BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 540 (Hertzberg) - Franchise Tax Board: Taxpayers' Rights Advocate ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: April 15, 2015 |Policy Vote: GOV. & F. 7 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 4, 2015 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- This bill does not meet the criteria for referral to the Suspense File. Bill Summary: SB 540 would modify the Franchise Tax Board's (FTB's) Taxpayer Advocate Equity Relief Program by (1) repealing the sunset provision and (2) removing the current-law relief amount limit. Fiscal Impact: FTB indicates that (1) any impacts to the staff of its Taxpayer Right's Advocate would be minor and absorbable, and (2) the bill would likely result in minor administrative savings related to avoided litigation and appeals costs. SB 540 (Hertzberg) Page 1 of ? The bill's impact to General Fund revenues is unknown, and would depend upon the frequency and magnitude of future FTB errors. However, based on historical experience, FTB estimates minor revenue impacts (see Staff Comments). Background: Under current law, the position of the Taxpayers' Rights Advocate (Advocate) within FTB coordinates the resolution of taxpayer complaints and problems. Current law provides the Advocate with discretionary authority to abate penalties, interest, fees, or additions to tax owed by a taxpayer as a result of specified FTB errors or delays. The Advocate could only provide relief if no part of the error or delay could be attributable to the taxpayer, and when relief was not otherwise available. Under current law, the Advocate relief provisions will be repealed on January 1, 2016. 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 specified information. 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. Proposed Law: This bill would remove the sunset provision and the limit on the amount of relief that shall be granted. Additionally, the bill would specify the retention period to be at least one year for records of relief granted. The bill would provide that the relief shall be granted by the Advocate in coordination with FTB's Chief Counsel. Staff Comments: This bill would continue to provide a process for taxpayers to receive relief from penalties, interest, fees, SB 540 (Hertzberg) Page 2 of ? or additional tax liabilities when those amounts are a direct result of FTB errors or delays, and if relief of those charges is not available elsewhere under existing law. FTB notes that the Advocate exercised the authority to grant relief on three occasions dating back to 2009. One instance resulted in interest relief provided to a single taxpayer of $2,100 related to a processing error of an individual return. The second instance concerned interest totaling $1,800 that was abated because of an unreasonable delay in issuing a bill as a result of a technology upgrade. The third instance was attributable to incorrect instructions in the Fiduciary tax return booklet, which affected about 50 trusts that inadvertently underpaid the Mental Health Services Tax for up to four year each as a result of FTB's error. In this case, the Advocate abated total interest of about $1.1 million. FTB could not provide relief under the general interest abatement statutes because the error was discovered before notifying taxpayers of the error, but relief would have been available if FTB had contacted taxpayers about the error. In a sense, the Advocate's authority to refund interest in this case relieved FTB of the administrative burden of notifying taxpayers of the error and processing claims for reimbursement. The ultimate outcome of providing relief would have been available in either case. Based upon this experience, FTB anticipates that the authority provided in this bill would result in a minor General Fund impact. The actual impact is impossible to estimate because it would be attributable to future errors and delays caused by FTB and would depend upon the magnitude of any impacts on taxpayers affected by those errors and delays. -- END --