BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 2686                     HEARING:  6/27/12
          AUTHOR:  Committee on Revenue & TaxationFISCAL:  Yes
          VERSION:  3/12/12                     TAX LEVY:  No
          CONSULTANT:  Miller                   

                      TAXATION: TAXPAYERS' RIGHTS ADVOCATE
          

           Repeals the sunset for the Taxpayer Advocate Equity Relief 
                              Program at the FTB.


                           Background and Existing Law  

          Existing state law allows the FTB staff to abate penalties, 
          fees, additions to tax and interest under four 
          circumstances:

             1.   The interest is attributable to an unreasonable 
               delay by the FTB in performing a ministerial or 
               managerial act.

             2.   The FTB issues an assessment based on an Internal 
               Revenue Service (IRS) assessment and the IRS abates 
               interest due to an IRS delay. 

             3.   A taxpayer is experiencing an extreme financial 
               hardship caused by a significant disability or 
               catastrophic circumstance. 

             4.   A taxpayer relied on the written advice of a legal 
               ruling by the FTB's Chief Counsel. 

          Existing state law also allows interest to be suspended if 
          the FTB fails to inform the taxpayer of the amount owed 
          within 36 months after the return was filed, or if later, 
          the date it is due without regard to extension.  Penalties 
          that carry reasonable cause exceptions may be abated.  The 
          law allows only the Chief Counsel to rescind or abate the 
          application of tax shelter fees and penalties as well if 
          the taxpayer successfully makes a case to him or her.  

          The office of the Taxpayer Advocate (Advocate) within the 
          FTB was created to coordinate the resolution of taxpayer 




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          complaints and problems.  The Advocate is empowered to 
          review actions taken on a taxpayer's account.  Existing law 
          authorized the Advocate, from January 1, 2009, until 
          January 1, 2012, to resolve taxpayer issues identified by 
          the FTB and to waive penalties, fees, additions to tax, or 
          interest attributable to an error or unreasonable delay on 
          the part of the FTB if the three conditions are met.
             1.   Erroneous action or inaction by the FTB in 
               processing documents filed or payments made by 
               taxpayers;

             2.   Unreasonable delay caused by the FTB; or, 

             3.   Erroneous written advice that does not qualify for 
               relief under Chief Counsel authority 

          The Advocate may only grant relief as long as no 
          significant part of the error is due to the taxpayer and 
          when relief is not allowed under any other law.  The 
          Advocate may relieve amounts below $500; anything above is 
          subject to concurrence by the Chief Counsel.  If the relief 
          exceeds $7,500, the Chief Counsel must inform the FTB (the 
          FTB may adjust the $7,500 for inflation).  The Advocate 
          must also provide a public record of the relief in the 
          FTB's office with the taxpayer's name, total amount of tax 
          involved, total amount refundable or payable, and a summary 
          of why the relief is warranted.  A determination made by 
          the Advocate is not subject to administrative or judicial 
          review.


                                   Proposed Law  

          Assembly Bill 2696 repeals the sunset and allows the 
          Advocate to continue to relieve taxpayers from penalties, 
          fees, additions to tax, and interest attributable to the 
          Franchise Tax Board's (FTB) erroneous actions permanently. 


                               State Revenue Impact
           
          According to the FTB, they are unable to quantify future 
          case volumes, but expect that the bill will ultimately save 
          minor litigation and appeal costs.  







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                                     Comments  

          1.   Purpose of the bill  .  This bill is sponsored by the FTB 
          in order to reenact the discretionary authority of the 
          Taxpayer Advocate to grant relief to taxpayers from 
          penalties, fees, additions to tax, or interest imposed on a 
          tax liability because of erroneous actions of the 
          department.  

          2.   Jury is still out  .  This statute has been used twice 
          since its enactment: (1) the first instance was for a 
          processing error on an individual return and resulted in 
          the interest being cancelled for $2,000.  (2) The second 
          instance was for incorrect instructions in FTB's fiduciary 
          and trust return booklet (541), which affected about 50 
          trusts and resulted in $2,000.  The FTB states that since 
          the FTB located the errors prior to the written contract 
          with the taxpayers, they couldn't receive relief under 
          existing law.  During the three years the FTB has used this 
          authority, it is still unclear whether it is absolutely 
          necessary.  

          The Committee may wish to consider three amendments to 
          determine whether this authority is working and provide 
          additional limitations:  (1) The Executive Officer of the 
          FTB should make the final determination, not the Chief 
          Counsel since the authority is very broad; (2) Impose 
          another three-year sunset for purposes of review and 
          evaluation; and (3) Cap the relief amount at $7,500 rather 
          than providing for a notification to the FTB from the Chief 
          Counsel.  


                                 Assembly Actions  

          Assembly Revenue and Taxation:       8-0
          Assembly Appropriations:            17-0
          Assembly Floor:                     73-0


                         Support and Opposition  (6/21/12)

           Support  :  Franchise Tax Board (Sponsor).

           Opposition  :  Unknown.   






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