Senate Bill No. 907

Introduced by Senator Galgiani

January 25, 2016

An act to amend Section 17144.5 of the Revenue and Taxation Code, relating to taxation, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

SB 907, as introduced, Galgiani. Personal income taxes: gross income exclusion: mortgage debt forgiveness.

The Personal Income Tax Law provides for modified conformity to specified provisions of federal income tax law relating to the exclusion of the discharge of qualified principal residence indebtedness, as defined, from an individual’s income if that debt is discharged after January 1, 2007, and before January 1, 2014, as provided. The federal Tax Increase Prevention Act of 2014 extended the operation of those provisions to debt that is discharged before January 1, 2015. The federal Protecting Americans from Tax Hikes Act of 2015 extended the operation of those provisions to debt that is discharged before January 1, 2017, and provides that its discharge provisions apply to specified written agreements entered into before January 1, 2017.

This bill would conform to that additional discharge provision relating to specified written agreements, the federal extensions, discharge indebtedness for related penalties and interest, and make legislative findings and declarations regarding the public purpose served by the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 17144.5 of the Revenue and Taxation
Code is amended to read:

17144.5.  

(a) Section 108(a)(1)(E) of the Internal Revenue
Code, is modified to provide that the amount excluded from gross
income shall not exceed $500,000 ($250,000 in the case of a
married individual filing a separate return).

(b) Section 108(h)(2) of the Internal Revenue Code, is modified
by substituting the phrase “(within the meaning of section
163(h)(3)(B), applied by substituting ‘$800,000 ($400,000’ for
‘$1,000,000 ($500,000’ in clause (ii) thereof)” for the phrase
“(within the meaning of section 163(h)(3)(B), applied by
substituting ‘$2,000,000 ($1,000,000’ for ‘$1,000,000 ($500,000’
in clause (ii) thereof)” contained therein.

(c) This section shall apply to discharges of indebtedness
occurring on or after January 1, 2007, and, notwithstanding any
other law to the contrary, no penalties or interest shall be due with
respect to the discharge of qualified principal residence
indebtedness during the 2007 or 2009 taxable year regardless of
whether or not the taxpayer reports the discharge on his or her
return for the 2007 or 2009 taxable year.

(d)  begin insert (1) end insert begin insert   end insert The amendments made by Section 202 of the American
Taxpayer Relief Act of 2012 (Public Law 112-240) to Section 108
of the Internal Revenue Code shall apply.

begin delete

(e)

end delete

begin insert (2) end insert  The changes made to this section by begin delete the act adding this
subdivision end delete begin insert Chapter 152 of the Statutes of 2014 end insert shall apply to
discharges of indebtedness that occur on or after January 1, 2013,
and before January 1, 2014, and, notwithstanding any other law,
no penalties or interest shall be due with respect to the discharge
of qualified principal residence indebtedness during the 2013
taxable year, regardless of whether the taxpayer reports the
discharge on his or her income tax return for the 2013 taxable year.

begin insert

(e) (1) The amendments made by Section 102 of the Tax
Increase Prevention Act of 2014 (Public Law 113-295) to Section
108 of the Internal Revenue Code shall apply.

end insert begin insert

(2) The changes made to this section by the act adding this
paragraph shall apply to discharges of indebtedness that occur
on or after January 1, 2014, and before January 1, 2015, and,
notwithstanding any other law, no penalties or interest shall be
due with respect to the discharge of qualified principal residence
indebtedness during the 2014 taxable year, regardless of whether
the taxpayer reports the discharge on his or her income tax return
for the 2014 taxable year.

end insert begin insert

(f) (1) The amendments made by Section 151 of the Protecting
Americans from Tax Hikes Act of 2015 (Public Law 114-113) to
Section 108 of the Internal Revenue Code shall apply.

end insert begin insert

(2) Notwithstanding any other law, no penalties or interest shall
be due with respect to the discharge of qualified principal residence
indebtedness during the 2015 taxable year, regardless of whether
the taxpayer reports the discharge on his or her income tax return
for the 2015 taxable year.

end insert

SEC. 2.  

The amendments made by this act that conform to the
amendments made by Section 102 of the Tax Increase Prevention
Act of 2014 (Public Law 113-295) to Section 108 of the Internal
Revenue Code, apply to qualified principal residence indebtedness
that is discharged on and after January 1, 2014, and before January
1, 2015. The Legislature finds and declares that the amendments
made by this act and the retroactive application contained in the
preceding sentence are necessary for the public purpose of
conforming state law to the amendments to the Internal Revenue
Code as made by the Tax Increase Prevention Act of 2014 (Public
Law 113-295), thereby preventing undue hardship to taxpayers
whose qualified principal residence indebtedness was discharged
on and after January 1, 2014, and before January 1, 2015, and do
not constitute a gift of public funds within the meaning of Section
6 of Article XVI of the California Constitution.

SEC. 3.  

The amendments made by this act that conform to the
amendments made by Section 151 of the Protecting Americans
from Tax Hikes Act of 2015 (Public Law 114-113) to Section 108
of the Internal Revenue Code, apply to qualified principal residence
indebtedness that is discharged on and after January 1, 2015, and
before January 1, 2017. The Legislature finds and declares that
the amendments made by this act and the retroactive application
contained in the preceding sentence regarding debt discharged
before January 1, 2016, are necessary for the public purpose of
conforming state law to the amendments to the Internal Revenue
Code as made by the Protecting Americans from Tax Hikes Act
of 2015 (Public Law 114-113), thereby preventing undue hardship
to taxpayers whose qualified principal residence indebtedness was
discharged on and after January 1, 2015, and before January 1,
2016, and do not constitute a gift of public funds within the
meaning of Section 6 of Article XVI of the California Constitution.

SEC. 4.  

This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

In order to provide tax relief to distressed homeowners at the
earliest possible time, it is necessary that this act take effect
immediately.