Section 17152 of the Revenue and Taxation Code is amended
to read:
   17152.  Section 121 of the Internal Revenue Code, relating to
exclusion of gain from sale of principal residence, is modified as
follows:
   (a) The two-year period in Section 121(a) of the Internal Revenue
Code shall be reduced by the period of the taxpayer's service, not to
exceed 18 months, in the Peace Corps during the five-year period
ending on the date of the sale or exchange.
   (b) If the taxpayer is prohibited from filing a joint return
pursuant to Section 18521, Section 121(b)(2)(A) of the Internal
Revenue Code shall nevertheless be treated as being satisfied if the
taxpayer files a joint return for federal income tax purposes for the
same taxable year. However, in no instance shall the total amount
excludable from gross income under Section 121(a) of the Internal
Revenue Code with respect to any sale or exchange exceed the maximum
amount allowed by Section 121(b) of the Internal Revenue Code.
   (c) (1) If a taxpayer has, at any time, made an election for
federal purposes under Section 121(f) of the Internal Revenue Code
not to have Section 121 of the Internal Revenue Code apply to a sale
or exchange, Section 121 of the Internal Revenue Code shall not apply
to that sale or exchange for state purposes, a separate election for
state purposes shall not be allowed under paragraph (3) of
subdivision (e) of Section 17024.5, the federal election shall be
binding for purposes of this part, and that election shall be treated
as an election to include in gross income for purposes of this part
all the gain from the sale or exchange of that property, including
that amount which, but for that election, would have been excluded
from income under Section 121(a) of the Internal Revenue Code for
state purposes.
   (2) If a taxpayer fails to make an election for federal purposes
under Section 121(f) of the Internal Revenue Code to not have Section
121 of the Internal Revenue Code apply to a sale or exchange, no
election under Section 121(f) of the Internal Revenue Code shall be
allowed for state purposes, Section 121 of the Internal Revenue Code
shall apply to that sale or exchange for state purposes, and a
separate election for state purposes shall not be allowed under
paragraph (3) of subdivision (e) of Section 17024.5.
   (d) (1) If a taxpayer has, at any time, made an election for
federal purposes under Section 312(d)(2) of the Taxpayer Relief Act
of 1997 (Public Law 105-34), relating to sales before date of
enactment, or Section 312(d)(4) of that act, relating to binding
contracts, to not have the amendments made by Section 312 of the
Taxpayer Relief Act of 1997 (Public Law 105-34) apply to a sale or
exchange, the amendments made by the act adding this subdivision
shall not apply to that sale or exchange, Sections 1, 4, and 6 of
Chapter 610 of the Statutes of 1997 shall not apply to that sale or
exchange, a separate election for state purposes shall not be allowed
under paragraph (3) of subdivision (e) of Section 17024.5, and the
federal election shall be binding for purposes of this part.
   (2) If a taxpayer fails to make an election for federal purposes
under Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public
Law 105-34), relating to sales before date of enactment, or Section
312(d)(4) of that act, relating to binding contracts, to not have the
amendments made by Section 312 of the Taxpayer Relief Act of 1997
(Public Law 105-34) apply to a sale or exchange, an election under
Section 312(d)(2) of the Taxpayer Relief Act of 1997 (Public Law
105-34), relating to sales before date of enactment, or Section 312
(d)(4) of that act, relating to binding contracts, shall not be
allowed for state purposes, the amendments made by the act adding
this subdivision shall apply to that sale or exchange, Sections 1, 4,
and 6 of Chapter 610 of the Statutes of 1997 shall apply to that
sale or exchange, and a separate election for state purposes shall
not be allowed under paragraph (3) of subdivision (e) of Section
17024.5.
   (e) (1) If a taxpayer has, at any time, made or revoked an
election for federal purposes under Section 121(d)(9) of the Internal
Revenue Code to suspend the running of the five-year period
described in Sections 121(a), 121(c)(1)(B), and 121(d)(7) of the
Internal Revenue Code, that election or revocation of election to
suspend the five-year period under Section 121(d)(9) of the Internal
Revenue Code shall be applicable for state purposes, a separate
election or revocation of election for purposes of Section 121(d)(9)
of the Internal Revenue Code may not be allowed under paragraph (3)
of subdivision (e) of Section 17024.5, and the federal election or
revocation of election shall be binding for purposes of this part.
   (2) If a taxpayer fails to make an election for federal purposes
under Section 121(d)(9) of the Internal Revenue Code to suspend the
running of the five-year period described in Sections 121(a), 121(c)
(1)(B), and 121(d)(7) of the Internal Revenue Code, that five-year
period may not be suspended under Section 121(d)(9) of the Internal
Revenue Code for state purposes, and a separate election for state
purposes shall not be allowed under paragraph (3) of subdivision (e)
of Section 17024.5.
   (f) Section 121(d)(11) of the Internal Revenue Code, relating to
property acquired from a decedent, shall not apply.
   (g) The amendments made by Section 417 of the Tax Relief and
Health Care Act of 2006 (Public Law 109-432) to Section 121(d)(9) of
the Internal Revenue Code, relating to uniformed services, foreign
service, and intelligence community, shall apply to sales or
exchanges that occur on or after January 1, 2010.
   (h) The amendments made by subdivision (a) of Section 7 of the
Mortgage Forgiveness Debt Relief Act of 2007 (Public Law 110-142) to
Section 121 of the Internal Revenue Code, relating to exclusion of
gain from sale of principal residence, shall apply to sales or
exchanges that occur on or after January 1, 2010.
  SEC. 16.  Section 17204 is added to the Revenue and Taxation Code,
to read:
   17204.  Section 165(h)(3) of the Internal Revenue Code, relating
to special rules for losses in federally declared disasters, shall
not apply.
  SEC. 17.  Section 17206 of the Revenue and Taxation Code is amended
to read:
   17206.  (a) For purposes of Section 17201, Section 170 of the
Internal Revenue Code, relating to charitable, etc., contributions
and gifts, shall be applied to allow a taxpayer to elect to treat any
contribution described in subdivision (b) made in January 2005, as
if that contribution was made on December 31, 2004, and not in
January 2005.
   (b) A contribution is described in this subdivision if that
contribution is a cash contribution made for the relief of victims in
areas affected by the December 26, 2004, Indian Ocean tsunami for
which a charitable contribution deduction is allowable under Section
17201.
  SEC. 18.  Section 17225 is added to the Revenue and Taxation Code,
to read:
   17225.  Section 163(h)(3)(E) of the Internal Revenue Code,
relating to mortgage insurance premiums treated as interest, shall
not apply.
                                                           SEC. 19.
Section 17250 of the Revenue and Taxation Code is amended to read:
   17250.  (a) Section 168 of the Internal Revenue Code is modified
as follows:
   (1) Any reference to "tax imposed by this chapter" in Section 168
of the Internal Revenue Code means "net tax," as defined in Section
17039.
   (2) (A) Section 168(e)(3) is modified to provide that any
grapevine, replaced in a vineyard in California in any taxable year
beginning on or after January 1, 1992, as a direct result of a
phylloxera infestation in that vineyard, or replaced in a vineyard in
California in any taxable year beginning on or after January 1,
1997, as a direct result of Pierce's disease in that vineyard, shall
be "five-year property," rather than "10-year property."
   (B) Section 168(g)(3) of the Internal Revenue Code is modified to
provide that any grapevine, replaced in a vineyard in California in
any taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, or replaced in a
vineyard in California in any taxable year beginning on or after
January 1, 1997, as a direct result of Pierce's disease in that
vineyard, shall have a class life of 10 years.
   (C) Every taxpayer claiming a depreciation deduction with respect
to grapevines as described in this paragraph shall obtain a written
certification from an independent state-certified integrated pest
management adviser, or a state agricultural commissioner or adviser,
that specifies that the replanting was necessary to restore a
vineyard infested with phylloxera or Pierce's disease. The taxpayer
shall retain the certification for future audit purposes.
   (3) Section 168(j) of the Internal Revenue Code, relating to
property on Indian reservations, shall not apply.
   (4) Section 168(k) of the Internal Revenue Code, relating to
special allowance for certain property acquired after December 31,
2007, and before January 1, 2009, shall not apply.
   (5) Sections 168(b)(3)(G) and 168(b)(3)(H) of the Internal Revenue
Code shall not apply.
   (6) Sections 168(e)(3)(E)(iv), 168(e)(3)(E)(v), and 168(e)(3)(E)
(ix) of the Internal Revenue Code shall not apply.
   (7) Sections 168(e)(6), 168(e)(7), and 168(e)(8) of the Internal
Revenue Code, relating to qualified leasehold improvement property,
qualified restaurant property, and qualified retail improvement
property, respectively, shall not apply.
   (8) Section 168(l) of the Internal Revenue Code, relating to
special allowance for cellulosic biofuel plant property, shall not
apply.
   (9) Section 168(m) of the Internal Revenue Code, relating to
special allowance for certain reuse and recycling property, shall not
apply.
   (10) Section 168(n) of the Internal Revenue Code, relating to
special allowance for qualified disaster assistance property, shall
not apply.
   (11) Section 168(i)(15)(D) of the Internal Revenue Code, relating
to termination, is modified by substituting the phrase "December 31,
2007" for the phrase "December 31, 2009."
   (12) Section 168(e)(3)(B)(vii) of the Internal Revenue Code shall
not apply.
   (b) Section 169 of the Internal Revenue Code, relating to
amortization of pollution control facilities, is modified as follows:

   (1) The deduction allowed by Section 169 of the Internal Revenue
Code shall be allowed only with respect to facilities located in this
state.
   (2) The "state certifying authority," as defined in Section 169(d)
(2) of the Internal Revenue Code, means the State Air Resources
Board, in the case of air pollution, and the State Water Resources
Control Board, in the case of water pollution.
  SEC. 20.  Section 17250.5 of the Revenue and Taxation Code is
amended to read:
   17250.5.  (a) Section 167(g) of the Internal Revenue Code,
relating to depreciation under income forecast method, shall be
modified as follows:
   (1) Section 167(g)(2)(C) of the Internal Revenue Code is modified
by substituting "Section 19521" for "Section 460(b)(7)" of the
Internal Revenue Code.
   (2) Section 167(g)(5)(D) of the Internal Revenue Code is modified
by substituting "Part 10.2 (commencing with Section 18401) (other
than Section 19136)" for "Subtitle F (other than Sections 6654 and
6655)."
   (3) Section 167(g)(5)(E) of the Internal Revenue Code, relating to
treatment of distribution costs, shall not apply.
   (4) Section 167(g)(7) of the Internal Revenue Code, relating to
treatment of participations and residuals, shall not apply.
   (b) Section 167(h) of the Internal Revenue Code, relating to
amortization of geological and geophysical expenditures, shall not
apply.
  SEC. 21.  Section 17255 of the Revenue and Taxation Code is amended
to read:
   17255.  (a) Section 179(b)(1) of the Internal Revenue Code,
relating to dollar limitation, shall not apply and in lieu thereof,
the aggregate cost which may be taken into account under Section 179
(a) of the Internal Revenue Code for any taxable year shall not
exceed twenty-five thousand dollars ($25,000).
   (b) Section 179(b)(2) of the Internal Revenue Code, relating to
reduction in limitation, shall not apply and in lieu thereof, the
limitation under subdivision (a) for any taxable year shall be
reduced, but not to below zero, by the amount by which the cost of
Section 179 property, as defined in Section 179(d)(1) of the Internal
Revenue Code, except as otherwise provided, placed in service during
the taxable year exceeds two hundred thousand dollars ($200,000).
   (c) Section 179 of the Internal Revenue Code is modified to
provide that the "aggregate amount disallowed" referred to in Section
179(b)(3)(B) of the Internal Revenue Code shall be computed under
this part as it read on the date the property generating the amount
disallowed was placed in service.
   (d) Section 179(b)(5) of the Internal Revenue Code, relating to
inflation adjustments, shall not apply.
   (e) The last sentence in Section 179(c)(2) of the Internal Revenue
Code, relating to election irrevocable, shall not apply.
   (f) Section 179(d)(1)(A)(ii) of the Internal Revenue Code shall
not apply.
   (g) Section 179(e) of the Internal Revenue Code, relating to
special rules for qualified disaster assistance property, shall not
apply.
  SEC. 22.  Section 17257 is added to the Revenue and Taxation Code,
to read:
   17257.  Section 179C of the Internal Revenue Code, relating to
election to expense certain refineries, shall not apply.
  SEC. 23.  Section 17257.2 is added to the Revenue and Taxation
Code, to read:
   17257.2.  Section 179D of the Internal Revenue Code, relating to
energy efficient commercial buildings deduction, shall not apply.
  SEC. 24.  Section 17257.4 is added to the Revenue and Taxation
Code, to read:
   17257.4.  Section 179E of the Internal Revenue Code, relating to
election to expense advanced mine safety equipment, shall not apply.
  SEC. 25.  Section 17275.2 is added to the Revenue and Taxation
Code, to read:
   17275.2.  Section 170(e)(3)(C) of the Internal Revenue Code,
relating to special rule for contributions of food inventory, shall
not apply.
  SEC. 26.  Section 17275.3 is added to the Revenue and Taxation
Code, to read:
   17275.3.  Section 170(e)(3)(D) of the Internal Revenue Code,
relating to special rule for contributions of book inventory to
public schools, shall not apply.
  SEC. 27.  Section 17275.5 of the Revenue and Taxation Code is
amended to read:
   17275.5.  (a) No deduction shall be denied under Section 170(f)(8)
of the Internal Revenue Code, relating to substantiation requirement
for certain contributions, upon a showing that the requirements in
Section 170(f)(8) of the Internal Revenue Code have been met with
respect to that contribution for federal purposes.
   (b) Section 170(f)(10)(F) of the Internal Revenue Code, relating
to excise tax on premiums paid, shall not apply.
   (c) The provisions of Section 170(f)(11)(E) of the Internal
Revenue Code, relating to qualified appraisal and appraiser, shall
apply to appraisals prepared with respect to returns or submissions
filed on or after January 1, 2010.
   (d) Section 170(f)(13) of the Internal Revenue Code, relating to
contributions of certain interests in buildings located in registered
historic districts, shall not apply.
   (e) Section 170(f)(18) of the Internal Revenue Code, relating to
contributions to donor advised funds, shall not apply.
  SEC. 28.  Section 17276 of the Revenue and Taxation Code is amended
to read:
   17276.  Except as provided in Sections 17276.1, 17276.2, 17276.4,
17276.5, 17276.6, and 17276.7, the deduction provided by Section 172
of the Internal Revenue Code, relating to net operating loss
deduction, shall be modified as follows:
   (a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
   (2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
   (b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to amount of carrybacks and carryovers, shall be modified so
that the applicable percentage of the entire amount of the net
operating loss for any taxable year shall be eligible for carryover
to any subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
   (A) Fifty percent for any taxable year beginning before January 1,
2000.
   (B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
   (C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
   (D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
   (2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
   (A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (d).
   (B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
   (i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (d).
   (ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
   (A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in subdivision (d).
   (B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
   (i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (d).
   (ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (d).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.

   (5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of that paragraph,
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
   (6) For purposes of this section, the term "net loss" means the
amount of net loss after application of Sections 465 and 469 of the
Internal Revenue Code.
   (c) Section 172(b)(1) of the Internal Revenue Code, relating to
years to which the loss may be carried, is modified as follows:
   (1) Net operating loss carrybacks shall not be allowed for any net
operating losses attributable to taxable years beginning before
January 1, 2011.
   (2) A net operating loss attributable to taxable years beginning
on or after January 1, 2011, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
   (A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2011, and before January 1, 2012,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
   (B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2012, and before January 1, 2013,
the amount of carryback to any taxable year shall not exceed 75
percent of the net operating loss.
   (C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.

   (3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Section 172(b)(1)(E) of the Internal Revenue Code, relating to excess
interest loss, and Section 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest losses, shall apply
as provided.
   (4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2009.
   (d) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
substitute "five taxable years" in lieu of "20 taxable years" except
as otherwise provided in paragraphs (2) and (3).
   (B) For a net operating loss for any taxable year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code is modified to substitute "10
taxable years" in lieu of "20 taxable years."
   (2) For any taxable year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" in paragraph (1)
shall be modified to read as follows:
   (A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
   (B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
   (C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
   (3) For any carryover of a net operating loss for which a
deduction is denied by Section 17276.3, the carryover period
specified in this subdivision shall be extended as follows:
   (A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
   (B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
   (4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a taxpayer that
is under the jurisdiction of the court in a Title 11 or similar case
at any time during the income year. The loss carryover provided in
the preceding sentence shall not apply to any loss incurred after the
date the taxpayer is no longer under the jurisdiction of the court
in a Title 11 or similar case.
   (e) For purposes of this section:
   (1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the taxable year.
   (2) Except as provided in subdivision (f), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
   (3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
   (4) In the case of any trade or business activity conducted by a
partnership or "S" corporation, paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
   (f) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
   (1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person). For
purposes of this paragraph only, the following rules shall apply:
   (A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
   (B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
   (2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
   (3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
   (4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
   (5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
   (6) "Acquire" shall include any gift, inheritance, transfer
incident to divorce, or any other transfer, whether or not for
consideration.
   (7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
   (B) For purposes of this paragraph:
   (i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
   (ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (g) In computing the modifications under Section 172(d)(2) of the
Internal Revenue Code, relating to capital gains and losses of
taxpayers other than corporations, the exclusion provided by Section
18152.5 shall not be allowed.
   (h) Notwithstanding any provisions of this section to the
contrary, a deduction shall be allowed to a "qualified taxpayer" as
provided in Sections 17276.1, 17276.2, 17276.4, 17276.5, 17276.6, and
17276.7.
   (i) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
   (j) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
   (k) Except as otherwise provided, the amendments made by Chapter
107 of the Statutes of 2000 shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
   (l) Section 172(b)(1)(J) of the Internal Revenue Code, relating to
certain losses attributable federally declared disasters, shall not
apply.
   (m) Section 172(j) of the Internal Revenue Code, relating to rules
relating to qualified disaster losses, shall not apply.
  SEC. 29.  Section 17279.6 is added to the Revenue and Taxation
Code, to read:
   17279.6.  Section 198A of the Internal Revenue Code, relating to
expensing of qualified disaster expenses, shall not apply.
  SEC. 30.  Section 17501 of the Revenue and Taxation Code is amended
to read:
   17501.  (a) Subchapter D of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to deferred compensation, shall
apply, except as otherwise provided.
   (b) Notwithstanding the specified date contained in paragraph (1)
of subdivision (a) of Section 17024.5, Part I of Subchapter D of
Chapter 1 of Subtitle A of the Internal Revenue Code, relating to
pension, profitsharing, stock bonus plans, etc., and Part III of
Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code,
relating to rules relating to minimum funding standards and benefit
limitations, shall apply, except as otherwise provided, without
regard to taxable year to the same extent as applicable for federal
income tax purposes.
   (c) The maximum amount of elective deferrals (as defined in
Section 402(g)(3)) for the taxable year that may be excluded from
gross income under Section 402(g) of the Internal Revenue Code, as
applicable for state purposes, shall not exceed the amount of
elective deferrals that may be excluded from gross income under
Section 402(g) of the Internal Revenue Code, as in effect on January
1, 2010, including additional elective deferrals under Section 414(v)
of the Internal Revenue Code, as in effect on January 1, 2010.
   (d) (1) For taxable years beginning on or after January 1, 2002,
the basis of any person in the plan, account, or annuity shall be
increased by the amount of elective deferrals not excluded as a
result of the application of subdivision (c).
   (2) Any basis described in paragraph (1) shall be recovered in the
manner specified in Section 17085.
   (e) Notwithstanding the limitations provided in subdivision (c),
any income attributable to elective deferrals in taxable years
beginning on or after January 1, 2002, in conformance with Part I of
Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code,
as applicable for federal and state purposes, shall not be
includable in the gross income of the individual for whose benefit
the plan or account was established until distributed pursuant to the
plan or by operation of law.
  SEC. 31.  Section 17551 of the Revenue and Taxation Code is amended
to read:
   17551.  (a) Subchapter E of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to accounting periods and methods of
accounting, shall apply, except as otherwise provided.

   (b) Section 444(c)(1) of the Internal Revenue Code, relating to
effect of election, shall not apply.
   (c) (1) Notwithstanding the specified date contained in paragraph
(1) of subdivision (a) of Section 17024.5, Section 457 of the
Internal Revenue Code, relating to deferred compensation plans of
state and local governments and tax-exempt organizations, shall
apply, except as otherwise provided, without regard to taxable year
to the same extent as applicable for federal income tax purposes.
   (2) The maximum deferred compensation for the taxable year that
may be excluded from gross income under Section 457 of the Internal
Revenue Code, as applicable for state purposes, shall not exceed the
amount of deferred compensation that may be excluded from gross
income under Section 457 of the Internal Revenue Code, as in effect
on January 1, 2010, including additional elective deferrals under
Section 414(v) of the Internal Revenue Code, as in effect on January
1, 2010.
   (d) (1) For taxable years beginning on or after January 1, 2002,
the basis of any person in the plan shall be increased by the amount
of compensation not allowed to be excluded under subdivision (a).
   (2) Any basis described in paragraph (1) shall be recovered in the
manner specified in Section 17085.
   (e) Notwithstanding the limitations provided in subdivision (a),
any income attributable to compensation deferred in a plan in taxable
years beginning on or after January 1, 2002, in conformance with
Section 457 of the Internal Revenue Code, as applicable for federal
and state purposes, shall not be includable in the gross income of
the individual for whose benefit the plan was established until
distributed pursuant to the provisions of the plan or by operation of
law.
   (f) Section 451(i) of the Internal Revenue Code, relating to
special rule for sales or dispositions to implement Federal Energy
Regulatory Commission or state electric restructuring policy, shall
not apply.
   (g) Section 457A of the Internal Revenue Code, relating to
nonqualified deferred compensation from certain tax indifferent
parties, shall not apply.
  SEC. 32.  Section 17560.5 is added to the Revenue and Taxation
Code, to read:
   17560.5.  Section 461(j) of the Internal Revenue Code, relating to
limitation on excess farm losses of certain taxpayers, shall not
apply.
  SEC. 33.  Section 17681.3 is added to the Revenue and Taxation
Code, to read:
   17681.3.  The amendments made to Section 613A(d)(4) of the
Internal Revenue Code, relating to certain refiners excluded, by
Section 1328 of the Energy Tax Incentives Act of 2005 (Title XIII of
the Energy Policy Act of 2005, Public Law 109-58), shall not apply.
  SEC. 34.  Section 17755 is added to the Revenue and Taxation Code,
to read:
   17755.  Section 664(c) of the Internal Revenue Code, relating to
the taxation of trusts, shall not apply and, in lieu thereof, a
charitable remainder annuity trust and a charitable remainder
unitrust shall, for any taxable year, not be subject to any tax
imposed under this part, unless that trust, for the taxable year, has
unrelated business taxable income, within the meaning of Section
23732, determined as if Chapter 4 (commencing with Section 23701) of
Part 11, applied to that trust.
  SEC. 35.  Section 17952.5 of the Revenue and Taxation Code is
amended to read:
   17952.5.  (a) For purposes of computing "taxable income of a
nonresident or part-year resident" under paragraph (1) of subdivision
(i) of Section 17041, gross income of a nonresident, as defined in
Section 17015, from sources within this state shall not include
"qualified retirement income" received on or after January 1, 1996,
for any part of the taxable year during which the taxpayer was not a
resident of this state.
   (b) For purposes of this section, "qualified retirement income"
means income from any of the following:
   (1) A qualified trust under Section 401(a) of the Internal Revenue
Code that is exempt under Section 501(a) of the Internal Revenue
Code from taxation.
   (2) A simplified employee pension as defined in Section 408(k) of
the Internal Revenue Code.
   (3) An annuity plan described in Section 403(a) of the Internal
Revenue Code.
   (4) An annuity contract described in Section 403(b) of the
Internal Revenue Code.
   (5) An individual retirement plan described in Section 7701(a)(37)
of the Internal Revenue Code.
   (6) An eligible deferred compensation plan as defined in Section
457 of the Internal Revenue Code.
   (7) A governmental plan as defined in Section 414(d) of the
Internal Revenue Code.
   (8) A trust described in Section 501(c)(18) of the Internal
Revenue Code.
   (9) Any plan, program, or arrangement described in Section 3121(v)
(2)(C) of the Internal Revenue Code, or any plan, program, or
arrangement that is in writing, that provides for retirement payments
in recognition of prior service to be made to a retired partner, and
that is in effect immediately before retirement begins, if that
income is either of the following:
   (A) Part of a series of substantially equal periodic payments (not
less frequently than annually), which may include income described
in paragraphs (1) to (8), inclusive, made for either of the
following:
   (i) The life or the life expectancy of the recipient (or the joint
lives or joint life expectancies of the recipient and the designated
beneficiary of the recipient).
   (ii) A period of not less than 10 years.
   (B) A payment received after termination of employment, under a
plan, program, or arrangement to which that employment relates,
maintained solely for the purpose of providing retirement benefits
for employees in excess of the limitation imposed by Section 401(a)
(17), 401(k), 401(m), 402(g), 403(b), 408(k), or 415 of the Internal
Revenue Code, or any combination of those sections, or any other
limitation on contributions or benefits in the Internal Revenue Code
on plans to which any of those sections apply.
   (C) The fact that payments may be adjusted, from time to time,
pursuant to this plan, program, or arrangement to limit total
disbursements under a predetermined formula, or to provide
cost-of-living or similar adjustments, will not cause the periodic
payments provided under that plan, program, or arrangement to fail
the "substantially-equal-periodic-payments" test.
   (10) Any retired or retainer pay of a member or former member of a
uniform service computed under Section 1401 and following of Title
10 of the United States Code.
   (c) For purposes of this section, the term "retired partner" is an
individual who is described as a partner in Section 7701(a)(2) of
the Internal Revenue Code and who is retired under that individual's
partnership agreement.
   (d) This section shall apply only to any taxable year, or portion
thereof, that the provisions of Section 114 of Title 4 of the United
States Code, relating to limitation on state income taxation of
certain pension income, are effective.
   (e) Except as otherwise provided, references to the Internal
Revenue Code are subject to paragraph (1) of subdivision (a) of
Section 17024.5.
  SEC. 36.  Section 18031.5 is added to the Revenue and Taxation
Code, to read:
   18031.5.  Section 1031(i) of the Internal Revenue Code, relating
to special rules for mutual ditch, reservoir, or irrigation company
stock, shall not apply.
  SEC. 37.  Section 18037.5 is added to the Revenue and Taxation
Code, to read:
   18037.5.  The amendments made by Section 844 of the Pension
Protection Act of 2006 (Public Law 109-280) to Section 1035 of the
Internal Revenue Code, shall not apply.
  SEC. 38.  Section 18151.5 is added to the Revenue and Taxation
Code, to read:
   18151.5.  Section 301 of Title III of Division A of the Emergency
Economic Stabilization Act of 2008 (Public Law 110-343), relating to
gain or loss from sale of certain preferred stock, shall not apply.
  SEC. 39.  Section 18155.6 is added to the Revenue and Taxation
Code, to read:
   18155.6.  For taxable years beginning on or after January 1, 2010,
specific reference to Sections 1223(4) to (16), inclusive, of the
Internal Revenue Code in this part shall instead be treated as a
reference to Sections 1223(3) to (15), inclusive, of the Internal
Revenue Code, respectively.
  SEC. 40.  Section 18165 of the Revenue and Taxation Code is amended
to read:
   18165.  (a) Section 1245(a)(2)(C) of the Internal Revenue Code,
relating to certain deductions treated as amortization, is modified
to also refer to Sections 17252.5, 17265, and 17266.
   (b) Section 1245(b)(8) of the Internal Revenue Code, relating to
disposition of amortizable Section 197 intangibles, shall apply to
dispositions of property on or after January 1, 2010.
  SEC. 41.  Section 18180 of the Revenue and Taxation Code is amended
to read:
   18180.  (a) Section 7872 of the Internal Revenue Code, relating to
treatment of loans with below market interest rates, shall apply,
except as otherwise provided.
   (b) Section 7872(h) of the Internal Revenue Code, relating to
exception for loans to qualified continuing care facilities, shall
apply to calendar years beginning on or after January 1, 2010, with
respect to loans made before, on, or after that date.
  SEC. 42.  Section 18631 of the Revenue and Taxation Code is amended
to read:
   18631.  (a) This article does not apply to any payment of interest
obligations not taxable under Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001).
   (b) Except as otherwise provided, every person required to file an
information return with the Secretary of the Treasury under any of
the federal sections listed in subdivision (c) may be required to
file a copy of the federal information return with the Franchise Tax
Board at the time and in the manner as it may, by forms and
instructions, require.
   (c) Subdivision (b) shall apply to each of the following:
   (1) Section 6034A of the Internal Revenue Code, relating to
information to beneficiaries of estates and trusts.
   (2) Section 6039 of the Internal Revenue Code, relating to returns
required in connection with certain options.
   (3) Section 6039C of the Internal Revenue Code, relating to
returns with respect to foreign persons holding direct investments in
United States real property interests, if that person holds a direct
investment in a California real property as defined in Section
18662.
   (4) Section 6041 of the Internal Revenue Code, relating to
information at source.
   (5) Section 6041A of the Internal Revenue Code, relating to
returns regarding payments of remuneration for services and direct
sales, except that no return or statement shall be required with
respect to direct sales pursuant to Section 6041A(b) of the Internal
Revenue Code.
   (6) Section 6042 of the Internal Revenue Code, relating to returns
regarding payments of dividends and corporate earnings and profits.
   (7) Section 6045 of the Internal Revenue Code, relating to returns
of brokers.
   (8) Section 6049 of the Internal Revenue Code, relating to returns
regarding payments of interest.
   (9) Section 6050H of the Internal Revenue Code, relating to
returns relating to mortgage interest received in trade or business
from individuals.
   (10) (A) Section 6050I of the Internal Revenue Code, relating to
returns relating to cash received in trade or business, etc., except
that Section 6050I(g) of the Internal Revenue Code, relating to cash
received by criminal court, shall not apply.
   (B) (i) The Attorney General shall, upon court order following a
showing ex parte to a magistrate of an articulable suspicion that an
individual or entity has committed a felony offense to which a
federal information return is related, be provided a copy of a
federal information return filed with the Franchise Tax Board under
this paragraph. The Attorney General may make a return or information
therefrom available to a district attorney subject to regulations
promulgated by the Attorney General. The regulations shall require
the district attorney seeking the return or information to specify in
writing the specific reasons for believing that a felony offense has
been committed to which the return or information is related.
   (ii) Any information or return obtained by the Attorney General or
a district attorney pursuant to this subparagraph shall be
confidential and used only for investigative or prosecutorial
purposes.
   (11) Section 6050J of the Internal Revenue Code, relating to
returns relating to foreclosures and abandonments of security.
   (12) (A) Section 6050K of the Internal Revenue Code, relating to
returns relating to exchanges of certain partnership interests.
   (B) In addition to the general requirement under subparagraph (A),
a transferor of a partnership interest shall be required to notify
the partnership of that exchange in accordance with Section 6050K(c)
of the Internal Revenue Code.
   (13) Section 6050L of the Internal Revenue Code, relating to
returns relating to certain donated property.
   (14) Section 6050N of the Internal Revenue Code, relating to
returns regarding payments of royalties.
   (15) Section 6050P of the Internal Revenue Code, relating to
returns relating to the cancellation of indebtedness by certain
entities.
   (16) Section 6050Q of the Internal Revenue Code, relating to
certain long-term care benefits.
   (17) Section 6050R of the Internal Revenue Code, relating to
returns relating to certain purchases of fish.
   (18) Section 6050S of the Internal Revenue Code, relating to
returns relating to higher education tuition and related expenses.
   (19) Section 6052 of the Internal Revenue Code, relating to
returns regarding payment of wages in the form of group-term life
insurance.
   (20) Section 6034(a) of the Internal Revenue Code, relating to
returns of split-interest trusts.
   (21) Section 6039I of the Internal Revenue Code, relating to
returns and records with respect to employer-owned life insurance
contracts.
   (22) Section 6039J of the Internal Revenue Code, relating to
information reporting with respect to commodity credit corporation
transactions.
   (23) Section 6050V of the Internal Revenue Code, relating to
returns relating to applicable insurance contracts in which certain
exempt organizations hold interests.
   (24) Section 6050W of the Internal Revenue Code, relating to
returns relating to payments made in settlement of payment card and
third party network transactions.
   (25) Any information return that is required to be filed with the
Secretary of the Treasury pursuant to a provision of Part III of
Subchapter A of Chapter 61 of Subtitle F (commencing with Section
6031) of the Internal Revenue Code that is added to the Internal
Revenue Code by a public law enacted on or after January 1, 2009.
   (d) Every person required to make a return under subdivision (b)
shall also furnish a statement to each person whose name is required
to be set forth in the return, as required to do so by the Internal
Revenue Code.
  SEC. 43.  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 36-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.
   (3) If, after the return for a taxable year is filed, the taxpayer
provides to the Franchise Tax Board one or more signed written
documents showing that the taxpayer owes an additional amount of tax
for the taxable year, paragraph (1) shall be applied by substituting
the date the last of the documents was provided for the date on which
the return was filed.
   (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.
   (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).
   (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) (1) The amendments made to paragraph (1) of subdivision (b) by
the act adding this subdivision shall apply to notices provided
after January 1, 2011.
   (2) Paragraph (3) of subdivision (b), as added by the act adding
this subdivision, shall apply to documents provided on or after
January 1, 2011.
  SEC. 44.  Section 19131 of the Revenue and Taxation Code is amended
to read:
   19131.  (a) If any taxpayer fails to make and file a return
required by this part on or before the due date of the return or the
due date as extended by the Franchise Tax Board, then, unless it is
shown that the failure is due to reasonable cause and not due to
willful neglect, 5 percent of the tax shall be added to the tax for
each month or fraction thereof elapsing between the due date of the
return (determined without regard to any extension of time for
filing) and the date on which filed, but the total penalty may not
exceed 25 percent of the tax. In the case of a commencing
corporation, the penalty shall apply to all tax accruable on the due
date of the return. The penalty so added to the tax shall be due and
payable upon notice and demand from the Franchise Tax Board.
   (b) In the case of an individual or fiduciary who fails to file a
return of tax required by this part within 60 days of the date
prescribed for filing of that return (determined with regard to any
extension of time for filing), unless it is shown that the failure is
due to reasonable cause and not due to willful neglect, this penalty
may not be less than the lesser of one hundred thirty-five dollars
($135) or 100 percent of the amount of tax required to be shown on
the return.
   (c) For purposes of this section, the amount of tax required to be
shown on the return shall be reduced by the amount of any part of
the tax which is paid on or before the date prescribed for payment of
the tax and by the amount of any credit against the tax which may be
claimed upon the return.
   (d) If any failure to file any return is fraudulent, subdivision
(a) shall be applied by:
   (1) Substituting "15 percent" for "5 percent," and
   (2) Substituting "75 percent" for "25 percent."
   (e) This section does not apply to any failure to pay any
estimated tax required by Section 19025 or 19136.
   (f) (1) The penalty described in this section is presumed not to
apply if, with respect to the same taxable year, all of the following
conditions are met:
   (A) A taxpayer fails to make and file a return required by this
part on or before the due date of the return, determined with regard
to any extension of time for filing, and fails to make and file a
return required by Section 6012 of the Internal Revenue Code on or
before the due date of the return, determined with regard to any
extension of time for filing.
   (B) The Franchise Tax Board proposes a deficiency assessment that
is based upon a final federal determination.
   (C) The Commissioner of Internal Revenue or other officer of the
United States determines that the penalty described in Section 6651
(a)(1) of the Internal Revenue Code does not apply because the
failure to file the federal return on or before the date prescribed
for its filing was due to reasonable cause and not due to willful
neglect.
   (2) The Franchise Tax Board may rebut the presumption described in
paragraph (1) by establishing, by a preponderance of the evidence,
that the taxpayer's failure to make and file a return required by
this part was not due to reasonable cause or was due to willful
neglect.
  SEC. 45.  Section 19134 of the Revenue and Taxation Code is amended
to read:
   19134.  (a) The provisions of Section 6657 of the Internal Revenue
Code, relating to bad checks, shall apply except as otherwise
provided.
   (b) Section 6657 of the Internal Revenue Code, relating to bad
checks, is modified to apply to payments made by credit card
remittance or electronic funds transfer (as provided by Section
19011) in addition to payments made by check or money order.
   (c) For payments received prior to January 1, 1993, this section
shall be applied only to payments pertaining to taxable years
beginning on or after January 1, 1990.
   (d) For payments received on or after January 1, 1993, this
section shall be applied to all payments, without regard to taxable
year.
   (e) The amendments made to Section 6657 of the Internal Revenue
Code by Public Law 110-28 that are incorporated by reference under
this section shall apply to all payments received after the effective
date of the act adding this subdivision, without regard to taxable
year.
  SEC. 46.  Section 19164 of the Revenue and Taxation Code is amended
to read:
   19164.  (a) (1) (A) An accuracy-related penalty shall be imposed
under this part and shall be determined in accordance with Section
6662 of the Internal Revenue Code, relating to imposition of
accuracy-related penalty on underpayments, except as otherwise
provided.
   (B) (i) Except for understatements relating to reportable
transactions to which Section 19164.5 applies, in the case of any
proposed deficiency assessment issued after the last date of the
amnesty period specified in Chapter 9.1 (commencing with Section
19730) for any taxable year beginning prior to January 1, 2003, the
penalty specified in Section 6662(a) of the Internal Revenue Code
shall be computed by substituting "40 percent" for "20 percent."
   (ii) Clause (i) shall not apply to any taxable year of a taxpayer
beginning prior to January 1, 2003, if, as of the start date of the
amnesty program period specified in Section 19731, the taxpayer is
then under audit by the Franchise Tax Board, or the taxpayer has
filed a protest under Section 19041, or the taxpayer has filed an
appeal under Section 19045, or the taxpayer is engaged in settlement
negotiations under Section 19442, or the taxpayer has a pending
judicial proceeding in any court of this state or in any federal
court relating to the tax liability of the taxpayer for that taxable
year.
   (2) With respect to corporations, this subdivision shall apply to
all of the following:
   (A) All taxable years beginning on or after January 1, 1990.
   (B) Any other taxable year for which an assessment is made after
July 16, 1991.
   (C) For purposes of this section, references in Section 6662(e) of
the Internal Revenue Code and the regulations thereunder, relating
to treatment of an affiliated group that files a consolidated federal
return, are modified to apply to those entities required to be
included in a combined report under Section 25101 or 25110. For these
purposes, entities included in a combined report pursuant to
paragraph (4) or (6) of subdivision (a) of Section 25110 shall be
considered only to the extent required to be included in the combined
report.
   (3) Section 6662(d)(1)(B) of the Internal Revenue Code is modified
to provide that in the case of a corporation, other than an "S"
corporation, there is a substantial understatement of tax for any
taxable year if the amount of the understatement for the taxable year
exceeds the lesser of:
   (A) Ten percent of the tax required to be shown on the return for
the taxable year (or, if greater, two thousand five hundred dollars
($2,500)).
   (B) Five million dollars ($5,000,000).
   (4) Section 6662(d)(2)(A) of the Internal Revenue Code is modified
to additionally provide that the excess determined under Section
6662(d)(2)(A) of the Internal Revenue Code shall be determined
without regard to items to which Section 19164.5 applies
                                     and without regard to items with
respect to which a penalty is imposed by Section 19774.
   (5) The provisions of Sections 6662(e)(1) and 6662(h)(2) of the
Internal Revenue Code shall apply to returns filed on or after
January 1, 2010.
   (b) For purposes of Section 6662(d) of the Internal Revenue Code,
Section 6664 of the Internal Revenue Code, Section 6694(a)(1) of the
Internal Revenue Code, and this part, the Franchise Tax Board may
prescribe a list of positions for which the Franchise Tax Board
believes there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the proper tax
treatment. That list (and any revisions thereof) shall be published
through the use of Franchise Tax Board Notices or other published
positions. In addition, the "listed transactions" identified and
published pursuant to the preceding sentence shall be published on
the Web site of the Franchise Tax Board.
   (c) A fraud penalty shall be imposed under this part and shall be
determined in accordance with Section 6663 of the Internal Revenue
Code, relating to imposition of fraud penalty, except as otherwise
provided.
   (d) (1) Section 6664 of the Internal Revenue Code, relating to
definitions and special rules, shall apply, except as otherwise
provided.
   (2) Section 6664(c)(2) of the Internal Revenue Code shall apply to
returns filed on or after January 1, 2010.
   (3) Section 6664(c)(3) of the Internal Revenue Code shall apply to
appraisals prepared with respect to returns or submissions filed on
or after January 1, 2010.
   (e) Section 6665 of the Internal Revenue Code, relating to
applicable rules, shall apply, except as otherwise provided.
  SEC. 47.  Section 19166 of the Revenue and Taxation Code is amended
to read:
   19166.  (a) A penalty shall be imposed for understatement of any
taxpayer's liability by a tax return preparer and shall be determined
in accordance with Section 6694 of the Internal Revenue Code,
relating to understatement of taxpayer's liability by tax return
preparer, except as otherwise provided.
   (b) (1) Except as provided in paragraph (2), Section 6694(a)(1) of
the Internal Revenue Code is modified to substitute "$250" for
"$1,000."
   (2) For taxpayers that have 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, any listed transaction, as defined in
Section 6707A(c)(2) of the Internal Revenue Code, or a gross
misstatement within the meaning of Section 6404(g)(2)(D) of the
Internal Revenue Code, paragraph (1) shall not apply.
   (c) Section 6694(c) of the Internal Revenue Code shall not apply
and, in lieu thereof, the following shall apply:
   (1) If, within 30 days after the day on which notice and demand of
any penalty under Section 6694(a) or 6694(b) of the Internal Revenue
Code is made against any person who is an income tax return
preparer, that person pays an amount which is not less than 15
percent of the amount of that penalty and files a claim for refund of
the amount so paid, no levy or proceeding in court for the
collection of the remainder of that penalty shall be made, begun, or
prosecuted until the final resolution of a proceeding begun as
provided in paragraph (2). Notwithstanding Section 19381, the
beginning of that proceeding or levy during the time that prohibition
is in force may be enjoined in a proceeding in the superior court.
Nothing in this paragraph shall be construed to prohibit any
counterclaim for the remainder of that penalty in a proceeding begun
as provided in paragraph (2).
   (2) If, within 30 days after the day on which a claim for refund
of any partial payment of any penalty under Section 6694(a) or 6694
(b) of the Internal Revenue Code is denied (or, if earlier, within 30
days after the expiration of six months after the day on which the
claim for refund has been filed), the income tax return preparer
fails to begin a proceeding in the superior court for the
determination of his or her liability for that penalty, paragraph (1)
shall cease to apply with respect to that penalty, effective on the
day following the close of the applicable 30-day period referred to
in this paragraph.
   (3) The running of the period of limitations provided in Section
19371 on the collection by levy or by a proceeding in court in
respect of any penalty described in paragraph (1) shall be suspended
for the period during which the Franchise Tax Board is prohibited
from collecting by levy or a proceeding in court.
   (d) The amendments made to this section by the act adding this
subdivision shall apply to returns prepared after the effective date
of the act adding this subdivision.
  SEC. 48.  Section 19172 of the Revenue and Taxation Code is amended
to read:
   19172.  (a) In addition to the penalty imposed by Section 19706
(relating to willful failure to file return, supply information, or
pay tax), if any partnership required to file a return under Section
18633 or 18633.5 for any taxable year does either of the following:
   (1) Fails to file the return at the time prescribed therefor
(determined with regard to any extension of time for filing).
   (2) Files a return which fails to show the information required
under Section 18633 or 18633.5, that partnership shall be liable for
a penalty determined under subdivision (b) for each month (or
fraction thereof) during which that failure continues (but not to
exceed 12 months), unless it is shown that the failure is due to
reasonable cause.
   (b) For purposes of subdivision (a), the amount determined under
this subdivision for any month is the product of the following:
   (1) Eighteen dollars ($18), multiplied by
   (2) The number of persons who were partners in the partnership
during any part of the taxable year.
   (c) The penalty imposed by subdivision (a) shall be assessed
against the partnership.
   (d) Article 3 (commencing with Section 19031) of this chapter
(relating to deficiency assessments) shall not apply with respect to
the assessment or collection of any penalty imposed by subdivision
(a).
   (e) The amendments made to this section by the act adding this
subdivision shall apply to returns required to be filed after the
effective date of the act adding this subdivision.
  SEC. 49.  Section 19172.5 is added to the Revenue and Taxation
Code, to read:
   19172.5.  (a) In addition to the penalty imposed by Section 19706,
if any "S" corporation required to file a return under Section 18601
for any taxable year fails to file the return at the time prescribed
therefor (determined with regard to any extension of time for
filing), or files a return that fails to show the information
required under Section 18601, then that "S" corporation shall be
liable for a penalty determined under subdivision (b) for each month
(or fraction thereof) during which that failure continues (but not to
exceed 12 months), unless that failure is due to reasonable cause.
   (b) (1) For purposes of subdivision (a), the amount determined
under this subdivision for any month is the product of the following:

   (2) Eighteen dollars ($18), multiplied by the number of persons
who were shareholders in the "S" corporation during any part of the
taxable year.
   (c) The penalty imposed by subdivision (a) shall be assessed
against the "S" corporation.
   (d) Article 3 (commencing with Section 19031), relating to
deficiency assessments, shall not apply with respect to the
assessment or collection of any penalty imposed by subdivision (a).
   (e) This section shall apply to returns required to be filed after
the effective date of the act adding this section.
  SEC. 50.  Section 19179 of the Revenue and Taxation Code is amended
to read:
   19179.  (a) A penalty shall be imposed for filing a frivolous
return and shall be determined in accordance with Section 6702 of the
Internal Revenue Code, except as otherwise provided.
   (b) Section 6702 of the Internal Revenue Code shall be applied to
returns required to be filed under this part.
   (c) Section 6702 of the Internal Revenue Code is modified as
follows:
   (1) (A) By substituting the phrase "tax imposed under Part 10
(commencing with Section 17001), Part 11 (commencing with Section
23001), or this part" for the phrase "tax imposed by this title"
contained therein.
   (B) By substituting the phrase "frivolous or is based on a
position that the Franchise Tax Board has identified as frivolous
under subdivision (d) of Section 19179" for the term "frivolous"
contained therein.
   (C) By substituting the phrase "reflects a desire to delay or
impede the administration of federal income tax laws as determined by
the Secretary of the Treasury or the administration of the tax
imposed under Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part as determined by the
Franchise Tax Board" for the phrase "reflects a desire to delay or
impede the administration of Federal tax laws" contained therein.
   (D) By substituting the phrase "is based on a position which the
Secretary of the Treasury has identified as frivolous under Section
6702(c) of the Internal Revenue Code or the Franchise Tax Board has
identified as frivolous under subdivision (d)" for the phrase "is
based on a position which the Secretary has identified as frivolous
under subsection (c)."
   (E) By substituting the phrase "If the Franchise Tax Board
provides a person with notice that a submission is a specified
frivolous submission and the person withdraws that submission within
30 days after the notice, the penalty imposed under Section 6702(b)
(1) of the Internal Revenue Code does not apply with respect to that
submission" for the phrase "If the Secretary provides a person with
notice that a submission is a specified frivolous submission and such
person withdraws such submission within 30 days after such notice,
the penalty imposed under paragraph (1) shall not apply with respect
to such submission."
   (2) Section 6702(b)(2)(B) of the Internal Revenue Code shall not
apply and, in lieu thereof, the phrase "specified submission" means
any of the following:
   (A) A protest under Section 19041.
   (B) A request for a hearing under Section 19044.
   (C) An application under any of the following sections:
   (i) Section 19008, relating to agreements for payment of tax
liability in installments.
   (ii) Section 19443, relating to compromises.
   (iii) Section 21004, relating to actions of the Taxpayers' Rights
Advocate.
   (iv) Section 21015.5, relating to a request for review prior to
levy.
   (d) (1) The Franchise Tax Board shall prescribe (and periodically
revise) a list of positions which the Secretary of the Treasury for
federal income tax purposes or the Franchise Tax Board has identified
as being frivolous for purposes of this section.
   (2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or prescribed by the Franchise Tax Board
pursuant to paragraph (1).
   (e) (1) The Chief Counsel of the Franchise Tax Board may rescind
all or any portion of any penalty imposed by this section if both of
the following apply:
   (A) Imposing the penalty would be against equity and good
conscience.
   (B) Rescinding the penalty would promote compliance with the
requirements of this part and Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001) and effective tax
administration.
   (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 penalties imposed by this section shall be in addition to
any other penalty provided by law.
  SEC. 51.  Section 19185 is added to the Revenue and Taxation Code,
to read:
   19185.  (a) Section 6695A of the Internal Revenue Code, relating
to substantial and gross valuation misstatements attributable to
incorrect appraisals, shall apply, except as otherwise provided.
   (b) This section shall apply to appraisals with respect to returns
or submissions filed on or after January 1, 2011.
  SEC. 52.  Section 19186 is added to the Revenue and Taxation Code,
to read:
   19186.  (a) Section 6720B of the Internal Revenue Code, relating
to the fraudulent identification of exempt use property, shall apply,
except as otherwise provided.
   (b) This section shall apply to identifications made after January
1, 2011.
  SEC. 53.  Section 19443 of the Revenue and Taxation Code is amended
to read:
   19443.  (a) (1) The Executive Officer and Chief Counsel of the
Franchise Tax Board, jointly, or their delegates, may compromise any
final tax liability in which the reduction of tax is seven thousand
five hundred dollars ($7,500) or less.
   (2) Except as provided in paragraph (3), the Franchise Tax Board,
upon recommendation by its executive officer and chief counsel,
jointly, may compromise a final tax liability involving a reduction
in tax in excess of seven thousand five hundred dollars ($7,500). Any
recommendation for approval of an offer in compromise that is not
either approved or disapproved by the Franchise Tax Board, itself,
within 45 days of the submission of the recommendation shall be
deemed approved.
   (3) The Franchise Tax Board, itself, may by resolution delegate to
the executive officer and the chief counsel, jointly, the authority
to compromise a final tax liability in which the reduction of tax is
in excess of seven thousand five hundred dollars ($7,500) but less
than ten thousand dollars ($10,000).
   (b) For purposes of this section, "a final tax liability" means
any final tax liability arising under Part 10 (commencing with
Section 17001) or Part 11 (commencing with Section 23001) or related
interest, additions to tax, penalties, or other amounts assessed
under this part.
   (c) For an amount to be compromised under this section, the
following conditions shall exist:
   (1) The taxpayer shall establish that the:
   (A) Amount offered in payment is the most that can be expected to
be paid or collected from the taxpayer's present assets or income,
and
   (B) Taxpayer does not have reasonable prospects of acquiring
increased income or assets that would enable the taxpayer to satisfy
a greater amount of the liability than the amount offered, within a
reasonable period of time.
   (2) The Franchise Tax Board shall have determined that acceptance
of the compromise is in the best interest of the state.
   (d) A determination by the Franchise Tax Board that it would not
be in the best interest of the state to accept an offer in compromise
in satisfaction of a final tax liability shall not be subject to
administrative appeal or judicial review.
   (e) When an offer in compromise is either accepted or rejected, or
the terms and conditions of a compromise agreement are fulfilled,
the Franchise Tax Board shall notify the taxpayer in writing.
   (f) In the case of a joint and several liability, the acceptance
of an offer in compromise from one liable spouse shall not relieve
the other spouse from paying the entire liability. However, the
amount of the liability shall be reduced by the amount of the
accepted offer.
   (g) Whenever a compromise of tax or penalties or total tax and
penalties in excess of five hundred dollars ($500) is approved, there
shall be placed on file for at least one year in the office of the
Executive Officer of the Franchise Tax Board a public record with
respect to that compromise. The public record shall include all of
the following information:
   (1) The name of the taxpayer.
   (2) The amount of unpaid tax, and related penalties, additions to
tax, interest, or other amounts involved.
   (3) The amount offered.
   (4) A summary of the reason why the compromise is in the best
interest of the state.
   The public record shall not include any information that relates
to any trade secret, patent, process, style of work, apparatus,
business secret, or organizational structure, that if disclosed,
would adversely affect the taxpayer or the national defense. No list
shall be prepared and no releases distributed by the Franchise Tax
Board in connection with these statements.
   (h) Any compromise made under this section may be rescinded, all
compromised liabilities may be reestablished (without regard to any
statute of limitations that otherwise may be applicable), and no
portion of the amount offered in compromise refunded, if either of
the following occurs:
   (1) The Franchise Tax Board determines that any person did any of
the following acts regarding the making of the offer:
   (A) Concealed from the Franchise Tax Board any property belonging
to the estate of any taxpayer or other person liable for the tax.
   (B) Received, withheld, destroyed, mutilated, or falsified any
book, document, or record or made any false statement, relating to
the estate or financial condition of the taxpayer or other person
liable for the tax.
   (2) The taxpayer fails to either:
   (A) Comply with any of the terms and conditions relative to the
offer.
   (B) File subsequent required returns and pay subsequent final tax
liabilities within 20 days after the Franchise Tax Board issues
notice and demand to the person stating that the continued failure to
file or pay the tax may result in rescission of the compromise.
   (i) Notwithstanding any other provision of this section, if the
Franchise Tax Board determines that any portion of an application for
an offer in compromise or installment agreement submitted under this
section or Section 19008 meets the requirements of clause (i) or
(ii) of Section 6702(b)(2)(A) of the Internal Revenue Code, as
modified by Section 19179, then the Franchise Tax Board may treat
that portion as if it were never submitted and that portion shall not
be subject to any further administrative or judicial review.
   (j) This section shall become operative on the effective date of
Chapter 931 of the Statutes of 1999 without regard to the taxable
year at issue.
  SEC. 54.  Section 21015.5 of the Revenue and Taxation Code is
amended to read:
   21015.5.  (a) (1) No levy may be made on any property or property
right of any person unless the board has notified the person in
writing of his or her rights as described in subparagraph (C) of
paragraph (3) before the levy is made. Except as provided in
subdivision (f), the notice shall be required only once for the
taxable period to which the unpaid tax specified in subparagraph (A)
of paragraph (3) relates. The notice shall not be required if the
unpaid tax for which notice would otherwise be required under this
paragraph is consolidated for collection purposes with a preexisting
unpaid tax for which notice has been given under this paragraph.
   (2) The notice required by paragraph (1) shall be made by
first-class mail to the address of record not less than 30 days
before the day of the first levy with respect to the amount of the
unpaid tax for the taxable period. Notice under paragraph (1) is not
required if previous mail to the same address was returned
undelivered with no forwarding address.
   (3) The notice required under paragraph (1) shall specify, in
simple and nontechnical terms, all of the following:
   (A) The amount of unpaid tax.
   (B) A telephone number to call in the event of any questions.
   (C) The right of the person to request a review during the 30-day
period described in paragraph (2).
   (D) The proposed action or actions that may be taken by the
Franchise Tax Board and the rights of the person with respect to the
action or actions, including a brief statement that sets forth all of
the following:
   (i) The provisions of California law relating to levy and sale of
property.
   (ii) The procedures applicable to the levy and sale of property
under California law.
   (iii) The independent departmental administrative review available
to the taxpayers with respect to the levy and sale and the
procedures to obtain that review.
   (iv) The alternatives available to taxpayers that could prevent
levy on property, including installment agreements under Section
19008.
   (v) California legal requirements and procedures with respect to
the release of levy.
   (b) (1) The Taxpayers' Rights Advocate shall establish procedures
for an independent departmental administrative review for taxpayers
who request review under subparagraph (C) of paragraph (3) of
subdivision (a).
   (2) A person shall be entitled to only one review under this
section with respect to the taxable period to which the unpaid tax
specified in subparagraph (A) of paragraph (3) of subdivision (a)
relates.
   (3) An independent departmental administrative review under this
subdivision shall be conducted by an officer or employee, or officers
or employees, who have had no prior involvement with respect to the
unpaid tax specified in subparagraph (A) of paragraph (3) of
subdivision (a) before the first review under this section or Section
19225. A taxpayer may waive the requirement of this paragraph.
Administrative review under this subdivision is not subject to
Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3
of the Government Code.
   (c) (1) The person or persons conducting the independent
departmental administrative review shall obtain verification that the
requirements of any applicable law or administrative procedures have
been met by the board.
   (2) The taxpayer may raise during the review any relevant issue
relating to the unpaid tax or the lien, including any of the
following:
   (A) Appropriate spousal defenses.
   (B) Challenges to the appropriateness of collection actions.
   (C) Offers of collection alternatives, that may include the
posting of a bond, the substitution of other assets, an installment
agreement, or an offer in compromise.
   (3) The determination of the person or persons conducting the
review under this subdivision shall take into consideration all of
the following:
   (A) The verification presented under paragraph (1).
   (B) The issues raised under paragraph (2).
   (C) Whether any proposed collection action balances the need for
the efficient collection of taxes with the legitimate concern of the
person that any collection action not be more intrusive than
necessary.
   (4) An issue may not be raised during the review if:
   (A) The issue was raised and considered at a previous review under
this section or in any other administrative or judicial proceeding.
   (B) The person seeking to raise the issue participated
meaningfully in the review or proceeding.
   (C) The issue meets the requirements of clause (i) or (ii) of
Section 6702(b)(2)(A) of the Internal Revenue Code, as modified by
Section 19179.
   This paragraph does not apply to any issue with respect to a
change in circumstances of that person that affects the
determination.
   (d) If review is requested under subparagraph (C) of paragraph (3)
of subdivision (a), the levy actions that are the subject of the
requested review shall be suspended for the period during which the
review is pending. In no event shall any period expire before the
15th day after the day upon which there is a final determination in
the review.
   (e) This section does not apply if the board has made a finding
under Section 19081 or Section 19082 that the collection of tax is in
jeopardy except that the taxpayer shall be given the opportunity for
the review described in this section within a reasonable period of
time after the levy.
   (f) If the board holds in abeyance the collection of a liability
imposed under Part 10 (commencing with Section 17001) or Part 10.2
(commencing with Section 18401), that is final and otherwise due and
payable, for a period in excess of six months from the date the hold
is first placed on the account, the board shall thereafter mail to
the taxpayer a notice prior to issuing a levy or filing or recording
a notice of state tax lien.
   (g) This section is operative for collection actions initiated
after the date which is 180 days after the effective date of the act
adding this section.
   (h) Notwithstanding any other provision of this section, if the
board determines that any portion of a request for review under this
section meets the requirements of clause (i) or (ii) of Section 6702
(b)(2)(A) of the Internal Revenue Code, as modified by Section 19179,
then the Franchise Tax Board may treat that portion as if it were
never submitted and that portion shall not be subject to any further
administrative or judicial review.
  SEC. 55.  Section 23045 of the Revenue and Taxation Code is amended
to read:
   23045.  For purposes of this part:
   (a) Section 7702 of the Internal Revenue Code, relating to life
insurance contract defined, shall apply, except as otherwise
provided.
   (b) Section 7702A of the Internal Revenue Code, relating to
modified endowment contract defined, shall apply, except as otherwise
provided.
   (c) (1) Section 7702B of the Internal Revenue Code, relating to
treatment of qualified long-term care insurance, shall apply, except
as otherwise provided.
   (2) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-280) to Section 7702B of the Internal
Revenue Code shall not apply.
  SEC. 56.  Section 23046.5 is added to the Revenue and Taxation
Code, to read:
   23046.5.  (a) Section 7701(n) of the Internal Revenue Code,
relating to convention or association of churches, shall apply,
except as otherwise provided.
   (b) The phrase "this part" shall be substituted for "this title"
in Section 7701(n) of the Internal Revenue Code.
  SEC. 57.  Section 23051.5 of the Revenue and Taxation Code is
amended to read:
   23051.5.  (a) (1) Unless otherwise specifically provided, the
terms "Internal Revenue Code," "Internal Revenue Code of 1954," or
"Internal Revenue Code of 1986," for purposes of this part, mean
Title 26 of the United States Code, including all amendments thereto,
as enacted on the specified date for the applicable taxable year as
defined in paragraph (1) of subdivision (a) of Section 17024.5.
   (2) (A) Unless otherwise specifically provided, for federal laws
enacted on or after January 1, 1987, and on or before the specified
date for the taxable year, uncodified provisions that relate to
provisions of the Internal Revenue Code that are incorporated for
purposes of this part, shall be applicable to the same taxable years
as the incorporated provisions.
       (B) In the case where Section 901 of the Economic Growth and
Tax Relief Act of 2001 (Public Law 107-16) applies to any provision
of the Internal Revenue Code that is incorporated for purposes of
this part, Section 901 of the Economic Growth and Tax Relief Act of
2001 (Public Law 107-16) shall apply for purposes of this part in the
same manner and to the same taxable years as it applies for federal
income tax purposes.
   (3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle
H (Repeal of Expired or Obsolete Provisions) of the Revenue
Reconciliation Act of 1990 (Public Law 101-508) modified numerous
provisions of the Internal Revenue Code and provisions of prior
federal acts, some of which are incorporated by reference into this
part. Unless otherwise provided, the provisions described in the
preceding sentence, to the extent that they modify provisions that
are incorporated into this part, are declaratory of existing law and
shall be applied in the same manner and for the same periods as
specified in the Revenue Reconciliation Act of 1990.
   (b) Unless otherwise specifically provided, when applying the
Internal Revenue Code for purposes of this part, a reference to any
of the following is not applicable for purposes of this part:
   (1) Domestic International Sales Corporations (DISC), as defined
in Section 992(a) of the Internal Revenue Code.
   (2) Foreign Sales Corporations (FSC), as defined in Section 922(a)
of the Internal Revenue Code.
   (3) A personal holding company, as defined in Section 542 of the
Internal Revenue Code.
   (4) A foreign personal holding company, as defined in Section 552
of the Internal Revenue Code.
   (5) A foreign investment company, as defined in Section 1246(b) of
the Internal Revenue Code.
   (6) A foreign trust as defined in Section 679 of the Internal
Revenue Code.
   (7) Foreign income taxes and foreign income tax credits.
   (8) Federal tax credits and carryovers of federal tax credits.
   (c) (1) The provisions contained in Sections 41 to 44, inclusive,
and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369),
relating to treatment of debt instruments, is not applicable for
taxable years beginning before January 1, 1987.
   (2) The provisions contained in Public Law 99-121, relating to the
treatment of debt instruments, is not applicable for taxable years
beginning before January 1, 1987.
   (3) For taxable years beginning on and after January 1, 1987, the
provisions referred to by paragraphs (1) and (2) shall be applicable
for purposes of this part in the same manner and with respect to the
same obligations as the federal provisions, except as otherwise
provided in this part.
   (d) When applying the Internal Revenue Code for purposes of this
part, regulations promulgated in final form or issued as temporary
regulations by "the secretary" shall be applicable as regulations
issued under this part to the extent that they do not conflict with
this part or with regulations issued by the Franchise Tax Board.
   (e) Whenever this part allows a taxpayer to make an election, the
following rules shall apply:
   (1) A proper election filed with the Internal Revenue Service in
accordance with the Internal Revenue Code or regulations issued by
"the secretary" shall be deemed to be a proper election for purposes
of this part, unless otherwise expressly provided in this part or in
regulations issued by the Franchise Tax Board.
   (2) A copy of that election shall be furnished to the Franchise
Tax Board upon request.
   (3) (A) Except as provided in subparagraph (B), in order to obtain
treatment other than that elected for federal purposes, a separate
election shall be filed with the Franchise Tax Board at the time and
in the manner that may be required by the Franchise Tax Board.
   (B) (i) If a taxpayer makes a proper election for federal income
tax purposes prior to the time that taxpayer becomes subject to the
tax imposed under this part or Part 10 (commencing with Section
17001), that taxpayer is deemed to have made the same election for
purposes of the tax imposed by this part, Part 10 (commencing with
Section 17001), and Part 10.2 (commencing with Section 18401), as
applicable, and that taxpayer may not make a separate election for
California tax purposes unless that separate election is expressly
authorized by this part, Part 10 (commencing with Section 17001), or
Part 10.2 (commencing with Section 18401), or by regulations issued
by the Franchise Tax Board.
   (ii) If a taxpayer has not made a proper election for federal
income tax purposes prior to the time that taxpayer becomes subject
to tax under this part or Part 10 (commencing with Section 17001),
that taxpayer may not make a separate California election for
purposes of this part, Part 10 (commencing with Section 17001), or
Part 10.2 (commencing with Section 18401), unless that separate
election is expressly authorized by this part, Part 10 (commencing
with Section 17001), Part 10.2 (commencing with Section 18401), or by
regulations issued by the Franchise Tax Board.
   (iii) This subparagraph applies only to the extent that the
provisions of the Internal Revenue Code or regulations issued by "the
secretary" authorizing an election for federal income tax purposes
apply for purposes of this part, Part 10 (commencing with Section
17001), or Part 10.2 (commencing with Section 18401).
   (f) Whenever this part allows or requires a taxpayer to file an
application or seek consent, the rules set forth in subdivision (e)
shall apply to that application or consent.
   (g) When applying the Internal Revenue Code for purposes of
determining the statute of limitations under this part, any reference
to a period of three years shall be modified to read four years for
purposes of this part.
   (h) When applying, for purposes of this part, any section of the
Internal Revenue Code or any applicable regulation thereunder, all of
the following shall apply:
   (1) For purposes of Chapter 2 (commencing with Section 23101),
Chapter 2.5 (commencing with Section 23400), and Chapter 3
(commencing with Section 23501), the term "taxable income" shall mean
"net income."
   (2) For purposes of Article 2 (commencing with Section 23731) of
Chapter 4, the term "taxable income" shall mean "unrelated business
taxable income," as defined by Section 23732.
   (3) Any reference to "subtitle," "Chapter 1," or "chapter" shall
mean this part.
   (4) The provisions of Section 7806 of the Internal Revenue Code,
relating to construction of title, shall apply.
   (5) Any provision of the Internal Revenue Code that becomes
operative on or after the specified date for that taxable year shall
become operative on the same date for purposes of this part.
   (6) Any provision of the Internal Revenue Code that becomes
inoperative on or after the specified date for that taxable year
shall become inoperative on the same date for purposes of this part.
   (7) Due account shall be made for differences in federal and state
terminology, effective dates, substitution of "Franchise Tax Board"
for "secretary" when appropriate, and other obvious differences.
   (8) Any provision of the Internal Revenue Code that refers to a
"corporation" shall, when applicable for purposes of this part,
include a "bank," as defined by Section 23039.
   (9) Except as otherwise provided, any reference to Section 501 of
the Internal Revenue Code shall be interpreted to also refer to
Section 23701.
   (i) Any reference to a specific provision of the Internal Revenue
Code shall include modifications of that provision, if any, in this
part.
  SEC. 58.  Section 23456 of the Revenue and Taxation Code is amended
to read:
   23456.  For purposes of this part, Section 56 of the Internal
Revenue Code is modified as follows:
   (a) (1) Section 56(a)(2) of the Internal Revenue Code, relating to
mining exploration and development costs, shall apply only to
expenses incurred during taxable years beginning on or after January
1, 1988.
   (2) Section 56(a)(5) of the Internal Revenue Code, relating to
pollution control facilities, shall apply only to amounts allowable
as a deduction under Section 24372.3.
   (3) (A) Section 56(a)(6) of the Internal Revenue Code, as in
effect on January 1, 1997, relating to installment sales of certain
property, shall not apply to payments received in taxable years
beginning on or after January 1, 1997, with respect to dispositions
occurring in taxable years beginning after December 31, 1987.
   (B) This paragraph shall not apply to any taxable year beginning
on or after January 1, 1998.
   (b) For purposes of applying Section 56(d) of the Internal Revenue
Code, all references to "December 31, 1986," are modified to read
"December 31, 1987," and all references to "January 1, 1987," are
modified to read "January 1, 1988."
   (c) Section 56(d)(1) of the Internal Revenue Code is modified to
include the provisions of Section 25108.
   (d) For each taxable year beginning on or after January 1, 1988,
and before January 1, 1990, Section 56(f)(2)(E) of the Internal
Revenue Code, as it read during that period, is modified to refer to
both of the following:
   (1) Cooperatives under Section 24404 in lieu of the deduction
allowed under Section 1382(b) of the Internal Revenue Code.
   (2) Credit unions under Section 24405 as though the deduction
allowed under Section 1382(b) of the Internal Revenue Code applied to
credit unions.
   (e) Section 56(g) of the Internal Revenue Code, relating to
adjustments based on adjusted current earnings, is modified to
provide that for corporations whose income is determined under
Chapter 17 (commencing with Section 25101), adjusted current earnings
shall be allocated and apportioned in the same manner as net income
is allocated and apportioned for purposes of the regular tax. In
addition, each of the following shall apply:
   (1) Sections 56(g)(1)(A) and 56(g)(3) of the Internal Revenue Code
are modified to provide that the term "adjusted current earnings"
means the sum of the adjusted current earnings of that corporation
apportionable to this state and the adjusted current earnings
allocable to this state.
   (2) Section 56(g)(1)(B) of the Internal Revenue Code is modified
to provide that the term "alternative minimum taxable income" means
the sum of the alternative minimum taxable income of that corporation
apportionable to this state and the alternative minimum taxable
income allocable to this state.
   (f) Section 56(g)(4)(A) of the Internal Revenue Code is modified
to provide the following:
   (1) In the case of any property placed in service on or after
January 1, 1981, and prior to January 1, 1987, other than residential
rental property for which an election was made under former Section
24349.5, the amount allowable as depreciation or amortization with
respect to that property shall be the same amount that would have
been allowable for the taxable year had the taxpayer depreciated the
property under the straight line method for each taxable year of the
useful life (determined without regard to Section 24354.2) for which
the taxpayer has held the property.
   (2) In the case of any property placed in service on or after
January 1, 1987, and prior to January 1, 1990, other than residential
rental property for which an election was made under former Section
24349.5, the amount allowable as depreciation or amortization with
respect to that property shall be determined by each of the
following:
   (A) Taking into account the adjusted basis of that property (as
determined for purposes of computing alternative minimum taxable
income) as of the close of the last taxable year beginning before
January 1, 1990.
   (B) Using the straight line method over the remainder of the
recovery period applicable to that property under the alternative
system of Section 168(g) of the Internal Revenue Code.
   (3) The amendments made to paragraph (2) by the act adding this
paragraph shall apply to taxable years beginning on or after January
1, 1990.
   (4) The last sentence of Section 56(g)(4)(A)(i) of the Internal
Revenue Code, shall not apply to taxable years beginning before
January 1, 1998.
   (g) (1) Section 56(g)(4)(C) of the Internal Revenue Code, relating
to disallowance of items not deductible in computing earnings and
profits, shall be modified as follows:
   (A) (i) A deduction shall be allowed for amounts allowable as a
deduction for purposes of the regular tax under Sections 24402,
24410, 24411, and 25106.
   (ii) For each taxable year beginning on or after January 1, 1990,
a deduction shall be allowed for amounts allowable as a deduction to
a credit union for purposes of the regular tax under Section 24405.
   (B) Section 56(g)(4)(C)(ii) of the Internal Revenue Code, relating
to special rule for certain dividends, shall not be applicable.
   (C) Section 56(g)(4)(C)(iii) of the Internal Revenue Code,
relating to treatment of taxes on dividends from 936 corporations,
shall not be applicable.
   (D) Section 56(g)(4)(C)(iv) of the Internal Revenue Code, relating
to special rule for certain dividends received by certain
cooperatives, shall not be applicable.
   (2) Section 56(g)(4)(D)(ii) of the Internal Revenue Code is
modified to specify that Sections 24364 and 24407 shall not apply to
expenditures paid or incurred in taxable years beginning on or after
January 1, 1990.
   (3) With respect to corporations that are not subject to the tax
imposed under Chapter 2 (commencing with Section 23101), the amount
of interest income included in the adjusted current earnings shall
not exceed the amount of interest income included for purposes of the
regular tax.
   (4) Appropriate adjustments shall be made to limit deductions from
adjusted current earnings for interest expense in accordance with
the provisions of Sections 24344 and 24425.
   (h) The provisions of Section 56(d)(3), relating to net operating
loss attributable to federally declared disasters, shall not apply.
  SEC. 59.  Section 23609 of the Revenue and Taxation Code is amended
to read:
   23609.  For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) an amount determined in accordance with
Section 41 of the Internal Revenue Code, except as follows:
   (a) For each taxable year beginning before January 1, 1997, both
of the following modifications shall apply:
   (1) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "8 percent."
   (2) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "12 percent."
   (b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, both of the following modifications
shall apply:
   (A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "11 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, both of the following shall apply:
   (A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "12 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (3) For each taxable year beginning on or after January 1, 2000,
both of the following shall apply:
   (A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code is modified to read "15 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (c) (1) With respect to any expense paid or incurred after the
operative date of Section 6378, Section 41(b)(1) of the Internal
Revenue Code is modified to exclude from the definition of "qualified
research expense" any amount paid or incurred for tangible personal
property that is eligible for the exemption from sales or use tax
provided by Section 6378.
   (2) "Qualified research" and "basic research" shall include only
research conducted in California.
   (d) The provisions of Section 41(e)(7)(A) of the Internal Revenue
Code, shall be modified so that "basic research," for purposes of
this section, includes any basic or applied research including
scientific inquiry or original investigation for the advancement of
scientific or engineering knowledge or the improved effectiveness of
commercial products, except that the term does not include any of the
following:
   (1) Basic research conducted outside California.
   (2) Basic research in the social sciences, arts, or humanities.
   (3) Basic research for the purpose of improving a commercial
product if the improvements relate to style, taste, cosmetic, or
seasonal design factors.
   (4) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any
deposit of ore or other mineral (including oil and gas).
   (e) (1) In the case of a taxpayer engaged in any biopharmaceutical
research activities that are described in codes 2833 to 2836,
inclusive, or any research activities that are described in codes
3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial
Classification (SIC) Manual published by the United States Office of
Management and Budget, 1987 edition, or any other biotechnology
research and development activities, the provisions of Section 41(e)
(6) of the Internal Revenue Code shall be modified to include both of
the following:
   (A) A qualified organization as described in Section 170(b)(1)(A)
(iii) of the Internal Revenue Code and owned by an institution of
higher education as described in Section 3304(f) of the Internal
Revenue Code.
   (B) A charitable research hospital owned by an organization that
is described in Section 501(c)(3) of the Internal Revenue Code, is
exempt from taxation under Section 501(a) of the Internal Revenue
Code, is not a private foundation, is designated a "specialized
laboratory cancer center," and has received Clinical Cancer Research
Center status from the National Cancer Institute.
   (2) For purposes of this subdivision:
   (A) "Biopharmaceutical research activities" means those activities
that use organisms or materials derived from organisms, and their
cellular, subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
   (B) "Other biotechnology research and development activities"
means research and development activities consisting of the
application of recombinant DNA technology to produce commercial
products, as well as research and development activities regarding
pharmaceutical delivery systems designed to provide a measure of
control over the rate, duration, and site of pharmaceutical delivery.

   (f) In the case where the credit allowed by this section exceeds
the "tax," the excess may be carried over to reduce the "tax" in the
following year, and succeeding years if necessary, until the credit
has been exhausted.
   (g) For each taxable year beginning on or after January 1, 1998,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 10 (commencing with Section
17001)."
   (h) (1) For each taxable year beginning on or after January 1,
2000:
   (A) The reference to "3 percent" in Section 41(c)(4)(A)(i) of the
Internal Revenue Code is modified to read "one and forty-nine
hundredths of one percent."
   (B) The reference to "4 percent" in Section 41(c)(4)(A)(ii) of the
Internal Revenue Code is modified to read "one and ninety-eight
hundredths of one percent."
   (C) The reference to "5 percent" in Section 41(c)(4)(A)(iii) of
the Internal Revenue Code is modified to read "two and forty-eight
hundredths of one percent."
   (2) Section 41(c)(4)(B) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code may
be made for any taxable year of the taxpayer beginning on or after
January 1, 1998. That election shall apply to the taxable year for
which made and all succeeding taxable years unless revoked with the
consent of the Franchise Tax Board.
   (3) Section 41(c)(7) of the Internal Revenue Code, relating to
gross receipts, is modified to take into account only those gross
receipts from the sale of property held primarily for sale to
customers in the ordinary course of the taxpayer's trade or business
that is delivered or shipped to a purchaser within this state,
regardless of f.o.b. point or any other condition of the sale.
   (4) Section 41(c)(5) of the Internal Revenue Code, relating to
election of the alternative simplified credit, shall not apply.
   (i) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
   (j) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough of credit, is modified by each of the
following:
   (1) The last sentence shall not apply.
   (2) If the amount determined under Section 41(a) of the Internal
Revenue Code for any taxable year exceeds the limitation of Section
41(g) of the Internal Revenue Code, that amount may be carried over
to other taxable years under the rules of subdivision (f), except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
   (k) Section 41(a)(3) of the Internal Revenue Code shall not apply.

   (l) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and federal
laboratories, shall not apply.
   (m) Section 41(f)(6) of the Internal Revenue Code, relating to
energy research consortium, shall not apply.
  SEC. 60.  Section 23703.7 is added to the Revenue and Taxation
Code, to read:
   23703.7.  Section 501(q) of the Internal Revenue Code, relating to
special rules for credit counseling organizations, shall apply,
except as otherwise provided.
   (a) The phrase "Section 23701" shall be substituted for
"subsection (a)" in Section 501(q)(1) of the Internal Revenue Code.
   (b) The phrase "described in Section 23701d or Section 23701f"
shall be substituted for "described in paragraph (3) or (4) of
subsection (c)" in Section 501(q)(1) of the Internal Revenue Code.
   (c) The phrase "described in Section 23701d and exempt from tax
under Section 23701" shall be substituted for "described in
subsection (c)(3) and exempt from tax under subsection (a)" in each
place that it appears in Section 501(q)(1)(E) of the Internal Revenue
Code.
   (d) The phrase "described in Section 23701d shall not be exempt
from tax under Section 23701" shall be substituted for "described in
paragraph (3) of subsection (c) shall not be exempt from tax under
subsection (a)" in Section 501(q)(2)(A) of the Internal Revenue Code.

   (e) The phrase "described in Section 23701d and exempt from tax
under Section 23701 on January 1, 2009," shall be substituted for
"described in paragraph (3) of subsection (c) and exempt from tax
under subsection (a) on the date of the enactment of this subsection"
in Section 501(q)(2)(B)(ii) of the Internal Revenue Code.
   (f) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this subsection" in Section 501(q)(2)(B)(ii)
(I) of the Internal Revenue Code.
   (g) The phrase "described in Section 23701f shall not be exempt
from tax under Section 23701" shall be substituted for "described in
paragraph (4) of subsection (c) shall not be exempt from tax under
subsection (a)" in Section 501(q)(3) of the Internal Revenue Code.
  SEC. 61.  Section 23712 of the Revenue and Taxation Code is amended
to read:
   23712.  Section 530 of the Internal Revenue Code, relating to
Coverdell education savings accounts, shall apply, except as
otherwise provided.
   (a) Section 530(a) of the Internal Revenue Code is modified as
follows:
   (1) By substituting the phrase "under Part 10 (commencing with
Section 17001) and this part" for the phrase "under this subtitle."
   (2) By substituting "Article 2 (commencing with Section 23731)"
for "section 511."
   (b) For taxable years beginning before January 1, 2002, Section
530(b)(1) of the Internal Revenue Code, relating to Coverdell
education savings account, is modified to additionally require that
upon the date that the designated beneficiary becomes 30 years of
age, any balance to the credit of the beneficiary shall be
distributed within 30 days after the date the beneficiary becomes 30
years of age to that beneficiary.
   (c) Section 530(d) of the Internal Revenue Code is modified as
follows:
   (1) By substituting the phrase "under Part 10 (commencing with
Section 17001) in the manner as provided in Section 72(b) of the
Internal Revenue Code, as modified by Part 10" for the phrase "in the
manner as provided in Section 72(b)" in Section 530(d)(1) of the
Internal Revenue Code.
   (2) (A) By substituting the phrase "tax imposed by Part 10
(commencing with Section 17001)" for the phrase "tax imposed by this
chapter" in Section 530(d)(4)(A) of the Internal Revenue Code.
   (B) By substituting the phrase "increased by 21/2 percent" for the
phrase "increased by 10 percent" in Section 530(d)(4)(A) of the
Internal Revenue Code.
   (C) By substituting the phrase "shall be included in the
contributor's gross income under Part 10 (commencing with Section
17001) or this part" for the phrase "shall be included in gross
income" in Section 530(d)(4)(C) of the Internal Revenue Code.
   (D) For taxable years beginning before January 1, 2005:
   (i) By additionally providing that Section 530(d)(4)(A) of the
Internal Revenue Code shall not apply if the payment or distribution
is made on account of the attendance of the designated beneficiary at
the United States Military Academy, the United States Naval Academy,
the United States Air Force Academy, the United States Coast Guard
Academy, or the United States Merchant Marine Academy, to the extent
that the amount of the payment or distribution does not exceed the
costs of advanced education (as defined by Section 2005(e)(3) of
Title 10 of the United States Code, as in effect on November 11,
2003) attributable to that attendance.
   (ii) The amendments made to this section by Section 12 of Chapter
552 of the Statutes of 2004 shall apply to taxable years beginning
after December 31, 2002.
                                    (d) For purposes of Part 10
(commencing with Section 17001) and this part, in the case of a
custodial account treated as a trust by reason of Section 530(g) of
the Internal Revenue Code, the custodian of that account shall be
treated as the trustee thereof.
   (e) A copy of the report, which is required to be filed with the
Secretary of the Treasury under Section 530(h) of the Internal
Revenue Code, shall be filed with the Franchise Tax Board at the same
time and in the same manner as specified in that section.
   (f) Section 109(d)(2) of Public Law 110-245, relating to
application of amendments to deaths from injuries occurring on or
after October 7, 2001, and before enactment, shall apply, except as
otherwise provided.
  SEC. 62.  Section 23732 of the Revenue and Taxation Code is amended
to read:
   23732.  Section 512 of the Internal Revenue Code, relating to
unrelated business taxable income, shall apply, except as otherwise
provided.
   (a) Section 512(a)(2) of the Internal Revenue Code, relating to
special rule for foreign organizations, shall not be applicable.
   (b) Section 512(a)(3) of the Internal Revenue Code, relating to
special rules applicable to organizations described in paragraph (7),
(9), (17), or (20) of Section 501(c), shall be modified as follows:
   (1) The reference to Section 501(c)(7) of the Internal Revenue
Code shall be modified to refer to Section 23701g.
   (2) The reference to Section 501(c)(9) of the Internal Revenue
Code shall be modified to refer to Section 23701i.
   (3) The reference to Section 501(c)(17) of the Internal Revenue
Code shall be modified to refer to Section 23701n.
   (4) The reference to Section 501(c)(20) of the Internal Revenue
Code shall be modified to refer to Section 23701q.
   (c) Section 512(d) of the Internal Revenue Code, relating to
treatment of dues of agricultural or horticultural organizations,
shall be modified by substituting "Section 23701a" for "Section 501
(c)(5)" of the Internal Revenue Code.
   (d) Section 512(b)(13)(E) of the Internal Revenue Code is modified
as follows:
   (1) The phrase "tax imposed under Part 10 (commencing with Section
17001) or this part" shall be substituted for "tax imposed by this
chapter" in Section 512(b)(13)(E)(ii) of the Internal Revenue Code.
   (2) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this subparagraph" in Section 512(b)(13)
(iii)(I) of the Internal Revenue Code.
   (3) The amendments made by the act adding this subdivision shall
apply to payments received or accrued on or after January 1, 2010.
  SEC. 63.  Section 23772 of the Revenue and Taxation Code is amended
to read:
   23772.  (a) For the purposes of this part--
   (1) Except as provided in paragraph (2), every organization exempt
from taxation under Section 23701 and every trust treated as a
private foundation because of Section 4947(a)(1) of the Internal
Revenue Code shall file an annual return, stating specifically the
items of gross income, receipts, and disbursements, and any other
information for the purpose of carrying out the laws under this part
as the Franchise Tax Board may by rules or regulations prescribe, and
shall keep any records, render under oath any statements, make any
other returns, and comply with any rules and regulations as the
Franchise Tax Board may from time to time prescribe. The return shall
be filed on or before the 15th day of the fifth full calendar month
following the close of the taxable year.
   (2) Exceptions from filing--
   (A) Mandatory exceptions--Paragraph (1) does not apply to--
   (i) Churches, their integrated auxiliaries, and conventions or
association of churches,
   (ii) Any organization (other than a private foundation as defined
in Section 23709), the gross receipts of which in each taxable year
are normally not more than twenty-five thousand dollars ($25,000), or

   (iii) The exclusively religious activities of any religious order.

   (B) Discretionary exceptions--The Franchise Tax Board may permit
the filing of a simplified return for organizations based on either
gross receipts or total assets or both gross receipts and total
assets, or may permit the filing of an information statement (without
fee), or may permit the filing of a group return for incorporated or
unincorporated branches of a state or national organization where it
determines that an information return is not necessary to the
efficient administration of this part.
   (3) An organization that is required to file an annual information
return shall pay a filing fee of ten dollars ($10) on or before the
due date for filing the annual information return (determined with
regard to any extension of time for filing the return) required by
this section. In case of failure to pay the fee on or before the due
date, unless it is shown that the failure is due to reasonable cause,
the filing fee shall be twenty-five dollars ($25). All collection
remedies provided in Article 5 (commencing with Section 18661) of
Chapter 2 of Part 10.2 are applicable to collection of the filing
fee. However, the filing fee does not apply to the organization
described in paragraph (4).
   (4) Paragraph (3) does not apply to: (A) a religious organization
exempt under Section 23701d; (B) an educational organization exempt
under Section 23701d, if that organization normally maintains a
regular faculty and curriculum and normally has a regularly organized
body of pupils or students in attendance at the place where its
educational activities are regularly carried on; (C) a charitable
organization, or an organization for the prevention of cruelty to
children or animals, exempt under Section 23701d, if that
organization is supported, in whole or in part, by funds contributed
by the United States or any state or political subdivision thereof,
or is primarily supported by contributions of the general public; (D)
an organization exempt under Section 23701d, if that organization is
operated, supervised, or controlled by or in connection with a
religious organization described in subparagraph (A).
   (b) Every organization described in Section 23701d that is subject
to the requirements of subdivision (a) is required to furnish
annually information, at the time and in the manner as the Franchise
Tax Board may by rules or regulations prescribe, setting forth all of
the following:
   (1) Its gross income for the year.
   (2) Its expenses attributable to gross income and incurred within
the year.
   (3) Its disbursements within the year for the purposes for which
it is exempt.
   (4) A balance sheet showing its assets, liabilities, and net worth
as of the beginning of that year.
   (5) The total of the contributions and gifts received by it during
the year, and the names and addresses of all substantial
contributors.
   (6) The names and addresses of its foundation manager (within the
meaning of Section 4946 of the Internal Revenue Code) and highly
compensated employees.
   (7) The compensation and other payments made during the year to
each individual described in paragraph (6).
   (8) In the case of an organization with respect to which an
election under Section 23704.5 is effective for the taxable year, the
following amounts for that organization for that taxable year:
   (A) The lobbying expenditures (as defined in Section 4911(c)(1) of
the Internal Revenue Code).
   (B) The lobbying nontaxable amount (as defined in Section 4911(c)
(2) of the Internal Revenue Code).
   (C) The grassroots expenditures (as defined in Section 4911(c)(3)
of the Internal Revenue Code).
   (D) The grassroots nontaxable amount (as defined in Section 4911
(c)(4) of the Internal Revenue Code). For purposes of this paragraph,
if Section 23740 applies to the organization for the taxable year,
the organization shall furnish the amounts with respect to the
affiliated group as well as with respect to the organization.
   (9) Other information with respect to direct or indirect transfers
to, and other direct or indirect transactions and relationships
with, other organizations described in Sections 23701a to 23701w,
inclusive (other than Sections 23701d, 23701k, and 23701t), as the
Franchise Tax Board may require to prevent either of the following:
   (A) Diversion of funds from the organization's exempt purpose.
   (B) Misallocation of revenue or expense.
   (10) Information with respect to qualified disaster relief
activities.
   (11) Any other relevant information as the Franchise Tax Board may
prescribe.
   (12) Each controlling organization, within the meaning of Section
512(b)(13) of the Internal Revenue Code, which is subject to the
requirements of subdivision (a), shall include on the return required
under subdivision (a) all of the following information:
   (A) Any interest, annuities, royalties, or rents received from
each controlled entity, within the meaning of Section 512(b)(13) of
the Internal Revenue Code.
   (B) Any loans made to each controlled entity.
   (C) Any transfers of funds between such controlling organization
and each such controlled entity.
   (13) (A) Any organization, the gross receipts of which in any
taxable year result in the organization being referred to in clause
(ii) of subparagraph (A) of paragraph (2) of subdivision (a), or
subparagraph (B) of paragraph (2) of subdivision (a), shall do both
of the following:
   (i) Furnish annually, in electronic form, and at the time and in
the manner as may be prescribed by the Franchise Tax Board, the legal
name of the organization, any name under which the organization
operates or does business, the organization's mailing address and the
Internet Web site address, if any, the organization's taxpayer
identification number, the name and address of a principal officer,
and evidence of the continuing basis for the organization's exemption
from the filing requirements under paragraph (1) of subdivision (a).

   (ii) Upon termination of the existence of the organization, shall
furnish notice of the termination.
   (B) This paragraph shall apply to notices and returns with respect
to annual periods beginning on or after January 1, 2010.
   (14) (A) If an organization described in paragraph (1) of
subdivision (a) or paragraph (13) of this subdivision fails to file
an annual return or notice required under either paragraph (1) of
subdivision (a) or paragraph (13) of this subdivision for three
consecutive years, that organization's status as an organization
exempt from tax under Section 23701 shall be considered revoked on
and after the date set by the Franchise Tax Board for the filing of
the third annual return or notice. The Franchise Tax Board shall
publish and maintain a list of any organization for which the
tax-exempt status is revoked.
   (B) Any organization for which the tax-exempt status is revoked
under subparagraph (A) must apply for reinstatement of that status
regardless of whether that organization was originally required to
make an application for tax-exempt status.
   (C) If, upon application for reinstatement of status as an
organization exempt from tax under Section 23701, an organization
described in subparagraph (A) can show to the satisfaction of the
Franchise Tax Board evidence of reasonable cause for the failure
described in that subparagraph, the organization's exempt status may,
in the discretion of the Franchise Tax Board, be reinstated
effective from the date of the revocation under that subparagraph.
   (D) This paragraph shall apply to notices and returns with respect
to annual periods beginning on or after January 1, 2010.
   (c) For the purposes of this part--
   (1) In the case of a failure to file a return required under this
section on the date and in the manner prescribed therefor (determined
with regard to any extension of time for filing), unless it is shown
that the failure is due to reasonable cause, there shall be paid (on
notice and demand by the Franchise Tax Board and in the same manner
as tax) by the exempt organization or trust failing so to file, five
dollars ($5) for each month or part thereof during which the failure
continues, but the total amount imposed hereunder on any organization
for failure to file any return may not exceed forty dollars ($40).
   (2) The Franchise Tax Board may make written demand upon a private
foundation failing to file under paragraph (1) of this subdivision
specifying therein a reasonable future date by which the filing shall
be made, and if the filing is not made on or before that date, and
unless it is shown that failure so to file is due to reasonable
cause, there shall be paid (on notice and demand by the Franchise Tax
Board and in the same manner as tax) by the person failing so to
file, in addition to the penalty prescribed in paragraph (1), a
penalty of five dollars ($5) each month or part thereof after the
expiration of the time specified in the written demand during which
the failure continues, but the total amount imposed hereunder on all
persons for the failure to file shall not exceed twenty-five dollars
($25). If more than one person is liable under this paragraph for a
failure to file, all of those persons shall be jointly and severally
liable with respect to the failure. The term "person" as used herein
means any officer, director, trustee, employee, member, or other
individual who is under a duty to perform the act in respect of which
the violation occurs.
   (3) This subdivision shall not apply with respect to any notice
required under paragraph (13) of subdivision (b).
  SEC. 64.  Section 24303 is added to the Revenue and Taxation Code,
to read:
   24303.  Any grant made in any taxable year by the Secretary of the
Treasury under Section 1603 of the American Recovery and
Reinvestment Tax Act of 2009 (Public Law 111-5) to a person that
places in service specified energy property shall not be includable
in the gross income or the alternative minimum taxable income of the
taxpayer, but shall be taken into account in determining the basis of
the property to which that grant relates, except that the basis of
that property shall be reduced using rules prescribed under Section
50(c) of the Internal Revenue Code in the same manner as a credit
allowed under Section 48(a) of the Internal Revenue Code, and
adjusted in accordance with rules applied by the Secretary of the
Treasury under Section 1603(f) of the American Recovery and
Reinvestment Tax Act of 2009 (Public Law 111-5).
  SEC. 65.  Section 24305 of the Revenue and Taxation Code is amended
to read:
   24305.  (a) Except as provided in subdivisions (b) and (c),
amounts received under life insurance policies and contracts paid by
reason of the death of the insured but if such amounts are held by
the insurer under an agreement to pay interest thereon, the interest
payments shall be included in gross income.
   (b) Proceeds of flexible premium contracts payable by reason of
death shall be excluded from gross income only in accordance with the
provisions of Section 101(f) of the Internal Revenue Code.
   (c) (1) In the case of an employer-owned life insurance contract,
any amount received by reason of death of an insured shall be
excluded from gross income only in accordance with the provisions of
Section 101(j) of the Internal Revenue Code.
   (2) Section 101(j) of the Internal Revenue Code, relating to
treatment of certain employer-owned life insurance contracts, shall
apply in accordance with the provisions of Section 863(d) of the
Pension Protection Act of 2006 (Public Law 109-280), relating to
effective dates, except that the phrase "January 1, 2010," shall be
substituted for "the date of the enactment of this Act" contained
therein.
  SEC. 66.  Section 24329 is added to the Revenue and Taxation Code,
to read:
   24329.  Section 139 of the Internal Revenue Code, relating to
disaster relief payments, shall apply, except as otherwise provided.
  SEC. 67.  Section 24349.2 is added to the Revenue and Taxation
Code, to read:
   24349.2.  Section 280G of the Internal Revenue Code, relating to
golden parachute payments, shall apply, except as otherwise provided.

  SEC. 68.  Section 24355.3 of the Revenue and Taxation Code is
repealed.
  SEC. 69.  Section 24356 of the Revenue and Taxation Code is amended
to read:
   24356.  (a) (1) In the case of Section 24356 property, the term
"reasonable allowance" as used in subdivision (a) of Section 24349,
may, at the election of the taxpayer, include an allowance, for the
first taxable year for which a deduction is allowable under Sections
24349 through 24354 to the taxpayer with respect to such property, of
20 percent of the cost of that property.
   (2) If in any one taxable year the cost of Section 24349 property
with respect to which the taxpayer may elect an allowance under
paragraph (1) for that taxable year exceeds ten thousand dollars
($10,000), then paragraph (1) shall apply with respect to those items
selected by the taxpayer, but only to the extent of an aggregate
cost of ten thousand dollars ($10,000).
   (b) (1) In lieu of subdivision (a), Section 179 of the Internal
Revenue Code, relating to election to expense certain depreciable
business assets, shall apply, except as otherwise provided.
   (2) Section 179(b)(1) of the Internal Revenue Code, relating to
dollar limitation, shall not apply and in lieu thereof, the aggregate
cost that may be taken into account under Section 179(a) of the
Internal Revenue Code, for any taxable year, shall not exceed
twenty-five thousand dollars ($25,000).
   (3) Section 179(b)(2) of the Internal Revenue Code, relating to
reduction in limitation, shall not apply and in lieu thereof, the
limitation under paragraph (2), for any taxable year, shall be
reduced, but not below zero, by the amount by which the cost of
Section 179 property, as defined in Section 179(d)(1) of the Internal
Revenue Code, except as otherwise provided, that is placed in
service during the taxable year, exceeds two hundred thousand dollars
($200,000).
   (4) Section 179 of the Internal Revenue Code is modified to
provide that the "aggregate amount disallowed" referred to in Section
179(b)(3)(B) of the Internal Revenue Code shall be computed under
this part as that section read on the date the property generating
the amount disallowed was placed in service.
   (5) Section 179(b)(5) of the Internal Revenue Code, relating to
inflation adjustments, shall not apply.
   (6) The last sentence in Section 179(c)(2) of the Internal Revenue
Code, relating to election irrevocable, shall not apply.
   (7) Section 179(d)(1)(A)(ii) of the Internal Revenue Code,
relating to computer software, shall not apply.
   (8) Section 179(e) of the Internal Revenue Code, relating to
special rules for qualified disaster assistance property, shall not
apply.
   (c) (1) The election under this section for any taxable year shall
be made within the time prescribed by law (including extensions
thereof) for filing the return for such taxable year. The election
shall be made in such manner as the Franchise Tax Board may by
regulations prescribe.
   (2) Any election made under this section may not be revoked except
with the consent of the Franchise Tax Board.
   (d) (1) For purposes of this section, the term "Section 24356
property" means tangible personal property--
   (A) Of a character subject to the allowance for depreciation under
Sections 24349 through 24354,
   (B) Acquired by purchase after December 31, 1958, for use in a
trade or business, and
   (C) With a useful life (determined at the time of such
acquisition) of six years or more.
   (2) For purposes of paragraph (1), the term "purchase" means any
acquisition of property, but only if--
   (A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 24427 (but, in applying Section 267 of the Internal
Revenue Code, relating to losses, expenses, and interest with respect
to transactions between related taxpayers, for purposes of this
section, Section 267(c)(4) of the Internal Revenue Code shall be
treated as providing that the family of an individual shall include
only his or her spouse, ancestors, and lineal descendants);
   (B) The property is not acquired by one member of an affiliated
group from another member of the same affiliated group, and
   (C) The basis of the property in the hands of the person acquiring
it is not determined in whole or in part by reference to the
adjusted basis of that property in the hands of the person from whom
acquired.
   (3) For purposes of this section, the cost of property does not
include so much of the basis of such property as is determined by
reference to the basis of other property held at any time by the
person acquiring that property.
   (4) For purposes of subdivision (a) and subdivision (b) of this
section--
   (A) All members of an affiliated group shall be treated as one
taxpayer, and
   (B) The Franchise Tax Board shall apportion the dollar limitation
contained in subdivision (a) or subdivision (b) among the members of
the affiliated group in the manner as it shall by regulations
prescribe.
   (5) For purposes of paragraphs (2) and (4), the term "affiliated
group" has the meaning assigned to it by Section 1504 of the Internal
Revenue Code, except that, for those purposes, the phrase "more than
50 percent" shall be substituted for the phrase "at least 80 percent"
each place it appears in Section 1504(a) of the Internal Revenue
Code.
   (6) In applying Section 24353, the adjustment under paragraph (1)
of subdivision (b) of Section 24916, resulting by reason of an
election made under this section with respect to any Section 24356
property, shall be made before any other deduction allowed by
subdivision (a) of Section 24349 is computed.
   (e) The Franchise Tax Board shall prescribe those regulations as
may be necessary to carry out the purposes of this section.
  SEC. 70.  Section 24357 of the Revenue and Taxation Code is amended
to read:
   24357.  (a) There shall be allowed as a deduction any charitable
contribution (as defined in Section 24359) payment of which is made
within the taxable year. A charitable contribution shall be allowable
as a deduction only if verified under regulations prescribed by the
Franchise Tax Board.
   (b) (1) In the case of a corporation reporting its income on the
accrual basis, the corporation may elect to treat the contribution as
paid during that taxable year if both of the following occur:
   (A) The board of directors authorizes a charitable contribution
during the taxable year.
   (B) Payment of the contribution is made after the close of that
taxable year and on or before the 15th day of the third month
following the close of the taxable year.
   (2) The election allowed by paragraph (1) may be made only at the
time of the filing of the return for the taxable year, and shall be
signified in the manner as the Franchise Tax Board shall by
regulations prescribe.
   (c) For purposes of this section, payment of a charitable
contribution that consists of a future interest in tangible personal
property shall be treated as made only when all intervening interests
in, and rights to the actual possession or enjoyment of, the
property have expired or are held by persons other than the taxpayer
or those standing in a relationship to the taxpayer described in
Section 24428. For purposes of the preceding sentence, a fixture
which is intended to be severed from the real property shall be
treated as tangible personal property.
   (d) No deduction shall be allowed under this section for traveling
expenses (including amounts expended for meals and lodging) while
away from home, whether paid directly or by reimbursement, unless
there is no significant element of personal pleasure, recreation, or
vacation in that travel.
   (e) (1) Section 170(f)(8) of the Internal Revenue Code, relating
to substantiation requirement for certain contributions, shall apply,
except as otherwise provided.
   (2) No deduction shall be denied under Section 170(f)(8) of the
Internal Revenue Code, relating to substantiation requirement for
certain contributions, upon a showing that the requirements in
Section 170(f)(8) of the Internal Revenue Code have been met with
respect to that contribution for federal purposes.
   (f) Section 170(f)(9) of the Internal Revenue Code, relating to
denial of deduction where contribution for lobbying activities, shall
apply, except as otherwise provided.
   (g) (1) Notwithstanding any other provision of law to the
contrary, for purposes of this section and Section 24341, Section 170
of the Internal Revenue Code, relating to charitable, etc.,
contributions and gifts, shall be applied to allow a taxpayer to
elect to treat any contribution described in paragraph (2) made in
January 2005, as if that contribution was made on December 31, 2004,
and not in January 2005.
   (2) A contribution is described in this paragraph if that
contribution is a cash contribution made for the relief of victims in
areas affected by the December 26, 2004, Indian Ocean tsunami for
which a charitable contribution deduction is allowable under this
section.
   (h) (1) Section 170(f)(11)(E) of the Internal Revenue Code,
relating to qualified appraisal and appraiser, shall apply, except as
otherwise provided.
   (2) This subdivision shall apply to appraisals prepared with
respect to returns or submissions filed on or after January 1, 2010.
   (i) (1) Section 170(f)(16) of the Internal Revenue Code, relating
to contributions of clothing and household items, shall apply, except
as otherwise provided.
   (2) This subdivision shall apply to contributions made on or after
January 1, 2010.
   (j) (1) Section 170(f)(17) of the Internal Revenue Code, relating
to recordkeeping, shall apply, except as otherwise provided.
   (2) This subdivision shall apply to contributions made on or after
January 1, 2010.
   (k) (1) Section 170(o) of the Internal Revenue Code, relating to
special rules for fractional gifts, shall apply, except as otherwise
provided.
   (2) This subdivision shall apply to contributions made on or after
January 1, 2010.
  SEC. 71.  Section 24357.1 of the Revenue and Taxation Code is
amended to read:
   24357.1.  (a) The amount of any charitable contribution of
property otherwise taken into account under Section 24357 shall be
reduced by the amount of gain that would have been realized if the
property contributed had been sold by the taxpayer at its fair market
value (determined at the time of that contribution).
   (b) For purposes of subdivision (a), in the case of a charitable
contribution of less than the taxpayer's entire interest in the
property contributed, the taxpayer's adjusted basis in that property
shall be allocated between the interest contributed and any interest
not                                                    contributed in
accordance with regulations prescribed by the Franchise Tax Board.
   (c) The provisions of subdivision (a) shall apply in the case of a
charitable contribution of tangible personal property if either of
the following conditions is satisfied:
   (1) The use by the donee is unrelated to the purpose or function
constituting the basis for its exemption under Section 501 of the
Internal Revenue Code or Section 23701, or, in the case of a
governmental unit, to any purpose or function described in Section
24359.
   (2) The tangible personal property is applicable property that is
sold, exchanged, or otherwise disposed of by the donee before the
last day of the taxable year in which the contribution was made and
with respect to which the donee has not made a certification in
accordance with paragraph (3) of subdivision (d).
   (d) (1) In the case of an applicable disposition of applicable
property, there shall be included in the income of the donor of that
property for the taxable year of the donor in which the applicable
disposition occurs an amount equal to the excess, if any, of the
following amount:
   (A) The amount of the deduction allowed to the donor under Section
24357 with respect to that property, over
   (B) The donor's basis in that property at the time that property
was contributed.
   (2) For purposes of this section:
   (A) "Applicable disposition" means any sale, exchange, or other
disposition by the donee of applicable property after the last day of
the taxable year of the donor in which that property was
contributed, and before the last day of the three-year period
beginning on the date of the contribution of that property, unless
the donee makes a certification in accordance with paragraph (3).
   (B) "Applicable property" means charitable deduction property, as
defined in Section 6050L(a)(2)(A) of the Internal Revenue Code, that
is tangible personal property, the use of which is identified by the
donee as related to the purpose or function constituting the basis of
the donee's exemption under Section 501 of the Internal Revenue Code
or Section 23701, and for which a deduction in excess of the donor's
basis is allowed.
   (3) A certification meets the requirements of this paragraph if it
is a written statement, which is signed under penalty of perjury by
an officer of the donee organization, that meets either of the
following conditions:
   (A) Certifies that the use of the property by the donee was
related to the purpose or function constituting the basis for the
donee's exemption under Section 501 of the Internal Revenue Code or
Section 23701 and describes how the property was used and how that
use furthered that purpose or function.
   (B) States the intended use of the property by the donee at the
time of the contribution and certifies that the intended use has
become impossible or infeasible to implement.
   (e) (1) For purposes of Section 24357 and subdivision (a), and
notwithstanding Section 24912, in the case of a charitable
contribution of taxidermy property that is made by the person who
prepared, stuffed, or mounted the property, or by any person who paid
or incurred the cost of such preparation, stuffing, or mounting,
only the cost of the preparing, stuffing, or mounting shall be
included in the basis of that property.
   (2) For purposes of this section, "taxidermy property" means any
work of art that satisfies all of the following requirements:
   (A) Is the reproduction or preservation of an animal, in whole or
in part.
   (B) Is prepared, stuffed, or mounted for purposes of recreating
one or more characteristics of the animal.
   (C) Contains a part of the body of the dead animal.
   (f) The amendments made to this section by the act adding this
subdivision shall apply to contributions made on or after January 1,
2010, without regard to taxable year.
  SEC. 72.  Section 24357.7 of the Revenue and Taxation Code is
amended to read:
   24357.7.  (a) (1) For purposes of paragraph (3) of subdivision (b)
of Section 24357.2, the term "qualified conservation contribution"
means a contribution--
   (A) Of a qualified real property interest,
   (B) To a qualified organization,
   (C) Exclusively for conservation purposes.
   (2) For purposes of this subdivision, the term "qualified real
property interest" means any of the following interests in real
property:
   (i) The entire interest of the donor other than a qualified
mineral interest.
   (ii) A remainder interest.
   (iii) A restriction (granted in perpetuity) on the use which may
be made of the real property.
   (b) For purposes of subdivision (a), the term "qualified
organization" means an organization which:
   (1) Is described in subdivision (a) or (b) of Section 24359, or
   (2) Is described in Section 23701(d), and--
   (A) Meets the requirements of Section 509(a)(2) of the Internal
Revenue Code, or
   (B) Meets the requirements of Section 509(a)(3) of the Internal
Revenue Code and is controlled by an organization described in
paragraph (1) or in subparagraph (A).
   (c) For purposes of this section, the term "conservation purpose"
means any of the following:
   (1) The preservation of land areas for outdoor recreation by, or
the education of, the general public.
   (2) The protection of a relatively natural habitat of fish,
wildlife, or plants, or similar ecosystem.
   (3) The preservation of open space (including farm land and forest
land) where that preservation is for any of the following:
   (A) For the scenic enjoyment of the general public.
   (B) Pursuant to a clearly delineated federal, state, or local
governmental conservation policy, and will yield a significant public
benefit.
   (C) The preservation of a historically important land area or a
certified historic structure.
   (d) In the case of any contribution of a qualified real property
interest, which is a restriction with respect to the exterior of a
building described in paragraph (2) of subdivision (e), that
contribution shall not be considered to be exclusively for
conservation purposes unless all of the following conditions are met:

   (1) That interest includes a restriction that preserves the entire
exterior of the building, including the front, sides, rear, and
height of the building, and prohibits any change in the exterior of
the building that is inconsistent with the historical character of
that exterior.
   (2) The donor and donee enter into a written agreement certifying,
under penalty of perjury, that the donee is a qualified
organization, as defined in subdivision (b), with a purpose of
environmental protection, land conservation, and open-space
preservation, and has the resources to manage and enforce the
restriction and a commitment to do so.
   (3) In the case of any contribution made in a taxable year
beginning on or after January 1, 2010, the taxpayer includes with the
taxpayer's return for the taxable year of the contribution all of
the following information:
   (A) A qualified appraisal, within the meaning of Section 170(f)
(11)(E) of the Internal Revenue Code, of the qualified property
interest.
   (B) Photographs of the entire exterior of the building.
   (C) A description of all restrictions on the development of the
building.
   (e) The term "certified historic structure" means either of the
following:
   (1) Any building, structure, or land area that is listed in the
National Register.
   (2) (A) Any building that is located in a registered historic
district (as defined in Section 47(c)(3)(B) of the Internal Revenue
Code) and is certified by the Secretary of the Interior to the
secretary as being of historic significance to the district.
   (B) A building, structure, or land area satisfies the requirements
of subparagraph (A) if it satisfies those requirements either at the
time of the transfer or on the due date (including extensions) for
filing the transferor's return under this part for the taxable year
in which the transfer is made.
   (f) For purposes of this section:
   (1) A contribution shall not be treated as exclusively for
conservation purposes unless the conservation purpose is protected in
perpetuity.
   (2) (A) Except as provided in subparagraph (B), in the case of a
contribution of any interest where there is a retention of a
qualified mineral interest, this subdivision shall not be treated as
met if at any time there may be extraction or removal of minerals by
any surface mining method.
   (B) With respect to any contribution of property in which the
ownership of the surface estate and mineral interests has been and
remains separated, paragraph (1) shall be treated as met if the
probability of surface mining occurring on that property is so remote
as to be negligible.
   (g) For purposes of this section, the term "qualified mineral
interest" means either of the following:
   (1) Subsurface oil, gas, or other minerals.
   (2) The right to access to those minerals.
   (h) The amendments made to this section by the act adding this
subdivision shall apply to contributions made on or after January 1,
2010.
  SEC. 73.  Section 24358 of the Revenue and Taxation Code is amended
to read:
   24358.  (a) In the case of a corporation, the total deductions
under Section 24357 for any taxable year, other than for
contributions to which subdivision (b) applies, shall not exceed 10
percent of the taxpayer's net income computed without regard to any
of the following:
   (1) Subdivision (e) of Section 23802.
   (2) Sections 24357 to 24359, inclusive.
   (3) Article 2 (commencing with Section 24401) of Chapter 7 (except
Sections 24407 to 24409, inclusive).
   (b) (1) Section 170(b)(2)(B) of the Internal Revenue Code,
relating to qualified conservation contributions by certain corporate
farmers and ranchers, shall apply, except as otherwise provided.
   (2) The phrase "made on or after January 1, 2010," shall be
substituted for "made after the date of the enactment of this
subparagraph" in Section 170(b)(2)(B)(i)(II) of the Internal Revenue
Code.
   (c) Section 170(d)(2) of the Internal Revenue Code, relating to
corporations, shall apply with respect to excess contributions made
during taxable years beginning on or after January 1, 1996.
  SEC. 74.  Section 24416 of the Revenue and Taxation Code is amended
to read:
   24416.  Except as provided in Sections 24416.1, 24416.2, 24416.4,
24416.5, 24416.6, and 24416.7, a net operating loss deduction shall
be allowed in computing net income under Section 24341 and shall be
determined in accordance with Section 172 of the Internal Revenue
Code, except as otherwise provided.
   (a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
   (2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
   (b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to amount of carrybacks and carryovers, shall be modified so
that the applicable percentage of the entire amount of the net
operating loss for any taxable year shall be eligible for carryover
to any subsequent taxable year. For purposes of this subdivision, the
applicable percentage shall be:
   (A) Fifty percent for any taxable year beginning before January 1,
2000.
   (B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
   (C) Sixty percent for any taxable year beginning on or after
January 1, 2002, and before January 1, 2004.
   (D) One hundred percent for any taxable year beginning on or after
January 1, 2004.
   (2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
   (A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (e).
   (B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
   (i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (e).
   (ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
   (A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in paragraph (1) of subdivision (e).
   (B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
   (i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as provided in subdivision (e).
   (ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (e).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.

   (5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
   (6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
   (c) For any taxable year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the taxable year in which the loss was incurred.
   (d) Section 172(b)(1) of the Internal Revenue Code, relating to
years to which the loss may be carried, is modified as follows:
   (1) Net operating loss carrybacks shall not be allowed for any net
operating losses attributable to taxable years beginning before
January 1, 2011.
   (2) A net operating loss attributable to taxable years beginning
on or after January 1, 2011, shall be a net operating loss carryback
to each of the two taxable years preceding the taxable year of the
loss in lieu of the number of years provided therein.
   (A) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2011, and before January 1, 2012,
the amount of carryback to any taxable year shall not exceed 50
percent of the net operating loss.
   (B) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2012, and before January 1, 2013,
the amount of carryback to any taxable year shall not exceed 75
percent of the net operating loss.
   (C) For a net operating loss attributable to a taxable year
beginning on or after January 1, 2013, the amount of carryback to any
taxable year shall not exceed 100 percent of the net operating loss.

   (3) Notwithstanding paragraph (2), Section 172(b)(1)(B) of the
Internal Revenue Code, relating to special rules for REITs, and
Section 172(b)(1)(E) of the Internal Revenue Code, relating to excess
interest loss, and Section 172(h) of the Internal Revenue Code,
relating to corporate equity reduction interest losses, shall apply
as provided.
   (4) A net operating loss carryback shall not be carried back to
any taxable year beginning before January 1, 2009.
   (e) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code is modified to
substitute "five taxable years" in lieu of "20 years" except as
otherwise provided in paragraphs (2), (3), and (4).
   (B) For a net operating loss for any income year beginning on or
after January 1, 2000, and before January 1, 2008, Section 172(b)(1)
(A)(ii) of the Internal Revenue Code is modified to substitute "10
taxable years" in lieu of "20 taxable years."
   (2) For any income year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" referred to in
paragraph (1) shall be modified to read as follows:
   (A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
   (B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
   (C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
   (3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
   (A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
   (B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
   (4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a corporation
that was either of the following:
   (A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994. The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the taxable year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
   (B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
   (f) For purposes of this section:
   (1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
   (2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
   (3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
   (4) In the case of any trade or business activity conducted by a
partnership or an "S" corporation, paragraphs (1) and (2) shall be
applied to the partnership or "S" corporation.
   (g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
   (1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person). For
purposes of this paragraph only, the following rules shall apply:
   (A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
   (B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
   (2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
   (3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
   (4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
   (5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
   (6) "Acquire" shall include any transfer, whether or not for
consideration.
   (7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
   (B) For purposes of this paragraph:
   (i) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics. Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities that make use of chemical compounds to produce commercial
products.
   (ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
   (1) The amount of net operating loss incurred in any taxable year
that may be carried forward to another taxable year.
   (2) The amount of any loss carry forward that may be deducted in
any taxable year.
   (i) The provisions of Section 172(b)(1)(D) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
   (j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
   (k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
   (  l  ) Except as otherwise provided, the amendments made
by Chapter 107 of the Statutes of 2000 shall apply to net operating
losses for taxable years beginning on or after January 1, 2000.
   (m) Section 172(b)(1)(J) of the Internal Revenue Code, relating to
certain losses attributable federally declared disasters, shall not
apply.
   (n) Section 172(j) of the Internal Revenue Code, relating to rules
relating to qualified disaster losses, shall not apply.
                                                SEC. 75.  Section
24462 is added to the Revenue and Taxation Code, to read:
   24462.  (a) Section 355 of the Internal Revenue Code, as in effect
for federal income tax purposes as of January 1, 2010, shall apply
to distributions made on or after January 1, 2010, without regard to
taxable year, except as otherwise provided.
   (b) Section 355(g) of the Internal Revenue Code, relating to
section not to apply to distributions involving disqualified
investment corporations, is modified by substituting the phrase
"January 1, 2010," for "the date of the enactment of this subsection"
in Section 355(g)(2)(A)(i) of the Internal Revenue Code.
   (c) The provisions of Section 4(d)(2) of the Tax Technical
Corrections Act of 2007 (Public Law 110-172), relating to
modification of active business definition under Section 355, shall
apply and are modified by substituting "January 1, 2010," for "May
17, 2006."
   (d) The provisions of Section 507(b) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222),
relating to effective dates, shall apply and are modified as follows:

   (1) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this Act" in Section 507(b)(1) of the Tax
Increase Prevention and Reconciliation Act of 2005 (Public Law
109-222).
   (2) The phrase "January 1, 2010," shall be substituted for "such
date of enactment" in Section 507(b)(2)(A) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222).
   (e) This section shall apply as of the dates specified in this
section, without regard to taxable year.
  SEC. 76.  Section 24831.3 is added to the Revenue and Taxation
Code, to read:
   24831.3.  The amendments made to Section 613A(d)(4) of the
Internal Revenue Code, relating to certain refiners excluded, by
Section 1328 of the Energy Tax Incentives Act of 2005 (Title XIII of
the Energy Policy Act of 2005) (Public Law 109-58) shall not apply.
  SEC. 77.  Section 24941.5 is added to the Revenue and Taxation
Code, to read:
   24941.5.  Section 1031(i) of the Internal Revenue Code, relating
to special rules for mutual ditch, reservoir, or irrigation company
stock, shall not apply.
  SEC. 78.  Section 24949.5 of the Revenue and Taxation Code is
amended to read:
   24949.5.  (a) For purposes of Sections 24943 through 24946,
Section 1033(h) of the Internal Revenue Code, relating to special
rules for property damaged by federally declared disasters, shall
apply, except as otherwise provided.
   (b) For purposes of Sections 24943 through 24946, Section 1033(i)
of the Internal Revenue Code, relating to replacement property must
be acquired from unrelated person in certain cases, shall apply,
except as otherwise provided.
   (c) For purposes of Sections 24943 through 24946, Section 1033(j)
of the Internal Revenue Code, relating to sales or exchanges to
implement microwave relocation policy, shall apply, except as
otherwise provided.
   (d) For purposes of Sections 24943 to 24946, inclusive, Section
1033(k) of the Internal Revenue Code, relating to sales or exchanges
under certain hazard mitigation programs, shall apply, except as
otherwise provided.
  SEC. 79.  Section 24950.5 is added to the Revenue and Taxation
Code, to read:
   24950.5.  The amendments made by Section 844 of the Pension
Protection Act of 2006 (Public Law 109-280) to Section 1035 of the
Internal Revenue Code shall not apply.
  SEC. 80.  Section 24981 of the Revenue and Taxation Code is
repealed.
  SEC. 81.  Section 24988 of the Revenue and Taxation Code is
repealed.
  SEC. 82.  Section 24990.2 is added to the Revenue and Taxation
Code, to read:
   24990.2.  Section 301 of Title III of Division A of the Emergency
Economic Stabilization Act of 2008 (Public Law 110-343), relating to
gain or loss from sale of certain preferred stock, shall not apply.
  SEC. 83.  Section 24990.6 of the Revenue and Taxation Code is
amended to read:
   24990.6.  (a) Section 1245(a)(2)(C) of the Internal Revenue Code,
relating to certain deductions treated as amortization, is modified
to also refer to Sections 24356.2, 24356.3, and 24356.4.
   (b) Section 1245(b)(8) of the Internal Revenue Code, relating to
disposition of amortizable Section 197 intangibles, shall apply to
dispositions of property on or after January 1, 2010.
  SEC. 84.  Section 24990.8 is added to the Revenue and Taxation
Code, to read:
   24990.8.  For taxable years beginning on or after January 1, 2010,
specific reference to Section 1223(4) to (16), inclusive, of the
Internal Revenue Code in this part shall instead be treated as a
reference to Section 1223(3) to (15), inclusive, of the Internal
Revenue Code, respectively.
  SEC. 85.  Section 24993 of the Revenue and Taxation Code is amended
to read:
   24993.  (a) Section 7872 of the Internal Revenue Code, relating to
the treatment of loans with below market interest rates, shall
apply, except as otherwise provided.
   (b) Section 7872(h) of the Internal Revenue Code, relating to
exception for loans to qualified continuing care facilities, shall
apply to calendar years beginning on or after January 1, 2010, with
respect to loans made before, on, or after that date.
  SEC. 86.  Sections 1 to 11, inclusive, of the Tax Technical
Corrections Act of 2007 (Public Law 110-172), Section 426 of Division
A of the Tax Reform and Health Care Act of 2006 (Public Law
109-432), Section 1 of the Disaster Mitigation Payments Act of 2005
(Public Law 109-7), and Sections 402 to 413, inclusive, of the Gulf
Opportunity Zone Act of 2005 (Subtitle A of Title IV of Public Law
109-135) enacted numerous technical corrections and clarifications to
provisions of the Internal Revenue Code, including technical
corrections and clarifications relating to the Tax Relief and Health
Care Act of 2006 (Public Law 109-432), Title XII of the Pension
Protection Act of 2006 (Public Law 109-280), the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222), the
Energy Tax Incentives Act (Title XIII of the Energy Policy Act of
2005) (Public Law 109-58), the Working Families Tax Relief Act of
2004 (Public Law 108-311), the American Jobs Creation Act of 2004
(Public Law 108-357), the Jobs and Growth Tax Relief Reconciliation
Act of 2003 (Public Law 108-27), the Victims of Terrorism Tax Relief
Act of 2001 (Public Law 107-134), the Economic Growth and Tax Relief
Reconciliation Act of 2001 (Public Law 107-16), the Tax Relief
Extension Act of 1999 (Title V of the Ticket to Work and Work
Incentives Improvement Act of 1999) (Public Law 106-170), the
Internal Revenue Service Restructuring and Reform Act of 1998 (Public
Law 105-206), the Taxpayer Relief Act of 1997 (Public Law 105-34),
the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508),
the Omnibus Budget Reconciliation Act of 1987 (Revenue Act of 1987)
(Public Law 100-203), some of which are incorporated by reference
into Part 10 (commencing with Section 17001), Part 10.2 (commencing
with Section 18401), and Part 11 (commencing with Section 23001) of
Division 2 of the Revenue and Taxation Code. Unless otherwise
specifically provided, the technical corrections and clarifications
described in the preceding sentence, to the extent that they correct
or clarify provisions that are incorporated by specific reference
into the Revenue and Taxation Code, are declaratory of existing law
and shall be applied in the same manner and for the same periods as
specified in the Disaster Mitigation Payments Act of 2005 (Public Law
109-7), the Gulf Opportunity Zone Act of 2005 (Subtitle A of Title
IV of Public Law 109-135), the Tax Reform and Health Care Act of 2006
(Public Law 109-432), the Tax Technical Corrections Act of 2007
(Public Law 110-172), or if later, the specified date of
incorporation.
  SEC. 87.  (a) Except as provided in subdivision (b), the amendments
made to Sections 19179, 19443, and 21015.5 of the Revenue and
Taxation Code by this act shall apply to returns filed, submissions
made, and issues raised on or after the later of the effective date
of this act or January 1, 2011.
   (b) The amendments made to Sections 19179, 19443, and 21015.5 of
the Revenue and Taxation Code by this act shall be applicable for
submissions made or issues raised after the date on which the
Secretary of the Treasury or the Franchise Tax Board first prescribe
a list under Section 6702(c) of the Internal Revenue Code or
subdivision (c) of Section 19179 of the Revenue and Taxation Code,
respectively.
  SEC. 88.  The Legislature finds and declares that the amendments
made by this act to the Revenue and Taxation Code, incorporating, by
reference, the amendments made by Sections 827 and 828 of the Pension
Protection Act of 2006 (Public Law 109-280) and as amended by the
Worker, Retiree, and Employer Recovery Act of 2008 (Public Law
110-458) to Section 72 of the Internal Revenue Code, shall apply in
the same manner and for the same periods as specified in Sections 827
and 828 of the Pension Protection Act of 2006 (Public Law 109-280)
and as amended by the Worker, Retiree, and Employer Recovery Act of
2008 (Public Law 110-458). The Legislature finds and declares that
this act serves a public purpose by providing equitable treatment for
reservists called to active duty and emergency service personnel,
and ultimately, benefiting all of the citizens of this state.
  SEC. 89.  (a) Except as provided in subdivision (b), the amendments
made by the enactment of this act to the Revenue and Taxation Code,
incorporating, by reference, the amendments made by Section 1220 of
the Pension Protection Act of 2006 (Public Law 109-280) to Sections
501 and 513 of the Internal Revenue Code, shall apply in the same
manner and for the same periods as specified in Section 1220(c) of
the Pension Protection Act of 2006 (Public Law 109-280).
   (b) The provisions of Section 1220(c) of the Pension Protection
Act of 2006 (Public Law 109-280), relating to effective date, are
modified as follows:
   (1) The phrase "beginning on or after January 1, 2011," shall be
substituted for "beginning after the date of the enactment of this
Act" in Section 1220(c)(1) of the Pension Protection Act of 2006
(Public Law 109-280).
   (2) The phrase "described in Section 23701d or Section 23701f"
shall be substituted for "described in paragraph (3) or (4) of
Section 501(c) of the Internal Revenue Code of 1986" in Section 1220
(c)(2) of the Pension Protection Act of 2006 (Public Law 109-280).
   (3) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this Act" in each place that it appears in
Section 1220(c)(2) of the Pension Protection Act of 2006 (Public Law
109-280).
  SEC. 90.  The Legislature finds and declares that the amendments
made by this act to Section 17952.5 of the Revenue and Taxation Code
make that code compatible with the technical changes made by Public
Law 109-264 to Section 114 of Title 4 of the United States Code,
relating to limitation on state income taxation of certain pension
income, and do not constitute a change in, but are declaratory of,
existing law and shall be applied in the same manner and for the same
periods as specified in Section 1 of Public Law 109-264. The
Legislature finds and declares that this act and the retroactive
application contained in the preceding sentence are necessary to
clarify that the Legislature intended for Chapter 506 of the Statutes
of 1996 to apply to certain retired partners. Additionally, the
Legislature finds and declares that this act serves a public purpose
by ensuring the fair and consistent application of California law to
"qualified retirement income" received on or after January 1, 1996,
for any part of the taxable year during which the taxpayer was not a
resident of this state and, thereby, preventing unnecessary
litigation to determine the taxability of that "qualified retirement
income."
  SEC. 91.  (a) The Legislature finds and declares that the
amendments made by this act to Section 24949.5 of the Revenue and
Taxation Code, the addition of Section 24329 to the Revenue and
Taxation Code, and the incorporation by reference of the amendments
made by Section 1 of the Disaster Mitigation Payments Act of 2005
(Public Law 109-7), which amended Sections 139 and 1033 of the
Internal Revenue Code, in the Revenue and Taxation Code, conform
California law to the amendments made to Sections 139 and 1033 of the
Internal Revenue Code by Section 1 of the Disaster Mitigation
Payments Act of 2005 (Public Law 109-7) and do not constitute a
change in, but are declaratory of, existing law and shall be applied
in the same manner and for the same periods as specified in Section 1
of the Disaster Mitigation Payments Act of 2005 (Public Law 109-7).
The Legislature finds and declares that this act and the retroactive
application contained in the preceding sentence are necessary to
clarify that, when the Legislature enacted the exclusion from gross
income for disaster relief payments in Chapter 807 of the Statutes of
2002, it intended to exclude disaster mitigation payments from gross
income and treat sales and exchanges under certain hazard mitigation
programs as involuntary conversions.
   (b) Additionally, the Legislature finds and declares that this act
serves a public purpose by ensuring the fair and consistent
application of California law to all property owners, many of whom
are low-income people, that have taken or will take necessary
preventive measures to mitigate risk of harm and property damage from
disasters, thereby saving lives and reducing the need for future
taxpayer assistance.
  SEC. 92.  The Legislature finds and declares that the application
of Section 17132.8 without regard to fiscal year serves a public
purpose and is necessary to provide equitable treatment to residents
of this state who were affected by the event at Virginia Polytechnic
Institute and State University on April 16, 2007.
  SEC. 93.  The amendments made by the enactment of this act, that
incorporate by reference the amendments made by Section 303 of the
Emergency Economic Stabilization Act of 2008 (Public Law 110-343),
shall apply to discharges and indebtedness occurring on or after
January 1, 2009, and before January 1, 2013. The Legislature declares
that the amendments made by the enactment of this act and the
retroactive application contained in the preceding sentence are
necessary for the public purpose of conforming state law to the
Internal Revenue Code as amended by the Mortgage Forgiveness Debt
Relief Act of 2007 (Public Law 110-142) and by Section 303 of the
Emergency Economic Stabilization Act of 2008 (Public Law 110-343) and
thereby prevent undue hardship to taxpayers that would otherwise
have been subject to taxation and penalties from the discharge of
qualified principal residence indebtedness during the 2009 taxable
year.
  SEC. 94.  The Legislature finds and declares that the application
of Sections 17131.3 and 24303 of the Revenue and Taxation Code
without regard to taxable year serves a public purpose by ensuring
the fair and consistent application of California law to recipients
of grants made by the Secretary of the Treasury under Section 1603 of
the American Recovery and Reinvestment Tax Act of 2009 (Public Law
111-5).
  SEC. 95.  Notwithstanding Section 18415 and unless otherwise
provided herein, the provisions of this act shall apply to taxable
years beginning on or after January 1, 2010.
  SEC. 96.  No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.