Amended in Senate March 28, 2016

Senate Bill No. 907

Introduced by Senator Galgiani

begin insert

(Principal coauthor: Senator Cannella)

end insert begin insert

(Principal coauthor: Assembly Member Bonta)

end insert begin insert

(Coauthor: Senator Nguyen)

end insert begin insert

(Coauthors: Assembly Members Bigelow and Gordon)

end insert

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 amended, 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 begin delete agreements, end delete begin insert agreements and end insert the federal begin delete extensions, end delete begin insert extensions, some of which would be applied retroactively. The bill would end insert discharge indebtedness for related penalties and begin delete interest, end delete begin insert interest end insert and begin insert would end insert 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, begin insert relating to
qualified principal residence indebtedness, end insert 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 begin delete 2007 or 2009 end delete begin insert 2007, 2009, or 2013 end insert taxable
year regardless of whether or not the taxpayer reports the discharge
on his or her return for the begin delete 2007 or 2009 end delete begin insert 2007, 2009, or 2013 end insert
taxable year.

begin delete

(d) (1) 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.

(2) The changes made to this section by Chapter 152 of the
Statutes of 2014 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.

(e)

end delete

begin insert (d) end insert  (1) The amendments made by Section 102 of the begin insert federal end insert
Tax Increase Prevention Act of 2014 (Public Law 113-295) to
Section 108 of the Internal Revenue Code begin insert , relating to income from
discharge of indebtedness, end insert shall apply.

(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.

begin delete

(f)

end delete

begin insert (e) end insert  (1) The amendments made by Section 151 of the begin insert federal end insert
Protecting Americans from Tax Hikes Act of 2015 begin delete (Public end delete
begin insert (Division Q of Public end insert Law 114-113) to Section 108 of the Internal
Revenue begin delete Code end delete begin insert Code, relating to income from discharge of
indebtedness, end insert shall apply.

(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.

SEC. 2.  

begin insert (a) end insert begin insert   end insert The amendments made by this act that conform
to the amendments made by Section 102 of the begin insert federal end insert Tax Increase
Prevention Act of 2014 (Public Law 113-295) to Section 108 of
the Internal Revenue Code, begin insert relating to income from discharge of
indebtedness, end insert apply to qualified principal residence indebtedness
that is discharged on and after January 1, 2014, and before January
1, 2015. begin delete The end delete

begin insert (b) end insert begin insert   end insert begin insert The end insert 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 begin insert federal end insert 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.  

begin insert (a) end insert begin insert   end insert The amendments made by this act that conform
to the amendments made by Section 151 of the begin insert federal end insert Protecting
Americans from Tax Hikes Act of 2015 begin delete (Public end delete begin insert (Division Q of
Public end insert Law 114-113) to Section 108 of the Internal Revenue Code,
begin insert relating to income from discharge of indebtedness, end insert apply to
qualified principal residence indebtedness that is discharged on
and after January 1, 2015, and before January 1, begin delete 2017. The end delete begin insert 2017,
except for an discharge of qualified principal residence
indebtedness that is subject to an arrangement that is entered into
and evidenced in writing before January 1, 2017, in which case
the amendments made by this act to conform to the amendments
made by Section 151 of the Protecting Americans from Tax Hikes
Act of 2015 (Divisions Q of Public Law 114-113) apply to principal
residence indebtedness that is discharged after January 1, 201 end insert begin insert 7. end insert

begin insert (b) end insert begin insert   end insert begin insert The end insert 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
begin insert federal end insert Protecting Americans from Tax Hikes Act of 2015 begin delete (Public end delete
begin insert (Division Q of Public end insert 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.