BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 540 (Hertzberg) - Franchise Tax Board:  Taxpayers' Rights  
          Advocate
          
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          |Version: April 15, 2015         |Policy Vote: GOV. & F. 7 - 0    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: May 4, 2015       |Consultant: Robert Ingenito     |
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          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.







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              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,  








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          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.


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