BILL NUMBER: SB 342 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 25, 2011
INTRODUCED BY Senator Wolk
FEBRUARY 15, 2011
An act to amend Sections 19116, 19164, and 19504 of, to
add Sections 18407.5 and 19165 to, to add Article 3 (commencing with
Section 19761) to Chapter 9.5 of Part 10.2 of Division 2 of, to add
the headings of Article 1 (commencing with Section 19751) to, Article
2 (commencing with Section 19755) to, and Article 4 (commencing with
Section 19772) to, Chapter 9.5 of Part 10.2 of Division 2 of, and to
repeal and amend Sections 19751, 19752, 19753, 19754, and 19755 of,
the Revenue and Taxation Code, relating to taxation.
An act to amend Section 19717 of, and to add Section 41 to, the
Revenue and Taxation Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
SB 342, as amended, Wolk. Income taxation: abusive
avoidance transactions: voluntary compliance initiative.
Taxation: administration: litigation: fees.
Existing law provides that a prevailing party in a court action
may be awarded attorney's fee under specified circumstances, and laws
governing the administration of franchise and income tax laws
provide that a prevailing party may be awarded a judgment for
reasonable litigation costs incurred, in the case of any civil
proceeding brought by or against the State of California in a court
of record of this state, in connection with the determination,
collection, or refund of any tax, interest, or penalty under the
Personal Income Tax Law and the Corporation Tax Law as specified.
This bill would make the provision of law governing the
administration of franchise and income tax laws the exclusive means
to award attorney's fees in any civil proceeding described above, and
would prohibit attorney's fees from being awarded pursuant to any
other statutory provision or common law doctrine regarding the award
of attorney's fees.This bill also would prohibit a person from
charging a contingent fee, as defined, for any matter involving a tax
imposed under the Revenue and Taxation Code, and would impose a
penalty, as provided, for failing to comply with this requirement.
(1) Existing law requires the Franchise Tax Board to suspend the
imposition of any interest, penalty, addition to the tax, or
additional amounts for an individual who files a tax return on or
before the due date, including extensions, if the board has not
provided notice, with certain exceptions.
This bill would add interest, penalty, addition to tax, or
additional amount relating to any abusive tax avoidance transaction,
as defined, to the list of exceptions for which additional interest,
penalties, and amounts may be charged.
(2) Under existing law, the Franchise Tax Board was required to
develop and administer a voluntary compliance initiative, as
specified, to be operative during the period of January 1, 2004, to
April 15, 2004, for taxpayers to avoid specified penalties and tax
liabilities for the use of abusive tax avoidance transactions if the
taxpayer files an amended return and pays the tax due for
transactions that occurred in taxable years beginning before January
1, 2003.
This bill would require a similar voluntary compliance initiative,
to be operative during the period of April 1, 2011, to June 15,
2011, and relating to transactions that occurred in taxable years
beginning before January 1, 2010.
(3) Under existing law, if a taxpayer has been contacted by the
Franchise Tax Board regarding a specified reportable transaction, an
amount equal to 100% of the interest payable is added to the tax
amount.
This bill would make this provision, instead, applicable to
abusive tax avoidance transactions, as defined, where the taxpayer
has a deficiency. The bill would also reduce the amount of additional
tax added for taxpayers who take specified actions.
(4) Existing law imposes various taxes and fees, and certain
penalties in connection with tax avoidance and abusive tax shelters,
including reportable transactions.
This bill would expand the definition of reportable transactions
to include abusive tax avoidance transactions, as defined, and
transactions of interest, as defined. This bill would also make
technical, nonsubstantive changes to conform to the expansion of this
definition.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 41 is added to the
Revenue and Taxation Code , to read:
41. (a) Notwithstanding any other law, no person shall charge a
contingent fee for services rendered in connection with any matter
before the State Board of Equalization, Franchise Tax Board, any
assessment appeals board, or for any other matter involving a tax
imposed under this code.
(b) For purposes of this section, "contingent fee" means any fee
that is based, in whole or in part, on whether or not a position
taken on a tax return or other filing avoids challenge or is
sustained either by the State Board of Equalization, Franchise Tax
Board, an assessment appeals board, or in litigation. A contingent
fee includes, but is not limited to, a fee that is based on a
percentage of the refund reported on a return, a fee that is based on
a percentage of the taxes saved, or a fee that depends on the
specific tax result attained. A contingent fee also includes any fee
arrangement in which the party to whom services are rendered, or a
designee of the party to whom services are rendered, is reimbursed or
credited for all or a portion of the fee paid or agreed to be paid
if a position taken on a tax return or other filing is challenged or
is not sustained, whether pursuant to an indemnity agreement, a
guarantee, a right of rescission, or any other arrangement with a
similar effect.
(c) Any person who fails to comply with subdivision (a) shall pay
a penalty equal to the amount of the contingent fee charged to the
governmental entity responsible for administering the tax for which
the contingent fee arrangement was entered.
(d) This section applies to all fee arrangements entered into on
or after the effective date of this act.
SEC. 2. Section 19717 of the Revenue
and Taxation Code is amended to read:
19717. (a) The prevailing party may be awarded a judgment for
reasonable litigation costs incurred, in the case of any civil
proceeding brought by or against the State of California in a court
of record of this state , in connection with the
determination, collection, or refund of any tax, interest, or penalty
under this part.
(b) (1) A judgment for reasonable litigation costs shall not be
awarded under subdivision (a) unless the court determines that the
prevailing party has exhausted all administrative remedies available
to that party under this part, including the filing of an appeal as
provided in Section 19324. Any failure to agree to an extension of
the time for the assessment of any tax shall not be taken into
account for purposes of determining whether the prevailing party
meets the requirements of the preceding sentence.
(2) An award under subdivision (a) shall be made only for
reasonable litigation costs which are allocable to the State of
California and not to any other party to the action or proceeding.
(3) No award for reasonable litigation costs may be made under
subdivision (a) with respect to any portion of the civil proceeding
during which the prevailing party has unreasonably protracted that
proceeding.
(c) For purposes of this section:
(1) "Reasonable litigation costs" includes any of the following:
(A) Reasonable court costs.
(B) Based upon prevailing market rates for the kind or quality of
services furnished, any of the following:
(i) The reasonable expenses of expert witnesses in connection with
the civil proceeding, except that no expert witness shall be
compensated at a rate in excess of the highest rate of compensation
for expert witnesses paid by the State of California.
(ii) The reasonable cost of any study, analysis, engineering
report, test, or project which is found by the court to be necessary
for the preparation of the party's case.
(iii) Reasonable fees paid or incurred for the services of
attorneys in connection with the civil proceeding, except that those
fees shall not be in excess of one hundred twenty-five dollars ($125)
per hour unless the court determines that a special factor, such as
the limited availability of qualified attorneys for the proceeding,
the difficulty of the issues presented in the case, or the local
availability of tax expertise justifies a higher rate. In the case of
each calendar year beginning with calendar year 2001, the Franchise
Tax Board shall recompute the dollar amount referred to in the
preceding sentence. That computation shall be made by increasing the
amount in this clause by an amount equal to the cost-of-living
adjustment determined under subdivision (h) of Section 17041. If any
resulting dollar amount is not a multiple of ten dollars ($10), that
dollar amount shall be rounded to the nearest multiple of ten dollars
($10).
(iv) The court may award reasonable attorney
attorney's fees under subdivision (a) in excess of the
attorney attorney's fees paid or
incurred if the fees are less than the reasonable attorneys'
attorney's fees because the attorney is
representing the prevailing party for no fee or for a fee which
(taking , taking into account all the
facts and circumstances) circumstances,
is no more than a nominal fee. This clause shall apply only if the
award is paid to the attorney or the attorney's employer.
(2) (A) "Prevailing party" means any party to any proceeding
described in subdivision (a) (other than the State of California or
any creditor of the taxpayer involved) that meets either of the
following criteria:
(i) Has substantially prevailed with respect to the amount in
controversy.
(ii) Has substantially prevailed with respect to the most
significant issue or set of issues presented.
(B) (i) A party shall not be treated as the prevailing party in a
proceeding to which subdivision (a) applies if the State of
California establishes that its position in the proceeding was
substantially justified.
(ii) For purposes of clause (i), the position of the State of
California shall be presumed not to be substantially justified if the
Franchise Tax Board did not follow its applicable published guidance
in the administrative proceeding. This presumption may be rebutted.
(iii) For purposes of clause (ii), the term "applicable published
guidance" means either of the following:
(I) A regulation, legal ruling, notice, information release, or
announcement.
(II) Any chief counsel ruling or determination letter issued to
the taxpayer.
(iv) For purposes of clause (i), in determining whether the
position of the Franchise Tax Board was substantially justified, the
court shall take into account whether the Franchise Tax Board has
lost in any California Court of Appeal in another district on
substantially similar issues, as reflected in a decision certified
for publication.
(C) Any determination under this paragraph as to whether a party
is a prevailing party shall be made by either of the following:
(i) The court.
(ii) An agreement of the parties.
(3) The term "civil proceeding" includes a civil action.
(d) For purposes of this section, in the case of multiple actions
which could have been joined or consolidated, or a case or cases
involving a return or returns of the same taxpayer
(including , including joint returns of married
individuals) individuals, which could
have been joined in a single proceeding in the same court, the
actions or cases shall be treated as one civil proceeding regardless
of whether the joinder or consolidation actually occurs, unless the
court in which the action is brought determines, in its discretion,
that it would be inappropriate to treat the actions or cases as
joined or consolidated for purposes of this section.
(e) An order granting or denying an award for reasonable
litigation costs under subdivision (a), in whole or in part, shall be
incorporated as a part of the decision or judgment in the case and
shall be subject to appeal in the same manner as the decision or
judgment.
(f) For purposes of this section, "position of the State of
California" includes either of the following:
(1) The position taken by the State of California in the civil
proceeding.
(2) Any administrative action or inaction by the Franchise Tax
Board (and all subsequent administrative action or inaction) upon
which that proceeding is based.
(g) The amendments made by the act amending this
subdivision Chapter 931 of the Statutes of 1999
are effective for costs incurred and services performed more than 180
days after the effective date of the act amending this
subdivision Chapter 931 of the Statutes of 1999
.
(h) Notwithstanding any other law, this section shall be the
exclusive means to award attorney's fees in any civil proceeding
described in subdivision (a), and attorney's fees may not be awarded
pursuant to any other statutory provision or common law doctrine
regarding the award of attorney's fees.
SEC. 3. (a) The amendments made to Section 19717
of the Revenue and Taxation Code by Section 2 of this act shall be
applied to any court proceeding brought on or after the effective
date of this act.
(b) It is the intent of the Legislature that no inference be drawn
from the amendments made to Section 19717 of the Revenue and
Taxation Code by Section 2 of this act for any court proceeding
brought before the effective date of this act. All matter
omitted in this version of the bill appears in the bill as introduced
in the Senate, February 15, 2011. (JR11)