BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1065|
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                                 THIRD READING


          Bill No:  SB 1065
          Author:   Walters (R)
          Amended:  As introduced
          Vote:     21

           
           SENATE REVENUE & TAXATION COMMITTEE  :  5-0, 4/14/10
          AYES:  Wolk, Walters, Alquist, Ashburn, Padilla

           SENATE APPROPRIATIONS COMMITTEE  :  10-0, 5/27/10
          AYES:  Kehoe, Alquist, Corbett, Denham, Leno, Price,  
            Walters, Wolk, Wyland, Yee
          NO VOTE RECORDED:  Cox


           SUBJECT  :    Income tax:  joint returns

           SOURCE  :     Franchise Tax Board


           DIGEST  :    This bill reenacts certain innocent spouse  
          relief provisions and applies them retroactively to January  
          1, 2009.  Specifically, this bill requires the Franchise  
          Tax Board to grant innocent spouse relief from taxes and  
          penalties if the taxpayer has been granted innocent spouse  
          relief for federal tax purposes, with certain restrictions.  
           

           ANALYSIS  :    Existing state and federal law provides that  
          spouses who file a joint tax return are individually liable  
          for the accuracy of the return and the full tax liability,  
          regardless of the income earned by each spouse (joint and  
          severable liability).  Because one spouse may not be aware  
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          of another spouse's misrepresentation of tax information on  
          the return, the federal Internal Revenue Code allows a  
          spouse to be relieved of some or all of the responsibility  
          of a joint debt under certain circumstances (innocent  
          spouse relief).  State law generally conforms to the  
          federal provisions that were enacted in 1998.  However,  
          state innocent spouse relief provisions differ from federal  
          provisions in several ways: 

          1. State law does not conform to federal provisions enacted  
             in 2006 that broaden the appeal rights by authorizing  
             the tax court to review the Internal Revenue Service  
             (IRS) denial of innocent spouse relief and suspending  
             the period of limitations while on appeal.

          2. State law allows a taxpayer to seek a divorce court  
             order relieving that taxpayer of liability for state  
             income tax on a joint return.

          3. State law allows a taxpayer to seek relief from the  
             Franchise Tax Board (FTB) on any unpaid self-assessed  
             tax liability on a joint return.

          In some circumstances, a taxpayer may be granted innocent  
          spouse relief under federal law, but not state law.

          During the period from January 1, 2004 through December 31,  
          2008, under changes to innocent spouse relief provisions  
          enacted by SB 285 (Speier), Chapter 370, Statutes of 2003,  
          FTB was required to grant relief to a taxpayer that  
          previously had received an innocent spouse relief  
          determination at the federal level and the facts and  
          circumstances that supported the determination were the  
          same.  SB 285 also authorized the spouse who did not  
          request relief to provide FTB with information contrary to  
          what was provided by the requesting spouse and information  
          that may support a determination that relief should not be  
          granted.

          This bill reinstates the provisions of SB 285 and applies  
          them retroactively to January 1, 2009.  This bill also  
          conforms to federal provisions enacted in 2006 to broaden  
          the appeal rights applicable to innocent spouse relief  
          determinations, and deletes obsolete language that refers  







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          to a four-year period for submitting a request for innocent  
          spouse relief.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          FTB estimates that this bill will result in a revenue loss  
          of approximately $90,000 in 2009-10 and $200,000 annually  
          thereafter.  This estimate is based on the relatively small  
          number of innocent spouse claims filed annually and the few  
          cases in which an FTB determination may differ from an IRS  
          ruling.

           SUPPORT  :   (Verified  5/26/10)

          Franchise Tax Board (source)

           ARGUMENTS IN SUPPORT  :    The purpose of this FTB-sponsored  
          bill is to reduce taxpayer burden and confusion by bringing  
          California's innocent spouse relief provisions into  
          conformity with federal innocent spouse relief provisions.


          DLW:mw  5/27/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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