BILL NUMBER: SB 342 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 4, 2011
AMENDED IN SENATE APRIL 25, 2011
INTRODUCED BY Senator Wolk
FEBRUARY 15, 2011
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. 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.
This bill would authorize specified state agencies to request a
written certification from those persons, filed under penalty of
perjury, that a fee charged for those services does not include a
contingent fee. By expanding the scope of the crime of perjury, the
bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no yes .
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.
(c) A penalty shall be imposed under this section upon the person
rendering the services described in subdivision (a) for charging a
contingent fee in violation of subdivision (a). The penalty for each
violation shall be the greater of five thousand dollars ($5,000) or
100 percent of the contingent fee charged, whether or not any
contingent fee was actually paid or otherwise received, directly or
indirectly, by the service provider.
(d) (1) The penalty imposed under subdivision (c) shall be due and
payable upon notice and demand from the board for contingent fees
relating to tax and fee programs administered by that agency,
including property tax assessments, or the Franchise Tax Board for
contingent fees relating to taxes administered by the Franchise Tax
Board.
(2) Article 3 (commencing with Section 19031) of Part 10.2,
relating to deficiency assessments, shall not apply with respect to
the assessment or collection of any penalty imposed under subdivision
(c) under those provisions of this code administered by the
Franchise Tax Board.
(e) Contingent fees for services described under subdivision (a)
are against public policy, and any contract or arrangement that
provides for a contingent fee is void and unenforceable.
(f) A person rendering services in connection with any matter
before the board, the Franchise Tax Board, or the County Assessment
Appeals Board, or for any other tax imposed under this code, may be
required to provide, upon request of the board or the Franchise Tax
Board, written certification, under penalty of perjury, that the fee
for those services does not include, in whole or in part, a
contingent fee.
(g) (1) The board and the Franchise Tax Board may adopt
regulations, standards, criterion, procedures, determinations, rules,
notices, guidelines, forms, and instructions necessary to carry out
the purposes of this section, which is to prevent the use of
contingent fee arrangements under this code.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code does not apply to any
standard, criterion, procedure, determination, rule, notice,
guideline, form, and instruction established or prescribed by the
board or the Franchise Tax Board pursuant to paragraph (1).
(d)
(h) 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's fees under
subdivision (a) in excess of the attorney's fees paid or incurred if
the fees are less than the reasonable attorney's fees because the
attorney is representing the prevailing party for no fee or for a fee
which, taking into account all the facts and 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 joint
returns of married 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 Chapter 931 of the Statutes of 1999 are
effective for costs incurred and services performed more than 180
days after the effective date of 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.
SEC. 4. No reimbursement is required by this act
pursuant to Section 6 of Article XIII B of the California
Constitution because the only costs that may be incurred by a local
agency or school district will be incurred because this act creates a
new crime or infraction, eliminates a crime or infraction, or
changes the penalty for a crime or infraction, within the meaning of
Section 17556 of the Government Code, or changes the definition of a
crime within the meaning of Section 6 of Article XIII B of the
California Constitution.