California Legislature—2013–14 Regular Session

Assembly Bill No. 132

Introduced by Assembly Member Holden

January 16, 2013

An act to amend Section 17085 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 132, as introduced, Holden. Personal income taxes: retirement plans: early distributions.

The Personal Income Tax Law, in modified conformity to federal income tax laws, imposes an additional tax upon early distributions from specified retirement plans, as provided.

This bill would, for taxable years, beginning on or after January 1, 2014, and before January 1, 2017, exclude from that additional tax the first $6,000 distributed to an individual for the purpose of paying qualified costs, as defined, with respect to acquisition indebtedness for a principal residence, as provided.

This bill would take effect immediately as a tax levy.

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 17085 of the Revenue and Taxation Code
is amended to read:

17085.  

Section 72 of the Internal Revenue Code, relating to
annuities, certain proceeds of endowment and life insurance
contracts, is modified as follows:

(a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions
and the same years as they are applicable for federal purposes,
except that the repeal of Section 72(d) of the Internal Revenue
Code, relating to repeal of special rule for employees’ annuities,
shall apply only to the following:

(1) Any individual whose annuity starting date is after December
31, 1986.

(2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.

(b) The amount of a distribution from an individual retirement
account or annuity or employee trust or employee annuity that is
includable in gross income for federal purposes shall be reduced
for purposes of this part by the lesser of either of the following:

(1) An amount equal to the amount includable in federal gross
income for the taxable year.

(2) An amount equal to the basis in the account or annuity
allowed by Section 17507 (relating to individual retirement
accounts and simplified employee pensions), the increased basis
allowed by Sections 17504 and 17506 (relating to plans of
self-employed individuals), the increased basis allowed by Section
17501, or the increased basis allowed by Section 17551 that is
remaining after adjustment for reductions in gross income under
this provision in prior taxable years.

(c) (1) Except as provided in paragraph (2), the amount of the
additional tax imposed under this part shall be computed in
accordance with Sections 72(m), (q), (t), and (v) of the Internal
Revenue Code, as applicable for federal income tax purposes for
the same taxable year, using a rate of 21⁄2 percent, in lieu of the
rate provided in those sections.

(2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts, as
applicable for federal income tax purposes for the same taxable
year, applies, the rate in paragraph (1) shall be 6 percent in lieu of
the 21⁄2 percent rate specified therein.

begin insert

(3) (A) Notwithstanding paragraphs (1) and (2), for taxable
years beginning on or after January 1, 2014, and before January
1, 2017, an individual shall not pay the additional tax described
in paragraph (1) for early withdrawal of a qualified principal
residence payment distribution from his or her retirement account
when the moneys are used to reduce qualified costs.

end insert begin insert

(B) For the purposes of this paragraph:

end insert begin insert

(i) “Acquisition indebtedness” shall have the same meaning as
in Section 163(h)(3)(B) of the Internal Revenue Code, except that
the dollar limitation in Section 163(h)(3)(B)(ii) of the Internal
Revenue Code shall not apply.

end insert begin insert

(ii) “Qualified costs” means either of the following:

end insert begin insert

(I) Amounts paid as principal or interest on acquisition
indebtedness.

end insert begin insert

(II) Amounts paid as part of a loan modification that either
reduces the principal or interest of acquisition indebtedness.

end insert begin insert

(iii) “Qualified principal residence payment distribution” means
any payment or distribution received by an individual to the extent
that the payment or distribution is used by the individual before
the close of the 60th day after the day on which that payment or
distribution is received to pay qualified costs with respect to a
principal residence of the individual or spouse of the individual.

end insert begin insert

(C) This paragraph shall only apply to an individual that meets
both of the following requirements:

end insert begin insert

(i) The individual only owns one home, occupied by the
individual as his or her principal residence, that has a market
value that is less than the amount the individual owes on his or
her acquisition indebtedness on that home.

end insert begin insert

(ii) The individual receives, and provides certification of,
counseling from a counseling agency approved by the United States
Department of Housing and Urban Development, as provided in
Subpart B of Part 214 of Title 24 of the Code of Federal
Regulations. The certification shall be signed by the individual
and the agency counselor, and shall include the date of the
counseling and the name, address, and telephone number of both
the counselor and the individual.

end insert begin insert

(iii) The counseling agency shall not receive any compensation,
either directly or indirectly, from the lender or from any other
person involved in originating or servicing the acquisition
indebtedness.

end insert begin insert

(D) The aggregate amount of qualified principal residence
payment distributions received by an individual for all taxable
years shall not exceed six thousand dollars ($6,000).

end insert begin insert

(E) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this
paragraph.

end insert

(d) Section 72(f)(2) of the Internal Revenue Code shall be
applicable without applying the exceptions which immediately
follow that paragraph.

(e)  begin delete The amendments made by Section 844 of the federal Pension end delete
begin delete Protection Act of 2006 (P.L. 109-280) to Section 72(e) of the end delete
begin delete Internal Revenue Code, shall not apply. end delete begin insert Section 72(e)(II) of the end insert
begin insert Internet Revenue Code shall not apply. end insert

SEC. 2.  

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.