BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 540 |Hearing |4/22/15 |
| | |Date: | |
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|Author: |Hertzberg |Tax Levy: |No |
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|Version: |4/15/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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FRANCHISE TAX BOARD: TAXPAYERS' RIGHTS ADVOCATE
Repeals the sunset provision and removes the relief amount limit
for the Taxpayer Advocate Equity Relief Program.
Background and Existing Law
Under federal law, the Internal Revenue Service (IRS) may abate
any unpaid portion of tax or any liability related to tax
assessed erroneously. The IRS also has discretion to abate any
interest assessed that is attributable to any unreasonable error
or delay by the IRS when performing a managerial or ministerial
act, but only if no significant aspect of the error or delay can
be attributed to the taxpayer involved. The error or delay must
have occurred after the taxpayer was contacted in writing about
the deficiency or payment. There is no limit on the amount of
relief the IRS may grant and the federal relief provision is
permanent.
Under current state law, the office of the Taxpayer Advocate
(Advocate) within the Franchise Tax Board (FTB) was created to
coordinate the resolution of taxpayer complaints and problems.
The Advocate can review actions taken on a taxpayer's account.
Existing law authorizes the Advocate to resolve taxpayer issues
identified by FTB, and to grant relief from penalties, fees, or
interest attributable to any of the following:
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Erroneous action or erroneous inaction by FTB in
processing documents filed or payments made by taxpayers.
Unreasonable delay caused by FTB.
Erroneous written advice that does not qualify for
relief under the Chief Counsel's authority.
Relief may be granted only in situations where no significant
aspect of the error is attributable to the taxpayer and relief
is unavailable under any other statute or regulation.
The total amount of relief that may be granted under the
Advocate's discretionary authority and the threshold for
approval are indexed annually for inflation. For tax year 2013,
total relief granted under the Advocate's discretionary
authority may not exceed $7,600, and relief in excess of $509
must be approved by FTB's Executive Officer.
Relief at any level requires a public record to be placed in the
office of FTB's Executive Officer that includes the following
information:
The taxpayer's name,
The total amount involved,
The amount payable or refundable due to the error or
delay, and
A summary of why the relief is warranted.
A refund may be paid as a result of the relief granted only if
the written claim for relief is received by the Advocate within
the applicable statute of limitations. Any decision for relief
is not subject to review in any administrative or judicial
proceeding and no other entity may participate in the grant or
denial of relief.
The Advocate relief provisions will be repealed on January 1,
2016, unless an enacted statute extends this date.
Proposed Law
SB 540 (Hertzberg) 4/15/15 Page 3
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Senate Bill 540 removes the sunset provision and the limit on
the amount of relief that shall be granted. Additionally the
bill specifies the retention period to be at least one year for
records of relief granted. Under SB 540, relief shall be granted
by the Advocate in coordination with FTB's Chief Counsel.
State Revenue Impact
Unknown.
Comments
1. Purpose of the bill. According to the author, "Filing taxes
can be challenging; it's even more frustrating for individuals
who fall victim to administrative errors and delays from the tax
collection agency. SB 540 improves the Taxpayers' Rights
Advocate program at the California Franchise Tax Board (FTB).
This program allows the Taxpayer Advocate to abate a taxpayer's
penalties, interest, and fees that occur because of erroneous
actions by the Franchise Tax Board's staff. Legislation created
this program in 2009 and it is set to expire on January 1, 2016.
SB 540 would make improvements to the current program by
removing a burdensome application process for taxpayers,
removing the dollar limitation on the abatement amount, and by
clarifying that the Chief Counsel approves each request. SB 540
will extend and make permanent this valuable taxpayer relief
program."
2. The Taxpayers' Rights Advocate: Background. In 1988, the
Katz-Harris Taxpayers' Bill of Rights Act codified many existing
FTB administrative procedures and clarified the rights of
California taxpayers. It also established the position of a
Taxpayers' Rights Advocate to provide specified protections for
taxpayers, including a resolution of taxpayer complaints and
problems. On July 30, 1996, the federal Taxpayer Bill of Rights
was passed, and later, California followed by enacting the
Taxpayers' Rights: Conformity Legislation. A few years later,
the California Legislature created the Taxpayers' Bill of Rights
Act of 1999, further increasing protection of taxpayers' rights.
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The Advocate reports directly to the FTB's Executive Officer.
The Advocate or his/her designee coordinates the resolution of
taxpayer complaints and problems, and, if appropriate, may
postpone enforcement action while the case is under review. In
2008, the Legislature temporarily provided the Advocate with the
discretionary authority to grant relief to taxpayers under
limited circumstances. Specifically, beginning in January 1,
2009, the Advocate was allowed to provide relief from penalties,
fees, additions to tax, or interest imposed on a taxpayer
because of erroneous actions or inactions of the FTB.
3. Is the Advocate's permanent authority justified? FTB notes
that, in the absence of the Advocate's authority to grant
relief, eligible taxpayers do have other avenues for obtaining
relief from penalties, fees, additions to tax or interest. For
example, taxpayers may appeal to the State Board of Equalization
(BOE), file a lawsuit for refund of taxes with a court, or file
a claim with the Victim Compensation and Government Claims Board
for refund of tax or losses caused by the action or inaction of
a state agency. However, in those cases, the taxpayers most
likely will have to incur additional costs, which may exceed the
amount of penalties, interest, or other additions to tax. FTB
argues that the Advocate has prudently applied the discretionary
authority and it is time to re-enact the law without the sunset
provision.
4. Use of the Program. Since the enactment of the law on
January 1, 2009, there have been three occurrences where the
Advocate exercised its authority and provided relief to
taxpayers. These occurrences are described below:
Interest was abated in the amount of $2,100 for a
taxpayer because of an erroneous action of processing the
taxpayer's return.
Interest was abated in the amount of $1,800 for a
taxpayer because of an unreasonable delay in issuing a bill
because of a technology upgrade.
Interest totaling $1.1 million was abated for a group of
50 taxpayers including multiple years because of erroneous
written advice contained in the California Fiduciary tax
form instructions. The relief granted to each taxpayer was
below the statutory limit.
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Support and
Opposition (4/17/15)
Support : California Taxpayers Association (CalTax); Franchise
Tax Board.
Opposition : Unknown.
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