BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 540| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 540 Author: Hertzberg (D) Amended: 4/15/15 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/22/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/4/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen SUBJECT: Franchise Tax Board: Taxpayers' Rights Advocate SOURCE: Author DIGEST: This bill repeals the sunset provision and removes the relief amount limit for the Taxpayer Advocate Equity Relief Program (Program). ANALYSIS: Existing law: 1)Authorizes the Taxpayers' Rights Advocate to resolve taxpayer issues identified by the Franchise Tax Board (FTB), and to grant relief from penalties, fees, or interest attributable to any of the following: SB 540 Page 2 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. 1)Allows the Taxpayers' Rights Advocate to grant relief 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. 2)Allows a maximum relief amount of $7,600, and relief in excess of $509 must be approved by FTB's Executive Officer. 3)Sunsets on January 1, 2016. This bill: 1)Removes the sunset provision and the limit on the amount of relief that shall be granted. 2)Specifies the retention period to be at least one year for records of relief granted. 3)Allows the Taxpayers' Rights Advocate to grant relief in coordination with FTB's Chief Counsel. Comments The Taxpayers' Rights Advocate. 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' SB 540 Page 3 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. The Taxpayers' Rights Advocate reports directly to the FTB's Executive Officer. The Taxpayers' Rights 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 Taxpayers' Rights Advocate with the discretionary authority to grant relief to taxpayers under limited circumstances. Specifically, beginning in January 1, 2009, the Taxpayers' Rights 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. Is the Taxpayers' Rights Advocate's permanent authority justified? FTB notes that, in the absence of the Taxpayers' Rights 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, 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 Taxpayers' Rights Advocate has prudently applied the discretionary authority and it is time to re-enact the law without the sunset provision. Use of the Program. Since the enactment of the law on January 1, 2009, there have been three occurrences where the Taxpayers' Rights 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. SB 540 Page 4 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee, FTB anticipates that the authority provided in this bill will result in a minor General Fund impact. The actual impact is impossible to estimate because it will be attributable to future errors and delays caused by FTB and will depend upon the magnitude of any impacts on taxpayers affected by those errors and delays. SUPPORT: (Verified5/5/15) California Taxpayers Association Franchise Tax Board OPPOSITION: (Verified5/5/15) None received ARGUMENTS IN SUPPORT: 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 SB 540 Page 5 clarifying that the Chief Counsel approves each request. SB 540 will extend and make permanent this valuable taxpayer relief program." Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119 5/6/15 17:02:38 **** END ****