BILL ANALYSIS
SB 1065
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1065 (Walters) - As Introduced: February 17, 2010
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill brings California law more closely into line with
federal "innocent spouse relief" provisions, by providing that a
taxpayer granted relief under federal law will also be eligible
under state law. Specifically, the bill:
1)Reenacts state provisions that expired at end of 2008, which
require the Franchise Tax Board (FTB) to grant "innocent
spouse" relief from taxes and penalties if the taxpayer has
been granted innocent spouse relief for federal tax purposes.
2)Conforms California to federal provisions enacted in 2006
allowing those denied "equitable relief" by the FTB staff to
appeal the ruling to its board.
FISCAL EFFECT
FTB estimates that the bill will result in revenue losses of
$90,000 in 2009-10 and $200,000 annually thereafter. Most of the
losses are related to the provision allowing taxpayers to appeal
equitable relief determinations.
COMMENTS
1)Purpose . This is a FTB-sponsored bill that is intended to
reduce taxpayer burden and confusion by bringing California's
innocent spouse relief provisions into conformity with federal
law.
2)Background - federal law . Existing federal law generally
requires that spouses filing joint tax returns are each liable
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for the accuracy of the return and the full tax liability,
regardless of the income earned by each spouse (joint and
severable liability). However, under provisions enacted in
1998, the Internal Revenue Code (IRC) allows a spouse to be
relieved of some or all of the responsibility of a joint debt
under certain circumstances. For example, the IRC allows
taxpayers that are no longer married or have been separated
from their spouse for more than a year to file separate
returns and only be subject to penalties and interest on
understatements attributable to their income and deductions.
It also provides for "equitable relief" in circumstances where
the IRS finds that it would not be equitable for the spouse to
be held responsible for the unpaid deficiency. Federal law
changes enacted in 2006 allow taxpayers that have been denied
equitable relief by the IRS to appeal the ruling in tax court.
3)Background - California law . California currently conforms to
federal provisions enacted in 1998. It also provides other
avenues for taxpayers to seek relief, such as through a
divorce court order, or where a spouse can avoid certain
penalties and interest by demonstrating that he or she was
unaware of a nonpayment of a tax obligation. California has
not conformed to the federal provisions passed in 2006
allowing for appeal of equitable relief determinations.
Also, SB 285 (Speier), Chapter 370/2003 required FTB to grant
state tax relief to a taxpayer that had previously received an
innocent spouse relief determination at the federal level,
when 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. These provisions were in effect
from 2004 through 2008.
This bill reinstates the provisions of SB 285 and applies them
retroactively to January 1, 2009. It also conforms to the
federal provisions enacted in 2006 to allow appeals of FTB
equitable relief determinations, and deletes obsolete language
that refers to a four year period for submitting a request for
innocent spouse relief. Since state and federal law are
currently consistent with regard to spousal relief, the
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practical effect of this bill is to relieve taxpayers from
having to seek a separate spousal relief determination from
the FTB when the circumstances surrounding the underpayment
are the same for the state and federal tax returns.
. Analysis Prepared by : Brad Williams / APPR. / (916)
319-2081