BILL ANALYSIS Ó
SB 540
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Date of Hearing: June 22, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
SB
540 (Hertzberg) - As Amended April 15, 2015
Majority vote. Fiscal committee.
SENATE VOTE: 36-0
SUBJECT: Franchise Tax Board: Taxpayers' Rights Advocate.
SUMMARY: Modifies the Franchise Tax Board (FTB) Taxpayers'
Rights Advocate Equity Relief Program (the "Program").
Specifically, this bill:
1)Extends the Program indefinitely, by repealing the January 1,
2016 sunset date.
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2)Requires the Taxpayers' Rights Advocate (the "Advocate") to
coordinate with FTB's Chief Counsel (Chief Counsel), on or
after January 1, 2016, in order to abate penalties, fees,
additions to tax, or interest attributable to an erroneous
action or inaction of, unreasonable delay caused by, or
specified written advice issued by the FTB.
3)Eliminates the requirement for a taxpayer to file an
application for relief.
4)Requires that records of relief granted to taxpayers be
retained for at least one year.
5)Removes the cap imposed on the amount of total relief that may
be granted by the Advocate.
6)Makes technical clarifying changes relating to the
administration of the Program and specifies the operative
dates for the proposed amendments.
EXISTING STATE LAW:
1)Allows FTB staff to abate penalties, fees, additions to tax,
and interest under very narrow circumstances. Specifically,
interest may be abated in any of the following situations:
a) The interest is attributable to an unreasonable delay by
the FTB in performing a ministerial or managerial act.
b) The FTB issues an assessment based on an Internal
Revenue Service (IRS) assessment and the IRS abates
interest due to an IRS delay.
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c) The FTB delays mailing notices or correspondence in
connection with a presidentially-declared disaster or
Governor-declared state of emergency.
d) A taxpayer is experiencing an extreme financial hardship
caused by a significant disability or catastrophic
circumstance.
e) A taxpayer relied on the written advice of a legal
ruling by the Chief Counsel.
2)Provides that interest may be suspended in situations where
the FTB fails to provide a notice to the taxpayer stating the
amount owed and the basis of the amount owed within 36 months
from the date on which the return was filed, or if later, the
date it is due without regard to extension. Allows an
abatement of some penalties in situations where the penalties
carry reasonable-cause exceptions.
3)Allows an abatement of penalties or fees when the Chief
Counsel rescinds the application of tax shelter penalties or
fees as authorized.
4)Establishes the position of Advocate to coordinate the
resolution of taxpayer complaints and problems and empowers
the Advocate to review actions taken on a taxpayer's account.
5)Authorized the Advocate, from January 1, 2009, until January
1, 2016, to resolve taxpayer issues identified by the FTB and
to waive penalties, fees, additions to tax, or interest
attributable to an error or unreasonable delay on the part of
the FTB.
6)Authorizes the Advocate to relieve taxpayers from penalties,
fees, additions to tax, or interest, provided that the
penalties, fees, additions to tax, or interest are
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attributable to any of the following:
a) Erroneous action or inaction by the FTB in processing
documents filed or payments made by taxpayers;
b) Unreasonable delay caused by the FTB; or,
c) Erroneous written advice that does not qualify for
relief under Chief Counsel authority. [Revenue and Taxation
Code (R&TC) Section 21012.]
7)Specifies that relief may be granted only if both of the
following conditions are met:
a) No significant aspect of that error or delay is
attributed to the taxpayer involved; and,
b) Relief is not available under any other provision of the
Personal Income Tax Law or the Corporation Tax Law,
including any relief granted under any regulation or other
FTB administrative pronouncement.
8)Requires any relief in which the total reduction exceeds $500
to be submitted to Chief Counsel for concurrence.
9)Limits the amount of relief that may be granted by the
Advocate to a taxpayer to $7,500 and authorizes the FTB to
adjust the $7,500 amount for inflation, as specified. For tax
year 2013, total relief granted by the Advocate may not exceed
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$7,600.
10)Provides that a public record with respect to a relief
granted shall be placed on file in the office of the FTB's
executive officer. Requires the public record to include all
of the following information:
a) The taxpayer's name;
b) The total amount involved;
c) The amount payable or refundable due to the error or
delay; and,
d) A summary of why the relief is warranted.
11)Specifies that a refund may be paid as a result of the relief
granted only if the written claim for refund is received by
the Advocate within the applicable statute of limitations.
12)States that a determination made by the Advocate is not
subject to administrative or judicial review.
FISCAL EFFECT: Unknown.
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COMMENTS:
1)Author's Statement . The author has provided the following
statement in support of this bill:
"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 (TRA) program at the California
Franchise Tax Board (FTB). The TRA works on behalf of
Californians to correct problems that can cost individual
taxpayers thousands of dollars."
2)Arguments in Support . The proponents of this bill state that
the "[w]hen taxpayers fall victim to FTB errors and delays,
prompt action is necessary to relieve erroneously assessed
penalties, fees and interest." They note that since the
"abatement program was enacted in 2009, relief has been
provided to taxpayers for FTB's erroneous processing of tax
returns, unreasonable delay in issuing a tax bill (due to a
technology upgrade), and erroneous instruction of a specified
tax form." The proponents argue that when dealing with the
government, "taxpayers should have an advocate looking out for
them to ensure that any errors and oversights are addressed in
a timely manner," and that SB 540 recognizes that "the state
should be held accountable for causing errors and delays."
They further argue that eliminating the cap on the potential
refund would not increase "the potential for claims or costs
to the state," given the "strict standards under which a
refund can be granted under this program."
3)The Taxpayers' Rights Advocate: Background . In 1988, the
Katz-Harris Taxpayers' Bill of Rights Act (Chapter 1573,
Statutes of 1988) codified many existing FTB administrative
procedures and clarified the rights of California taxpayers.
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The Act 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
(P.L.104-168) was passed and California followed by enacting
the Taxpayers' Rights: Conformity Legislation (Chapter 600,
Statutes of 1997). 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 Advocate or his/her designee
coordinates the resolution of taxpayer complaints and problems
and, if appropriate, postpones 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.
(Chapter 305, Statutes of 2008.) Specifically, from January
1, 2009 until January 1, 2012, the Advocate was allowed to
provide relief from penalties, fees, additions to tax, or
interest imposed on a taxpayer due to erroneous actions or
inactions of the FTB. The Advocate was able to grant relief
only if no significant part of the error or delay was
attributable to the taxpayer and relief was not available
under existing law. This authority applied to requests
received by the Advocate on or after January 1, 2009, and
before January 1, 2012, regardless of the year involved.
However, the Chief Counsel's concurrence was required to
provide relief in excess of $500, as adjusted for inflation.
The Chief Counsel was also required to notify the FTB of a
relief amount exceeding $7,500.
In 2012, the Legislature extended the Advocate's authority to
grant relief until January 1, 2016 (Chapter 349, Statutes of
2012). At that time, the Legislature imposed a $7,500 cap on
the amount of relief that may be provided in any given case,
as adjusted annually for inflation, and required any relief
exceeding $500 to be approved by FTB's executive officer,
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instead Chief Counsel.
According to the FTB, since January 1, 2009, the Taxpayers'
Rights Advocate used the discretionary authority three times
to grant relief to taxpayers by abating interest. In one
case, the interest amount of $2,100 was abated due to an
erroneous action by the FTB, which occurred in the processing
of the taxpayer's return. In the second case, relief in the
amount of $1,800 was granted to the taxpayer because of an
unreasonable delay by the FTB in issuing a bill due to a
technology upgrade. Lastly, the Advocate abated interest for
a group of 50 taxpayers because of the erroneous written
advice contained in the California Fiduciary tax form
instruction. While the total amount of interest abated in the
last case was $1.1 million, the amount of relief granted to
each individual taxpayer was below the statutory limit.
The Advocate may only grant a refund when the taxpayer sends
the written claim for relief within the applicable statutes of
limitations. Whenever relief is granted, a public record must
be created in the executive officer's office that documents
the taxpayer's name, the total amount involved, the amount
payable or refundable due to the error or delay, and a summary
of why relief is warranted. However, existing law does not
prescribe any retention period for records of relief granted
by the Advocate.
4)What Does This Bill Do ? This bill proposes to eliminate the
sunset date, thus making the Program permanent and remove the
$7,500 cap on the amount of relief that may be granted by the
Advocate. In addition, this bill requires the Advocate to
coordinate with the Chief Counsel, beginning on January 1,
2016, in abating penalties, fees, additions to tax, or
interest imposed, but would retain the existing requirement
for the FTB Executive Officer to approve the amount of relief
in excess of $500. This bill also eliminates the requirement
for a taxpayer to file with the Advocate an application for
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relief and requires that the records of relief granted to
taxpayers be placed on file in the office of the FTB Executive
Officer for at least one year.
5)Is the Advocate's Permanent Authority Justified ? 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 imposed. For
example, those taxpayers may appeal to the State Board of
Equalization or file a lawsuit for refund of taxes with a
court. 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. The
FTB staff argues that the Advocate has prudently applied the
discretionary authority since 2009, and it is time to re-enact
the law without the sunset provision.
6)The Sky is the Limit . Existing law limits the total amount of
relief that may be granted by the Advocate to $7,500, as
adjusted for inflation. Existing law also authorizes, but
does not require, the Advocate to grant relief to taxpayers
under the Program. SB 540 proposes to remove the $7,500
ceiling and to require the Advocate to provide relief to
taxpayer in coordination with the FTB Chief Counsel. The
Committee may wish to consider whether the removal of the
$7,500 ceiling is warranted, especially in light of the fact
that the Advocate would be required to provide relief, as
specified in the Program, and would have little discretion in
deciding whether the relief - or its amount - is appropriate
under the circumstances, once all of the applicable conditions
have been met.
REGISTERED SUPPORT / OPPOSITION:
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Support
Franchise Tax Board (Sponsor)
Howard Jarvis Taxpayers Association
California Taxpayers Association
California Chamber of Commerce
Opposition
None on file
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916)
319-2098
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