BILL ANALYSIS Ó
SB 540
Page 1
SENATE THIRD READING
SB
540 (Hertzberg)
As Amended July 15, 2015
Majority vote
SENATE VOTE: 36-0
------------------------------------------------------------------
|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bloom, Bonta, | |
| | |Calderon, Chang, | |
| | |Daly, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Holden, Jones, Quirk, | |
| | |Rendon, Wagner, | |
SB 540
Page 2
| | |Weber, Wood | |
| | | | |
| | | | |
------------------------------------------------------------------
SUMMARY: Modifies the Franchise Tax Board (FTB) Taxpayers'
Rights Advocate Equity Relief Program (Program). Specifically,
this bill:
1)Extends the Program indefinitely by repealing the January 1,
2016, sunset date.
2)Requires the Taxpayers' Rights Advocate (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)Increases the maximum annual taxpayer relief amount that may
be granted for a taxable year from $7,500 to $10,000 and
indexes that amount to inflation.
6)Makes technical clarifying changes relating to the
administration of the Program and specifies the operative
dates for the proposed amendments.
SB 540
Page 3
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.
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.
SB 540
Page 4
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
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,
SB 540
Page 5
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
$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.
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: According to the Assembly Appropriations
Committee:
1)Minor and absorbable administrative costs to FTB to continue
program; possible cost savings if equitable relief actions
help reduce cases that would otherwise result in appeal or
SB 540
Page 6
litigation.
2)Impact to General Fund revenues will depend on the frequency
and magnitude of FTB errors, and is therefore unknown.
Historical experience suggests, however, that overall revenue
impact will be minor.
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)The Taxpayers' Rights Advocate: Background. In 1988, the
Katz-Harris Taxpayers' Bill of Rights Act (AB 2788 (Harris),
Chapter 1573, Statutes of 1988) codified many existing FTB
administrative procedures and clarified the rights of
California taxpayers. 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 [AB 713 (Caldera), Chapter 600,
Statutes of 1997]. A few years later, the California
Legislature created the Taxpayers' Bill of Rights Act of 1999,
SB 540
Page 7
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.
[AB3078 (Revenue and Taxation Committee) 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 [AB 2686 (Revenue and
Taxation Committee), 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, instead of the
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
SB 540
Page 8
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.
Analysis Prepared by:
Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN:
0001533
SB 540
Page 9