Amended in Senate April 1, 2013

Senate Bill No. 797

Introduced by Senator Anderson

February 22, 2013

begin delete An act to amend Section 206.1 of the Revenue and Taxation Code, relating to taxation. end delete begin insert An act to amend Sections 17276.21 and 24416.21 of, and to add Sections 17207.1, 19057.5, 19306.5, and 24347.1 to, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. end insert

LEGISLATIVE COUNSEL’S DIGEST

SB 797, as amended, Anderson. begin delete Property taxation: exemption: parking: religious activities. end delete begin insert Income taxation: net operating losses: fraudulent investment arrangement losses. end insert

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The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow a deduction for losses sustained during the taxable year and not compensated for by insurance or otherwise. Those state laws conform to specified revenue rulings and revenue procedures of the Internal Revenue Service regarding treatment of losses due to investment arrangements discovered to be criminally fraudulent, except that, among other things, net operating loss carrybacks and carryforwards are not allowed.

end insert begin insert

This bill would provide a safe harbor for determining the year in which those losses attributable to criminal fraud occurred, as described in a specified revenue procedure of the Internal Revenue Service, and would allow a net operating loss carryover or carryback of any resulting deduction from the losses in conformity with federal income tax law.

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This bill would make a legislative finding and declaration relating to the public purpose served by the bill.

end insert begin insert

This bill would take effect immediately as a tax levy.

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Existing property tax law exempts from tax any real property that is reasonably and necessarily required for the parking of automobiles by persons engaged in religious activities, as specified.

end delete begin delete

This bill would make technical, nonsubstantive changes to that provision.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

Section 17207.1 is added to the Revenue and
Taxation Code, to read:

begin insert 17207.1. end insert   

(a) (1) For each taxable year beginning on or after
January 1, 2008, if a taxpayer that is a qualified investor, as
defined in the Internal Revenue Service’s Revenue Procedure
2009-20, follows the procedures described in Section 6 of that
Revenue Procedure for federal income tax purposes, and follows
the same procedures for purposes of this part, the Franchise Tax
Board shall not challenge the treatment described in paragraph
(2) by the qualified investor with respect to the qualified loss.

(2) The treatment described in this paragraph means all of the
following:

(A) The loss is deducted as a theft loss.

(B) The taxable year in which the theft was discovered within
the meaning of Section 165(e) of the Internal Revenue Code is the
discovery year described in Section 4.04 of the Internal Revenue
Service’s Revenue Procedure 2009-20.

(C) The amount of the deduction is the amount specified in
Section 5.02 of the Internal Revenue Service’s Revenue Procedure
2009-20.

(b) To the extent a deduction resulting from the application of
this section results in a net operating loss, Section 172 of the
Internal Revenue Code, as applicable for federal income tax
purposes for a taxable year, shall be applicable for purposes of
this section for the same taxable year, without regard to Section
17276.20.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 17276.21 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

17276.21.  

(a) Notwithstanding Sections 17276, 17276.1,
17276.2, 17276.4, 17276.5, 17276.6, 17276.7, and 17276.20 of
this code and Section 172 of the Internal Revenue Code, no net
operating loss deduction shall be allowed for any taxable year
beginning on or after January 1, 2008, and before January 1, 2012.

(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code
shall be extended as follows:

(1) By one year, for losses incurred in taxable years beginning
on or after January 1, 2010, and before January 1, 2011.

(2) By two years, for losses incurred in taxable years beginning
on or after January 1, 2009, and before January 1, 2010.

(3) By three years, for losses incurred in taxable years beginning
on or after January 1, 2008, and before January 1, 2009.

(4) By four years, for losses incurred in taxable years beginning
before January 1, 2008.

(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2013.

(d) The provisions of this section shall not apply to the following
taxpayers:

(1) For any taxable year beginning on or after January 1, 2008,
and before January 1, 2010, this section shall not apply to a
taxpayer with net business income of less than five hundred
thousand dollars ($500,000) for the taxable year. For purposes of
this paragraph, business income means:

(A) Income from a trade or business, whether conducted by the
taxpayer or by a passthrough entity owned directly or indirectly
by the taxpayer. For purposes of this paragraph, the term
“passthrough entity” means a partnership or an “S” corporation.

(B) Income from rental activity.

(C) Income attributable to a farming business.

(2) For any taxable year beginning on or after January 1, 2010,
and before January 1, 2012, this section shall not apply to a
taxpayer with modified adjusted gross income of less than three
hundred thousand dollars ($300,000) for the taxable year. For
purposes of this paragraph, “modified adjusted gross income”
means the amount described in paragraph (2) of subdivision (h)
of Section 17024.5, determined without regard to the deduction
allowed under Section 172 of the Internal Revenue Code, relating
to net operating loss deduction.

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(e) This section shall not apply to a loss resulting from the
application of Section 17207.1.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 19057.5 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 19057.5. end insert   

Section 6501(h) of the Internal Revenue Code, relating
to limitations on credit or refund with respect to the special period
of limitation with respect to net operating loss or capital loss
carrybacks, shall apply to a net operating loss resulting from the
application of Section 17207.1 or Section 24347.1, except as
otherwise provided.

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 19306.5 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 19306.5. end insert   

Section 6511(d)(2) of the Internal Revenue Code,
relating to the limitations on credit or refund with respect to the
special period of limitation with respect to net operating loss or
capital loss carrybacks, shall apply to a net operating loss resulting
from the application of Section 17207.1 or Section 24347.1, except
as otherwise provided.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 24347.1 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 24347.1. end insert   

(a) (1) For each taxable year beginning on or after
January 1, 2008, if a taxpayer that is a qualified investor, as
defined in the Internal Revenue Service’s Revenue Procedure
2009-20, follows the procedures described in Section 6 of that
Revenue Procedure for federal income tax purposes, and follows
the same procedures for purposes of this part, the Franchise Tax
Board shall not challenge the treatment described in paragraph
(2) by the qualified investor with respect to the qualified loss.

(2) The treatment described in this paragraph means all of the
following:

(A) The loss is deducted as a theft loss.

(B) The taxable year in which the theft was discovered within
the meaning of Section 165(e) of the Internal Revenue Code is the
discovery year described in Section 4.04 of the Internal Revenue
Service’s Revenue Procedure 2009-20.

(C) The amount of the deduction is the amount specified in
Section 5.02 of the Internal Revenue Service’s Revenue Procedure
2009-20.

(b) To the extent a deduction resulting from the application of
this section results in a net operating loss, Section 172 of the
Internal Revenue Code, as applicable for federal income tax
purposes for a taxable year, shall be applicable for purposes of
this section for the same taxable year, without regard to Section
24416.20.

end insert

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 24416.21 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

24416.21.  

(a) Notwithstanding Sections 24416, 24416.1,
24416.2, 24416.4, 24416.5, 24416.6, 24416.7, and 24416.20 of
this code and Section 172 of the Internal Revenue Code, no net
operating loss deduction shall be allowed for any taxable year
beginning on or after January 1, 2008, and before January 1, 2012.

(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code
shall be extended as follows:

(1) By one year, for losses incurred in taxable years beginning
on or after January 1, 2010, and before January 1, 2011.

(2) By two years, for losses incurred in taxable years beginning
on or after January 1, 2009, and before January 1, 2010.

(3) By three years, for losses incurred in taxable years beginning
on or after January 1, 2008, and before January 1, 2009.

(4) By four years, for losses incurred in taxable years beginning
before January 1, 2008.

(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2013.

(d)  The disallowance of any net operating loss deduction for
any taxable year beginning on or after January 1, 2008, and before
January 1, 2010, pursuant to subdivision (a) shall not apply to a
taxpayer with income subject to tax under this part of less than
five hundred thousand dollars ($500,000) for the taxable year.

(e) (1) The disallowance of any net operating loss deduction
for any taxable year beginning on or after January 1, 2010, and
before January 1, 2012, pursuant to subdivision (a) shall not apply
to a taxpayer with preapportioned income of less than three hundred
thousand dollars ($300,000) for the taxable year.

(2) For purposes of this subdivision, “preapportioned income”
means net income after state adjustments, before the application
of the apportionment and allocation provisions of this part.

(3) For taxpayers that are required to be included in a combined
report under Section 25101 or authorized to be included in a
combined report under Section 25101.15, the amount prescribed
in paragraph (1) shall apply to the aggregate amount of
preapportioned income for all members included in a combined
report.

(f) Notwithstanding subdivision (a), this section shall not apply
to a taxpayer that ceased to do business or has a final taxable year
ending prior to August 28, 2008, that sold or transferred
substantially all of its assets resulting in a gain on sale during a
taxable year ending prior to August 28, 2008, for which the gain
could be offset with existing net operating loss deductions and the
sale or transfer occurred pursuant to a plan of reorganization under
Chapter 11 of Title 11 of the United States Code. An amended tax
return claiming net operating loss deductions allowed pursuant to
this subdivision shall be treated as a timely filed original return.

(g) The Legislature finds and declares that the addition of
subdivision (f) to this section by the act adding this subdivision
fulfills a statewide public purpose by providing necessary tax relief
for a taxpayer that ceased to do business or has a final taxable year
ending prior to August 28, 2008, that sold or transferred
substantially all of its assets resulting in a gain or sale during a
taxable year prior to August 28, 2008, for which the gain could be
offset with existing net operating loss deductions and the sale or
transfer occurred pursuant to a plan of reorganization under Chapter
11 of Title 11 of the United States Code, in order to ensure that
these taxpayers are not permanently denied the net operating loss
deduction.

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(h) This section shall not apply to a loss resulting from the
application of Section 24347.1.

end insert

begin insert

begin insert SEC. 7. end insert   

end insert begin insert

The Legislature finds and declares that this act fulfills
a statewide public purpose by providing tax relief for taxpayers
who are innocent victims of fraudulent investment schemes.

end insert

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begin insert SEC. 8. end insert   

end insert begin insert

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

end insert

begin delete

SECTION 1.  

Section 206.1 of the Revenue and Taxation Code
is amended to read:

206.1.  

(a) Pursuant to the authority in subdivision (d) of
Section 4 of Article XIII of the California Constitution, and in
accordance with subdivision (b) of this section, all real property
that is necessarily and reasonably required for the parking of
automobiles of persons who are attending religious services, or
are engaged in religious services or worship or any religious
activity, is exempt from taxation.

(b) For purposes of the exemption established by subdivision
(a), all of the following apply:

(1) “Real property” means land and improvements or a
possessory interest in land and improvements.

(2) The real property is not required to be contiguous to the land
on which the church or other structure used for religious services
or as the place of worship or religious activity is located.

(3) The real property is not at other times used for commercial
purposes. For purposes of this paragraph, “commercial purposes”
does not include use of the property for the parking of vehicles or
bicycles, the revenue from which does not exceed the ordinary
and necessary costs of maintaining the real property.

(4) The exemption shall apply to otherwise qualifying land and
improvements regardless of whether the land and improvements
are owned by the church, religious denomination, or sect using the
land and improvements for the parking of automobiles by persons
described in subdivision (a). However, the exemption shall apply
to land and improvements that are not owned by the church,
religious denomination, or sect using the land and improvements
for the parking of automobiles by persons described in subdivision
(a) only as long as all of the following conditions are met:

(A) The congregation of the church, religious denomination, or
sect is no greater than 500 members.

(B) The church, religious denomination, or sect is engaged in
a lease of the land and improvements for the exclusive purpose of
the parking of automobiles by persons described in subdivision
(a).

(C) The church, religious denomination, or sect is responsible,
under the terms of its lease with the fee owner of the land and
improvements, for paying the property taxes levied on the land
and improvements. For purposes of this subparagraph, paying
property taxes levied on land and improvements includes
reimbursement paid to the fee owner of the land and improvements
for those taxes.

(D) The real property is used exclusively for the parking of
automobiles by persons described in subdivision (a).

(E) The fee owner of the real property and the county agree that
the fee owner shall pay the total amount of taxes that would be
levied on the real property for the current fiscal year and the first
two subsequent fiscal years in the absence of a grant of exemption
pursuant to this paragraph for the current fiscal year, if the real
property is used for any purpose other than that specified in
subparagraph (D) during either of those two subsequent fiscal
years.

end delete