BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1492|
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CONSENT
Bill No: SB 1492
Author: Senate Revenue and Taxation Committee
Amended: As introduced
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 5-0, 4/14/10
AYES: Wolk, Walters, Alquist, Ashburn, Padilla
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Income taxes: voluntary disclosure agreements
SOURCE : Franchise Tax Board
DIGEST : This bill makes three changes to the Revenue and
Taxation Code sections relating to the voluntary disclosure
agreement (VDA) statutes.
ANALYSIS : Existing law allows the Franchise Tax Board
(FTB) to enter into an agreement with taxpayers to file
returns and pay tax for the last six years in exchange for
waiving penalties, called voluntary disclosure agreements
(VDAs); taxes, additions to tax, penalties, and fees
imposed before the last six years are waived (AB 2880
[Caldera], Chapter 367, Statutes of 1994). The Legislature
enacted this program to promote voluntary compliance among
some out of state taxpayers, primarily business entities
and trusts, that fail to realize they have a CA filing
requirement. These taxpayers may enter into an agreement
with FTB when they fail to make and file a return; pay tax
CONTINUED
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on time; underpay estimated tax; pay penalties; fail to
file a Corporate Organization Statement, partnership or
informational returns; or fail to furnish information, or
maintain records.
The FTB must approve all VDAs by majority vote. Approved
taxpayers must remit a signed written agreement, make all
payment, and submit all returns within 120 days of the
signing date of the VDA. Taxpayers may remain anonymous
until the signed agreement is submitted to FTB. Taxpayers
may also make installment arrangements, which allow the
taxpayer to make payments for a period longer than the 120
days from the signing date of the VDA.
Existing law specified the persons or entities eligible for
the VDA: qualified business entities such as out of state
corporations, qualified shareholders, qualified members of
LLCs not organized in California or registered with the
Secretary of State, and qualified trusts and its
beneficiaries.
This bill makes three changes to the VDA program, effective
for all VDAs entered into on or after January 1, 2011:
1. Prevents taxpayers from having to file the most recent
tax return before its actual statutory due date by
pushing the deadline out to the extended due date.
2. Eliminates the underpayment-of-estimated-tax penalty
where the agreement is signed after the quarterly tax
payment due date, and
3. Allows taxpayers who request a payment plan additional
time to pay an outstanding tax bill if FTB denies the
request for a payment plan after the voluntary
disclosure agreement expires.
Background
According to the FTB: "Some out-of-state taxpayers that
conduct business in California as defined by the R&TC may
not be aware of their California franchise or income tax
liability or filing requirements. The FTB also may not
readily identify such taxpayers through its filing
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enforcement or other compliance programs. Given the
substantial penalties for delinquent filing of returns and
late payment of taxes, and the open statute to audit all
taxable years preceding identification, these taxpayers may
be reluctant to disclose their California presence and
report any tax liability voluntarily.
Current VDA statutes allow qualified entities, qualified
shareholders, or qualified beneficiaries to disclose their
liability voluntarily through a VDA. The qualified
entities, qualified shareholders, or beneficiaries that
choose to participate in a VDA may anonymously apply to the
FTB and in exchange, if accepted, must disclose their
California tax liability for the immediately preceding six
taxable years. Under the VDA statute, the FTB in turn
waives its authority to assess taxes, additions to tax,
fees, or certain penalties for the taxable years ending
before the six taxable years covered by the VDA.
The Multistate Tax Commission (MTC) has an agreement with
30 states, including California, which provides incentives
for taxpayers to request a VDA. The states that
participate in MTC's voluntary disclosure program follow
guidelines and processes provided by the MTC, thereby
allowing applicants to request VDAs for multiple states
through the MTC. The voluntary disclosure period in these
states is the four taxable years ending before the signing
date of the VDA.
Each of these states allows the taxpayer to remain
anonymous during the application period. As a result, the
estimated tax payments due in the year immediately after
the voluntary disclosure period may be late, and the
taxpayer is penalized for the late payments. The other
states in the MTC Compact address penalties on a
case-by-case basis.
With the exception of California's six-year VDA period,
current state law generally conforms to the MTC's VDA
application procedures and guidelines."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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SUPPORT : (Verified 5/4/10)
Franchise Tax Board (source)
ARGUMENTS IN SUPPORT : According to the FTB, sponsor of
this bill: "The purpose of this Franchise Tax
Board-sponsored bill is to is to revise the VDA statutes to
eliminate impediments to satisfying the VDA, thus reducing
the risk of taxpayers failing to comply with the VDA and
incurring penalties and collective actions."
DLW:do 5/4/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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