BILL NUMBER: SB 673 AMENDED 06/24/93 BILL TEXT AMENDED IN ASSEMBLY JUNE 24, 1993 AMENDED IN ASSEMBLY JUNE 20, 1993 AMENDED IN SENATE MAY 4, 1993 INTRODUCED BY Senator Greene MARCH 3, 1993 An act to amend Sections 17008.5, 17020.7, 17020.8, 17020.11, 17020.12, 17020.13, 17021.5, {+ 17034, +} 17041, 17042, {- 17052.12, -} 17054, 17054.7, 17078, 17250, 17274, 17671, 18180, 18501, {- 19033 -} {+ 18622, 19029, 19043 +} , 19057, 19059, {- 19273 -} {+ 19167, 19254, 19311, 19702 +} , 23002, 23038.5, 23045.6, 23046, 23047, 23049, {- 23609, -} {+ 23058, +} 23732, 23734, 23735, 24271, 24276, 24307, 24343, 24344, 24347.5, 24349.1, 24365, 24369, 24372.3, 24379, 24382, 24414, 24422.3, 24427, 24436.5, 24437, 24440, 24442.5, 24443, 24449, 24652, 24654, 24661, 24667, 24673.2, 24681, 24682, 24688, 24689, 24692, 24693, 24701, 24708, 24721, 24726, 24872, 24905, 24918, 24941, 24950, 24951, 24954, 24966.1, 24966.2, 24981, 24988, and 24989, of, to amend and repeal Sections 18461, 18583, 18586, 18586.3, 18591.1, 18689.5, {- 19003, -} 25662, 25662.1, 25663, 25674, and 25937 of, {+ to amend, repeal, and add Section 23101.5 of, +} to add {- Section -} {+ Sections 18682.10, 19136.5, and +} 19393 to, and to repeal Section 24371 of, the Revenue and Taxation Code, {+ and to amend Sections 2629.1, 13017, 13043, and 13050 of the Unemployment Insurance Code, +} relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST SB 673, as amended, Greene. Income taxes: bank and corporation taxes. The existing Personal Income Tax Law and the Bank Corporation Tax Law impose specified taxes and provide for various credits, deductions, exemptions, exclusions, and administrative procedures in connection therewith. This bill would make nonsubstantive, technical changes to those provisions, as provided. This bill would also provide under the Personal Income Tax Law, in conformity with the Bank and Corporation Tax Law, that with respect to a specified deduction relating to the amortization of pollution control facilities, the state certifying authority shall be the State Air Resources Board and the State Water Resources Control Board, as provided, instead of the State Department of Health Services. {+ This bill would provide for purposes of both laws that a specified collection cost recovery fee shall not apply with respect to specified exempt organizations. +} The existing Personal Income Tax Law and Bank and Corporation Tax Law conform to certain federal income tax laws relating to the treatment of certain foreign currency transactions. This bill would provide under both laws an exception to those federal laws relating to source of income. The existing Personal Income Tax Law provides, among other things, the income levels for specified individuals at which returns are required to be filed. This bill would provide an income level at which dependents would be required to file a return. The existing Personal Income Tax Law provides, among other things, a credit for personal exemption, a credit for a qualified senior head of household, and specified collection procedures. This bill would make technical, nonsubstantive changes to those provisions. The existing Personal Income Tax Law and Bank and Corporation Tax Law provide for, among other things, the disallowance of certain deductions with respect to substandard housing, the reporting of changes or corrections in gross income or deductions made by the Internal Revenue Service or other specified authority, as provided, and the procedures relating to the filing of original or amended returns. This bill would make technical, clarifying changes to those provisions. The existing Bank and Corporation Tax Law imposes an alternative minimum tax, as specified. This bill would make a technical change relating to those provisions. The existing Bank and Corporation Tax Law authorizes the Franchise Tax Board to collect taxes through electronic funds transfer. This bill would extend the application of the bad check penalty provisions to payments made by electronic funds transfers. {+ This bill would also authorize specified payments to be made by international funds transfer, as defined. This bill would provide that specified provisions shall become operative only if SB 26 of the 1993-94 Regular Session is chaptered. This bill would make nonsubstantive, technical changes to the unemployment insurance laws relating to cross-references to the Personal Income Tax Law and the Bank and Corporation Tax Law. +} This bill would take effect immediately as a tax levy {+ , but specified provisions would become operative as provided +}. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 17008.5 of the Revenue and Taxation Code is amended to read: 17008.5. Section 7704 of the Internal Revenue Code, relating to certain publicly traded partnerships treated as corporations, shall apply, except as otherwise provided. SEC. 2. Section 17020.7 of the Revenue and Taxation Code is amended to read: 17020.7. Section 7701(a)(46) of the Internal Revenue Code, relating to determination of whether there is a collective bargaining agreement, shall apply, except as otherwise provided. SEC. 3. Section 17020.8 of the Revenue and Taxation Code is amended to read: 17020.8. Section 7701(e) of the Internal Revenue Code, relating to treatment of certain contracts for providing services, etc., shall apply, except as otherwise provided. SEC. 4. Section 17020.11 of the Revenue and Taxation Code is amended to read: 17020.11. Section 7701(h) of the Internal Revenue Code, relating to motor vehicle operating leases, shall apply. SEC. 5. Section 17020.12 of the Revenue and Taxation Code is amended to read: 17020.12. Section 7701(a)(20) of the Internal Revenue Code, relating to definition of "employee," shall apply, except as otherwise provided. SEC. 6. Section 17020.13 of the Revenue and Taxation Code is amended to read: 17020.13. Section 7701(k) of the Internal Revenue Code, relating to treatment of certain amounts paid to charity, shall apply, except as otherwise provided. SEC. 7. Section 17021.5 of the Revenue and Taxation Code is amended to read: 17021.5. Section 7703 of the Internal Revenue Code, relating to determination of marital status, shall apply, except as otherwise provided. {+ SEC. 7.1. Section 17034 of the Revenue and Taxation Code, as amended by Chapter 31 of the Statutes of 1993, is amended to read: +} 17034. Unless otherwise specifically provided therein, the provisions of any act: (a) That affect the imposition or computation of taxes, additions to tax {- -} {- other than Section 19136 -} , penalties, or the allowance of credits against the tax, shall be applied to taxable years beginning on or after January 1 of the year in which the act takes effect. (b) {- That change the provisions of Section 19136 (relating to underpayment of estimated tax) shall be applied to taxable years beginning on or after January 1 of the year immediately after the year in which the act takes effect. (c) -} That otherwise affect the provisions of this part shall be applied on and after the date the act takes effect. SEC. 8. Section 17041 of the Revenue and Taxation Code is amended to read: 17041. (a) (1) There shall be imposed for each taxable year upon the entire taxable income of every resident of this state, except the head of a household as defined in Section 17042, taxes in the following amounts and at the following rates upon the amount of taxable income: If the taxable income is: The tax is: Not over $3,650 ...................... 1% of the taxable income Over $3,650 but not over $8,650 ...... $36.50 plus 2% of the excess over $3,650 Over $8,650 but not over $13,650 ..... $136.50 plus 4% of the excess over $8,650 Over $13,650 but not over $18,950 .... $336.50 plus 6% of the excess over $13,650 Over $18,950 but not over $23,950 .... $654.50 plus 8% of the excess over $18,950 Over $23,950 ......................... $1,054.50 plus 9.3% of the excess over $23,950 (2) (A) For any taxable year beginning on or after January 1, 1991, and before January 1, 1996, the income tax brackets and rates set forth in paragraph (1) shall be modified by each of the following: (i) For that portion of taxable income that is over one hundred thousand dollars ($100,000) but not over two hundred thousand dollars ($200,000), the tax rate is 10 percent of the excess over one hundred thousand dollars ($100,000). (ii) For that portion of taxable income that is over two hundred thousand dollars ($200,000), the tax rate is 11 percent of the excess over two hundred thousand dollars ($200,000). (B) The income tax brackets specified in this paragraph shall be recomputed, as otherwise provided in subdivision (h), only for taxable years beginning on and after January 1, 1992. (b) There shall be imposed for each taxable year upon the entire taxable income of every nonresident or part-year resident which is derived from sources in this state, except the head of a household as defined in Section 17042, a tax which shall be equal to the tax computed under subdivision (a) as if the nonresident or part-year resident were a resident multiplied by the ratio of California adjusted gross income to total adjusted gross income from all sources. For purposes of computing the tax under subdivision (a) and gross income from all sources, the net operating loss deduction provided in Section 172 of the Internal Revenue Code, as modified by Section 17276, shall be computed as if the taxpayer was a resident for all prior years. (c) (1) There shall be imposed for each taxable year upon the entire taxable income of every resident of this state, when the resident is the head of a household, as defined in Section 17042, taxes in the following amounts and at the following rates upon the amount of taxable income: If the taxable income is: The tax is: Not over $7,300 ..................... 1% of the taxable income Over $7,300 but not over $17,300 .... $73 plus 2% of the excess over $7,300 Over $17,300 but not over $22,300 ... $273 plus 4% of the excess over $17,300 Over $22,300 but not over $27,600 ... $473 plus 6% of the excess over $22,300 Over $27,600 but not over $32,600 ... $791 plus 8% of the excess over $27,600 Over $32,600 ........................ $1,191 plus 9.3% of the excess over $32,600 (2) (A) For any taxable year beginning on or after January 1, 1991, and before January 1, 1996, the income tax brackets and rates set forth in paragraph (1) shall be modified by each of the following: (i) For that portion of taxable income that is over one hundred thirty-six thousand one hundred fifteen dollars ($136,115) but not over two hundred seventy-two thousand two hundred thirty dollars ($272,230), the tax rate is 10 percent of the excess over one hundred thirty-six thousand one hundred fifteen dollars ($136,115). (ii) For that portion of taxable income that is over two hundred seventy-two thousand two hundred thirty dollars ($272,230), the tax rate is 11 percent of the excess over two hundred seventy-two thousand two hundred thirty dollars ($272,230). (B) The income tax brackets specified in this paragraph shall be recomputed, as otherwise provided in subdivision (h), only for taxable years beginning on and after January 1, 1992. (d) There shall be imposed for each taxable year upon the entire taxable income of every nonresident or part-year resident which is derived from sources within this state when the nonresident or part-year resident is the head of a household, as defined in Section 17042, a tax which shall be equal to the tax computed under subdivision (c) as if the nonresident or part-year resident were a resident multiplied by the ratio of California adjusted gross income to total adjusted gross income from all sources. For purposes of computing the tax under subdivision (c) and gross income from all sources, the net operating loss deduction provided in Section 172 of the Internal Revenue Code, as modified by Section 17276, shall be computed as if the taxpayer was a resident for all prior years. (e) There shall be imposed for each taxable year upon the taxable income of every estate, trust, or common trust fund taxes equal to the amount computed under subdivision (a) for an individual having the same amount of taxable income. (f) The tax imposed by this part is not a surtax. (g) (1) Section 1 (g) of the Internal Revenue Code, relating to certain unearned income of minor children taxed as if the parent's income, shall apply, except as otherwise provided. (2) Section 1(g)(7)(B)(ii)(II) of the Internal Revenue Code, relating to income included on parent's return, is modified, for purposes of this part, by substituting "five dollars ($5)" for "seventy-five dollars ($75)" and "1 percent" for "15 percent." (h) For each taxable year beginning on or after January 1, 1988, the Franchise Tax Board shall recompute the income tax brackets prescribed in subdivisions (a) and (c). That computation shall be made as follows: (1) The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year. (2) The Franchise Tax Board shall do both of the following: (A) Compute an inflation adjustment factor by adding 100 percent to the percentage change figure that is furnished pursuant to paragraph (1) and dividing the result by 100. (B) Multiply the preceding taxable year income tax brackets by the inflation adjustment factor determined in subparagraph (A) and round off the resulting products to the nearest one dollar ($1). (i) (1) For purposes of this section, the term "California adjusted gross income" includes each of the following: (A) For any part of the taxable year during which the taxpayer was a resident of this state (as defined by Section 17014), all items of adjusted gross income, regardless of source. (B) For any part of the taxable year during which the taxpayer was not a resident of this state, only those items of adjusted gross income which were derived from sources within this state, determined in accordance with Chapter 11 (commencing with Section 17951). (2) For purposes of computing "California adjusted gross income" under paragraph (1), the amount of any net operating loss sustained in any taxable year during any part of which the taxpayer was not a resident of this state shall be limited to the sum of the following: (A) The amount of the loss attributable to the part of the taxable year in which the taxpayer was a resident. (B) The amount of the loss which, during the part of the taxable year the taxpayer is not a resident, is attributable to California source income and deductions allowable in arriving at adjusted gross income. SEC. 9. Section 17042 of the Revenue and Taxation Code is amended to read: 17042. Section 2(b) and (c) of the Internal Revenue Code, relating to definitions of head of household and certain married individuals living apart, respectively, shall apply, except as otherwise provided. {- SEC. 10. Section 17052.12 of the Revenue and Taxation Code is amended to read: 17052.12. For each taxable year beginning on or after January 1, 1987, and before January 1, 1998, there shall be allowed as a credit against the "net tax" (as defined by Section 17039) for the taxable year an amount determined in accordance with Section 41 of the Internal Revenue Code, except as follows: (a) (1) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "8 percent." (2) Section 41(a)(2) of the Internal Revenue Code, relating to basic research payments, shall not apply. (b) "Qualified research" shall include only research conducted in California. (c) In the case where the credit allowed under this section exceeds the "net tax," the excess may be carried over to reduce the "net tax" in the following year, and succeeding years if necessary, until the credit has been exhausted. (d) (1) Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply. (2) This section shall apply only to amounts incurred on or after January 1, 1988, and paid or incurred before January 1, 1998. (e) (1) In the case of a taxpayer to whom paragraph (2) of subdivision (f) does not apply, the following rules shall apply: (A) In the case of any taxable year which begins before January 1, 1988, and ends after December 31, 1987, any amount for any base period with respect to that taxable year shall be the amount which bears the same ratio to that amount for that base period as the number of days in that taxable year after December 31, 1987, bears to the total number of days in that taxable year. (B) In the case of any taxable year which begins before January 1, 1998, and ends after December 31, 1997, any amount for any base period with respect to that taxable year shall be the amount which bears the same ratio to that amount for that base period as the number of days in that taxable year before January 1, 1998, bears to the total number of days in that taxable year. (2) (A) In the case of a taxpayer to whom paragraph (2) of subdivision (f) applies, subparagraph (B) shall apply. (B) In the case of any taxable year which begins before January 1, 1998, and ends after December 31, 1997, the base amount with respect to that taxable year shall be the amount which bears the same ratio to the base amount for that year (determined without regard to this subparagraph) as the number of days in that taxable year before January 1, 1998, bears to the total number of days in that taxable year. (f) (1) Except as provided in paragraph (2), the following rules, in lieu of Section 41(c) of the Internal Revenue Code, shall apply for purposes of this part: (A) The term "base amount" means the average of the qualified research expenses for each year in the "base period." (B) The term "base period" means the three taxable years immediately preceding the taxable year for which the determination is being made (hereafter in this subdivision referred to as the "determination year"). (C) In no event shall the "base amount" be less than 50 percent of the qualified research expenses for the determination year. (2) In the case of a taxpayer described in Section 41(c)(3) (B) of the Internal Revenue Code, relating to startup companies, Section 41(c) of the Internal Revenue Code shall apply, but only to the first taxable year for which a credit is claimed under this section and the number of taxable years immediately following that taxable year that are necessary in order for the taxpayer to have three taxable years beginning after December 31, 1987, in which the taxpayer had both gross receipts and qualified research expenses. (g) This section shall remain in effect only until December 1, 1998, and as of that date is repealed. However, any unused credit may continue to be carried forward, as provided in subdivision (c), until the credit has been exhausted. -} SEC. 11. Section 17054 of the Revenue and Taxation Code is amended to read: 17054. In the case of individuals, the following credits for personal exemption may be deducted from the tax imposed under Section 17041 or 17048, less any increases imposed under paragraph (1) of subdivision (d) or paragraph (1) of subdivision (e), or both, of Section 17560. (a) In the case of a single individual, a head of household, or a married individual making a separate return, a credit of fifty-one dollars ($51) for taxable years beginning on or after January 1, 1987, and before January 1, 1988, and fifty-two dollars ($52) for taxable years beginning on or after January 1, 1988. (b) In the case of a surviving spouse (as defined in Section 17046), or a husband and wife making a joint return, a credit of one hundred two dollars ($102) for taxable years beginning on or after January 1, 1987, and before January 1, 1988, and one hundred four dollars ($104) for taxable years beginning on or after January 1, 1988. If one spouse was a resident for the entire taxable year and the other spouse was a nonresident for all or any portion of the taxable year, the personal exemption shall be divided equally. (c) In addition to any other credit provided in this section, in the case of an individual who is 65 years of age or over by the end of the taxable year a credit of fifty-one dollars ($51) for taxable years beginning on or after January 1, 1987, and before January 1, 1988, and fifty-two dollars ($52) for taxable years beginning on or after January 1, 1988. (d) A credit of fifty-one dollars ($51) for taxable years beginning on or after January 1, 1987, and before January 1, 1988, and fifty-two dollars ($52) for taxable years beginning on or after January 1, 1988, for each dependent (as defined in Section 17056) for whom an exemption is allowable under Section 151 (c) of the Internal Revenue Code (relating to additional exemption for dependents). (e) A credit for personal exemption of fifty-one dollars ($51) for taxable years beginning on or after January 1, 1987, and before January 1, 1988, and fifty-two dollars ($52) for taxable years beginning on or after January 1, 1988, for the taxpayer if he or she is blind at the end of his or her taxable year. (f) A credit for personal exemption of fifty-one dollars ($51) for taxable years beginning on or after January 1, 1987, and before January 1, 1988, and fifty-two dollars ($52) for taxable years beginning on or after January 1, 1988, for the spouse of the taxpayer if a separate return is made by the taxpayer, and if the spouse is blind and, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer. (g) For the purposes of this section, an individual is blind only if either: his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees. (h) In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins, the credit amount applicable to that individual for that individual's taxable year shall be zero. (i) For each taxable year beginning on or after January 1, 1989, the Franchise Tax Board shall compute the credits prescribed in this section. That computation shall be made as follows: (1) The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index as modified for rental equivalent homeownership for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year. (2) The Franchise Tax Board shall add 100 percent to the percentage change figure which is furnished to them pursuant to paragraph (1), and divide the result by 100. (3) The Franchise Tax Board shall multiply the immediately preceding taxable year credits by the inflation adjustment factor determined in paragraph (2), and round off the resulting products to the nearest one dollar ($1). (4) In computing the credits pursuant to this subdivision, the credit provided in subdivision (b) shall be twice the credit provided in subdivision (a). (j) The amendments made to this section by the act adding this subdivision shall be applied only in the computation of taxes for taxable years beginning on or after January 1, 1990. SEC. 12. Section 17054.7 of the Revenue and Taxation Code is amended to read: 17054.7. (a) There shall be allowed as a credit against the "net tax" (as defined in Section 17039) for a "qualified senior head of household" (as defined in subdivision (c)) an amount equal to 2 percent of the taxable income. (b) For each taxable year beginning on or after January 1, 1991, the Franchise Tax Board shall recompute the adjusted gross income specified in paragraph (3) of subdivision (c). Those computations shall be made as follows: (1) The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index as modified for rental equivalent home ownership for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year. (2) The Franchise Tax Board shall add 100 percent to the percentage change figure which is furnished pursuant to paragraph (1) and divide the result by 100. (3) The Franchise Tax Board shall multiply the amount for the immediately preceding taxable year for the adjusted gross income limitation specified in paragraph (3) of subdivision (c) by the inflation adjustment factor determined in paragraph (2), and round off the resulting product to the nearest one dollar ($1). (c) "Qualified senior head of household" means an individual who meets all of the following: (1) Attained the age of 65 before the close of the taxable year. (2) Qualified as the head of household in accordance with Section 17042 for either of the two taxable years immediately preceding the taxable year by providing a household for a qualifying individual who died during either of the two taxable years immediately preceding the taxable year. (3) Whose adjusted gross income for the taxable year does not exceed thirty-seven thousand five hundred dollars ($37,500). SEC. 13. Section 17078 of the Revenue and Taxation Code is amended to read: 17078. (a) Section 988 of the Internal Revenue Code, relating to treatment of certain foreign currency transactions, shall apply, except as otherwise provided. (b) Section 988(a)(3) of the Internal Revenue Code, relating to source, shall not apply. SEC. 14. Section 17250 of the Revenue and Taxation Code is amended to read: 17250. (a) (1) Section 168 of the Internal Revenue Code, relating to the accelerated cost recovery system, shall apply to assets placed in service on or after January 1, 1987, in taxable years beginning on or after January 1, 1987. (2) In the case of assets placed in service on or after January 1, 1987, in taxable years beginning prior to January 1, 1987, a taxpayer may elect to have Sections 168 and 179 of the Internal Revenue Code apply by doing all of the following: (A) Making an election on the return for the first taxable year beginning on or after January 1, 1987. (B) Establishing a depreciation adjustment account for each asset (or group of assets) in an amount equal to the difference between the depreciation allowed on the federal return for each asset (or group of assets) and the depreciation allowed under this part. (C) The depreciation adjustment account (or accounts) established under subparagraph (B) shall be amortized over 60 months beginning with the first taxable year beginning on or after January 1, 1987. (3) In the case of assets placed in service prior to January 1, 1987, in taxable years beginning prior to January 1, 1987, Section 168 of the Internal Revenue Code shall apply only to residential rental property as provided by former Section 17250.5 (as amended by Chapter 1461 of the Statutes of 1985). (b) For purposes of subdivision (a), any reference to "tax imposed by this chapter" in Section 168 of the Internal Revenue Code means "net tax," as defined in Section 17039. (c) For purposes of paragraph (1) of subdivision (a), Section 168 of the Internal Revenue Code shall be modified as follows: (1) Section 168(e)(3) shall be modified to provide that any grapevine, replaced in a vineyard in California in any taxable year beginning on or after January 1, 1992, as a direct result of a phylloxera infestation in that vineyard, shall be "five-year property," rather than "10-year property." (2) Section 168(g)(3) of the Internal Revenue Code shall be modified to provide that any grapevine, replaced in a vineyard in California in any taxable year beginning on or after January 1, 1992, as a direct result of a phylloxera infestation in that vineyard, shall have a class life of 10 years. (d) Every taxpayer claiming a depreciation deduction with respect to grapevines as described in subdivision (c) shall obtain a written certification from an independent state-certified integrated pest management advisor, or a state agricultural commissioner or advisor, that specifies that the replanting was necessary to restore a vineyard infested with phylloxera. The taxpayer shall retain the certification for future audit purposes. (e) (1) Section 169 of the Internal Revenue Code, relating to amortization of pollution control facilities, shall apply, except as otherwise provided. (2) The deduction allowed by this section shall be available only with respect to facilities located in this state. (3) The "state certifying authority," as defined in Section 169(d)(2) of the Internal Revenue Code, means the State Air Resources Board, in the case of air pollution, and the State Water Resources Control Board, in the case of water pollution. (f) For property used in a trade or business, or held for production of income, there shall be allowed as a depreciation deduction a reasonable allowance for the cost of a solar energy system and allowable conservation measures over a 60-month period for taxable years beginning before January 1, 1987. (g) Section 7622(c)(e) of Public Law 101-239, relating to the effective date of changes in treatment of transfers of franchises, trademarks, and trade names, shall apply. (h) Section 7645(b) of Public Law 101-239, relating to the effective date of disallowance of depreciation for certain term interests, shall apply. SEC. 15. Section 17274 of the Revenue and Taxation Code is amended to read: 17274. (a) Notwithstanding any other provisions in this part to the contrary, in the case of a taxpayer who derives rental income from substandard housing located in this state, no deduction shall be allowed for interest, taxes, depreciation, or amortization paid or incurred in the taxable year with respect to the substandard housing, except as provided in subdivision (e). (b) "Substandard housing" means housing for which both of the following apply: (1) The housing has been determined by a state or local government regulatory agency to violate state law or local codes dealing with health, safety, or building. (2) Either of the following occur: (A) After written notice of violation by the regulatory agency, specifying the applicability of this section, the housing has not been brought to a condition of compliance within six months after the date of the notice or the time prescribed in the notice, whichever period is later. (B) Good faith efforts for compliance have not been commenced, as determined by the regulatory agency. "Substandard housing" shall also mean employee housing that has not, within 30 days of the date of the written notice of violation or the date for compliance prescribed in the written notice of violation, been brought into compliance with the conditions stated in the written notice of violation of the Employee Housing Act (Part 1 (commencing with Section 17000) of Division 13 of the Health and Safety Code) issued by the enforcement agency that specifies the application of this section. The regulatory agency may, for good cause shown, extend the compliance date prescribed in a violation notice. (c) (1) When the period specified in subdivision (b) has expired without compliance, the regulatory agency shall mail to the taxpayer a notice of noncompliance. The notice of noncompliance shall be in a form and shall include information prescribed by the Franchise Tax Board, shall be mailed by certified mail to the taxpayer at the taxpayer's last known address, and shall advise the taxpayer (A) of an intent to notify the Franchise Tax Board of the noncompliance within 10 days unless an appeal is filed, (B) where an appeal may be filed, and (C) of a general description of the tax consequences of the filing with the Franchise Tax Board. Appeals shall be made to the same body and in the same manner as appeals from other actions of the regulatory agency. If no appeal is made within 10 days or after disposition of the appeal if the regulatory agency is sustained, the regulatory agency shall notify, in writing, the Franchise Tax Board of the noncompliance. (2) The notice of noncompliance shall contain the legal description or the lot and block numbers of the real property, the assessor's parcel number, and the name of the owner of record as shown on the latest equalized assessment roll. In addition, the regulatory agency shall, at the same time as notification of the notice of noncompliance is sent to the Franchise Tax Board, record a copy of the notice of noncompliance in the office of the recorder for the county in which the substandard housing is located that includes a statement of tax consequences that may be determined by the Franchise Tax Board. However, the failure to record a notice with the county recorder shall not relieve the liability of any taxpayer nor shall it create any liability on the part of the regulatory agency. (3) The regulatory agency may charge the taxpayer a fee in an amount not to exceed the regulatory agency's costs incurred in recording any notice of noncompliance or issuing any release of that notice. The notice of compliance shall be recorded and shall serve to expunge the notice of noncompliance. The notice of compliance shall contain the same recording information required for the notice of noncompliance. No deduction by the taxpayer, or any other taxpayer who obtains title to the property subsequent to the recordation of the notice of noncompliance, shall be allowed for the items provided in subdivision (a) from the date of the notice of noncompliance until the date the regulatory agency determines that the substandard housing has been brought to a condition of compliance. The regulatory agency shall mail to the Franchise Tax Board and the taxpayer a notice of compliance, which notice shall be in the form and include the information prescribed by the Franchise Tax Board. In the event the period of noncompliance does not cover an entire taxable year, the deductions shall be denied at the rate of 1/12 for each full month during the period of noncompliance. (4) If the property is owned by more than one owner or if recorded title is in the name of a fictitious owner, the notice requirements provided in subdivision (b) and this subdivision shall be satisfied for each owner if the notices are mailed to one owner or to the fictitious name owner at the address appearing on the latest available property tax bill. However, notices made pursuant to this subdivision shall not relieve the regulatory agency from furnishing taxpayer identification information required to implement this section to the Franchise Tax Board. (d) For the purposes of this section, a notice of noncompliance shall not be mailed by the regulatory agency to the Franchise Tax Board if any of the following occur: (1) The rental housing was rendered substandard solely by reason of earthquake, flood, or other natural disaster except where the condition remains for more than three years after the disaster. (2) The owner of the rental housing has secured financing to bring the housing into compliance with those laws or codes which have been violated, causing the housing to be classified as substandard, and has commenced repairs or other work necessary to bring the housing into compliance. (3) The owner of rental housing which is not within the meaning of housing accommodation as defined by subdivision (d) of Section 35805 of the Health and Safety Code has done both of the following: (A) Attempted to secure financing to bring the housing into compliance with those laws or codes which have been violated, causing the housing to be classified as substandard. (B) Been denied that financing solely because the housing is located in a neighborhood or geographical area in which financial institutions do not provide financing for rehabilitation of any of that type of housing. (e) This section does not apply to deductions from income derived from property rendered substandard solely by reason of a change in applicable state or local housing standards unless the violations cause substantial danger to the occupants of the property, as determined by the regulatory agency which has served notice of violation pursuant to subdivision (b). (f) The owner of rental housing found to be in noncompliance shall, upon total or partial divestiture of interest in the property, immediately notify the regulatory agency of the name and address of the person or persons to whom the property has been sold or otherwise transferred and the date of the sale or transference. (g) By July 1 of each year, the regulatory agency shall report to the appropriate legislative body of its jurisdiction all of the following information, for the preceding calendar year, regarding its activities to secure code enforcement, which shall be public information: (1) The number of written notices of violation issued for substandard dwellings under subdivision (b). (2) The number of violations complied with within the period prescribed in subdivision (b). (3) The number of notices of noncompliance issued pursuant to subdivision (c). (4) The number of appeals from those notices pursuant to subdivision (c). (5) The number of successful appeals by owners. (6) The number of notices of noncompliance mailed to the Franchise Tax Board pursuant to subdivision (c). (7) The number of cases in which a notice of noncompliance was not sent pursuant to subdivision (d). (8) The number of extensions for compliance granted pursuant to subdivision (b) and the mean average length of the extensions. (9) The mean average length of time from the issuance of a notice of violation to the mailing of a notice of noncompliance to the Franchise Tax Board where the notice is actually sent to the Franchise Tax Board. (10) The number of cases where compliance is achieved after a notice of noncompliance has been mailed to the Franchise Tax Board. (11) The number of instances of disallowance of tax deductions by the Franchise Tax Board resulting from referrals made by the regulatory agency. This information may be filed in a supplemental report in succeeding years as it becomes available. SEC. 16. Section 17671 of the Revenue and Taxation Code is amended to read: 17671. (a) Section 584 of the Internal Revenue Code, relating to common trust funds, shall apply, except as otherwise provided. (b) (1) Section 1008(e)(5) of Public Law 100-647, relating to taxable year of common trust fund, shall apply. (2) Section 806(e)(2) of Public Law 99-514, relating to the effective date for change in accounting period, as modified by Section 1008(e)(5) of Public Law 100-647, shall apply. (3) If a return was filed for the short taxable year prior to January 1, 1990, which included the full amount of income in excess of expenses for that period, the taxpayer shall be permitted, prior to January 1, 1990, to file an amended return to spread that income ratably over the first four taxable years beginning after December 31, 1987. SEC. 17. Section 18180 of the Revenue and Taxation Code is amended to read: 18180. (a) Section 7872 of the Internal Revenue Code, relating to the treatment of loans with below market interest rates, shall apply, except as otherwise provided. (b) Section 307 of the Support for East European Democracy (SEED) Act of 1989 (Public Law 101-179) shall not apply for purposes of this part. SEC. 18. Section 18401 of the Revenue and Taxation Code is amended to read: 18401. (a) Every individual taxable under this part shall make a return to the Franchise Tax Board, stating specifically the items of the individual's gross income from all sources and the deductions and credits allowed by this part, if the individual has any of the following for the taxable year: (1) An adjusted gross income from all sources of over six thousand dollars ($6,000) if single. (2) An adjusted gross income from all sources of over twelve thousand dollars ($12,000) if married. (3) A gross income from all sources of over eight thousand dollars ($8,000), if single, and sixteen thousand dollars ($16,000) if married, regardless of the amount of adjusted gross income. {- (4) A gross income from all sources of over five hundred dollars ($500) in the case of an individual described in Section 63(c)(5) of the Internal Revenue Code, relating to limitation on basic standard deduction in the case of certain dependents. -} {+ (4) In the case of an individual described in Section 63(c) (5) of the Internal Revenue Code, relating to limitation on basic standard deduction in the case of certain dependents, a gross income from all sources that exceeds the amount of the standard deduction allowed under that section. +} (b) If a husband and wife have for the taxable year an adjusted gross income from all sources of over twelve thousand dollars ($12,000) or a gross income from all sources of over sixteen thousand dollars ($16,000), each shall make a return or the income of each shall be included on a single joint return as otherwise provided in this article. (c) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 19. Section 18501 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: 18501. (a) Every individual taxable under Part 10 (commencing with Section 17001) shall make a return to the Franchise Tax Board, stating specifically the items of the individual's gross income from all sources and the deductions and credits allowable, if the individual has any of the following for the taxable year: (1) An adjusted gross income from all sources in excess of six thousand dollars ($6,000), if single. (2) An adjusted gross income from all sources in excess of twelve thousand dollars ($12,000), if married. (3) A gross income from all sources in excess of eight thousand dollars ($8,000), if single, and sixteen thousand dollars ($16,000) if married, regardless of the amount of adjusted gross income. {- (4) A gross income from all sources of over five hundred dollars ($500) in the case of an individual described in Section 63(c)(5) of the Internal Revenue Code, relating to limitation on basic standard deduction in the case of certain dependents. -} {+ (4) In the case of an individual described in Section 63(c) (5) of the Internal Revenue Code, relating to limitation on basic standard deduction in the case of certain dependents, a gross income from all sources that exceeds the amount of the standard deduction allowed under that section. +} (b) If a husband and wife have for the taxable year an adjusted gross income from all sources in excess of twelve thousand dollars ($12,000) or a gross income from all sources in excess of sixteen thousand dollars ($16,000), each shall make a return or the income of each shall be included on a single joint return as otherwise provided in this article. SEC. 20. Section 18583 of the Revenue and Taxation Code is amended to read: 18583. (a) If the Franchise Tax Board determines that the self-assessed tax disclosed by the taxpayer on an original or amended return, including an amended return reporting federal adjustments pursuant to Section 18451, is less than the tax disclosed by its examination, it shall mail notice or notices to the taxpayer of the deficiency proposed to be assessed. (b) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 21. Section 18586 of the Revenue and Taxation Code is amended to read: 18586. (a) Except in the case of a false or fraudulent return and except as otherwise expressly provided in this part, every notice of a proposed deficiency assessment shall be mailed to the taxpayer within four years after the return was filed. No deficiency shall be assessed or collected with respect to the year for which the return was filed unless the notice is mailed within the four-year period or the period otherwise fixed. (b) The running of the period of limitations provided in subdivision (a) on mailing a notice of proposed deficiency assessment shall, in a case under Title 11 of the United States Code, be suspended for any period during which the Franchise Tax Board is prohibited by reason of that case from mailing the notice of proposed deficiency assessment and 60 days thereafter. (c) Where, within the 60-day period ending on the day on which the time prescribed in this section for the assessment of any tax imposed by this part for any taxable year would otherwise expire, the Franchise Tax Board receives a written document signed by the taxpayer showing that the taxpayer owes an additional amount of that tax for that taxable year, the period for the assessment of an additional amount in excess of the amount shown on either an original or amended return shall not expire before the day 60 days after the day on which the Franchise Tax Board receives that document. {- (c) -} {+ (d) +} This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 22. Section 18586.3 of the Revenue and Taxation Code is amended to read: 18586.3. (a) If a taxpayer is required by subdivision (a) of Section 18451 to report a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority and does report the change or correction within six months after the final federal determination, a notice of proposed deficiency assessment resulting from those adjustments may be mailed to the taxpayer within two years from the date when the notice is filed with the Franchise Tax Board by the taxpayer, or within the periods provided in Sections 18586, 18586.1, and 18587, whichever period expires later. (b) If a taxpayer is required by subdivision (b) of Section 18451 to file an amended return and does file the return within six months of filing an amended return with the Commissioner of Internal Revenue, a notice of proposed deficiency assessment in excess of the self-assessed tax on the amended return, and resulting from the adjustments may be mailed to the taxpayer within two years from the date when the amended return is filed with the Franchise Tax Board by the taxpayer, or within the periods provided in Sections 18586, 18586.1, and 18587, whichever period expires later. (c) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 23. Section 18591.1 of the Revenue and Taxation Code is amended to read: 18591.1. (a) For purposes of this part, the term "deficiency" means the amount by which the tax imposed by this part exceeds the excess of (1) The sum of (A) The amount shown as the tax by the taxpayer upon his or her original or amended return, if an original or amended return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus (B) The amounts previously assessed (or collected without assessment) as a deficiency, over (2) The amount of rebates, as defined in paragraph (2) of subdivision (b), made. (b) For purposes of this section: (1) The tax imposed by this part and the tax shown on the original or amended return shall both be determined without regard to payments on account of estimated tax, and without regard to the credit under Section 18551.1. (2) The term "rebate" means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by this part was less than the excess of the amount specified in paragraph (1) of subdivision (a) over the rebates previously made. (3) The term "deficiency" shall include the amount by which a credit subject to carryover is reduced by any action of the Franchise Tax Board. {- (d) -} {+ (c) +} This section shall remain in effect only until January 1, 1994, and as of that date is repealed. {+ SEC. 23.1. Section 18622 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 18622. (a) If the amount of gross income or deductions for any year of any taxpayer as returned to the United States Treasury Department is changed or corrected by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, or where a renegotiation of a contract or subcontract with the United States results in a change in gross income or deductions, that taxpayer shall report the change or correction, or the results of the renegotiation, within six months after the final federal determination of the change or correction or renegotiation, or as required by the Franchise Tax Board, and shall concede the accuracy of the determination or state wherein it is erroneous. The changes or corrections need not be reported unless they {- affect-} {+ increase +} the amount of tax payable under this part. (b) Any taxpayer filing an amended return with the Commissioner of Internal Revenue shall also file within six months thereafter an amended return with the Franchise Tax Board which shall contain any information as it shall require. However, an amended return need not be filed unless the change therein would {- affect -} {+ increase +} the amount of tax payable under this part. (c) Notification of a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, or renegotiation of a contract or subcontract with the United States that results in a change in gross income or deductions or the filing of an amended return shall be reported in the form and manner as prescribed by the Franchise Tax Board. {+ SEC. 23.2. Section 18682.10 is added to the Revenue and Taxation Code, to read: 18682.10. (a) No addition to tax shall be made under Section 18682 for any installment of tax due on or after January 1, 1993, to the extent that the underpayment is attributable solely to changes made to the laws of other states applicable to the determination of credits that make Section 18001 inapplicable, by its terms, to a resident of this state. (b) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. +} SEC. 24. Section 18689.5 of the Revenue and Taxation Code is amended to read: 18689.5. (a) The provisions of Section 6657 of the Internal Revenue Code, relating to bad checks, shall apply. (b) Section 6657 of the Internal Revenue Code, relating to bad checks, is modified to apply to payments made by credit card remittance in addition to payments made by check or money order. (c) For payments received prior to January 1, 1993, this section shall be applied only to payments pertaining to taxable years beginning on or after January 1, 1990. (d) For payments received on or after January 1, 1993, this section shall be applied to all payments without regard to taxable year. (e) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. {- SEC. 25. Section 19003 of the Revenue and Taxation Code is amended to read: 19003. (a) For the collection pursuant to this article of any child support delinquency from any obligated parent who is out of state, the Franchise Tax Board is authorized to utilize the procedures and mechanisms currently available for collection of taxes owed from out-of-state taxpayers, pursuant to Section 18837. As necessary, the Franchise Tax Board shall seek reciprocal agreements with other states to improve its ability to collect child support payments from out-of-state obligated parents on behalf of custodial parents residing in California. The Franchise Tax Board shall also share with the Internal Revenue Service any tax return information with respect to the location of the obligated parent, and may pursue agreements with the Internal Revenue Service, as permitted by federal law, to improve collections of child support delinquencies from out-of-state obligated parents through cooperative agreements with the service. (b) (1) The Statewide Automated Child Support System, established pursuant to Section 10815 of the Welfare and Institutions Code, shall, for purposes of this article, include the capacity to interface and exchange information with the Franchise Tax Board, and if feasible, the Internal Revenue Service, to enable the immediate reporting and tracking of obligated parent information. (2) Information disclosed pursuant to this article shall be in accordance with Article 2 (commencing with Section 19281) of Chapter 21, relating to the disclosure of information. (c) The State Department of Social Services and the Franchise Tax Board shall enter into any interagency agreements that are necessary for the implementation of this article. (d) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. -} {+ SEC. 25. Section 19029 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 19029. (a) All payments required under this part regardless of the income year to which the payments apply shall be remitted to the Franchise Tax Board by electronic funds transfer pursuant to Division 11 (commencing with Section 11101) of the Commercial Code, once any of the following conditions is met with respect to any taxpayer: (1) The estimated tax payment made pursuant to Section 19025 or the payment made pursuant to Section 18604 with regard to an extension of time to file exceeds fifty thousand dollars ($50,000) in any income year beginning on or after January 1, 1991, or twenty thousand dollars ($20,000) in any income year beginning on or after January 1, 1995. (2) The total tax liability exceeds two hundred thousand dollars ($200,000) in any income year beginning on or after January 1, 1991, or eighty thousand dollars ($80,000) in any income year beginning on or after January 1, 1995. For purposes of this section, total tax liability shall be the total tax liability as shown on the original return, after any adjustment pursuant to Section 19051. (3) A taxpayer submits a request to the Franchise Tax Board and is granted permission to make electronic funds transfers. (4) A taxpayer required to remit payments to the Franchise Tax Board by electronic funds transfer may elect to discontinue making payments where the threshold requirements set forth in paragraphs (1) and (2) were not met for the preceding income year. The election shall be made in a form and manner prescribed by the Franchise Tax Board. (b) Any taxpayer required to remit payment by electronic funds transfer pursuant to this section who makes payment by other means shall pay a penalty of 10 percent of the amount paid, unless it is shown that the failure to make payment as required was for reasonable cause and was not the result of willful neglect. (c) Any taxpayer required to remit payments by electronic funds transfer pursuant to this section may request a waiver of those requirements from the Franchise Tax Board. The Franchise Tax Board may grant a waiver only if it determines that the particular amounts paid in excess of the threshold amounts established in this section were not representative of the taxpayer's tax liability. If a taxpayer is granted a waiver, subsequent remittances by electronic funds transfer shall be required only on those terms set forth in the waiver. (d) The Franchise Tax Board shall accept remittances by electronic funds transfer pursuant to this section no later than January 1, 1993. Electronic funds transfer procedures, in addition to those described in subdivision (e), shall be as prescribed by the Franchise Tax Board. Payment is deemed complete on the date the electronic funds transfer is initiated, if settlement to the state's demand account occurs on or before the banking day following the date the transfer is initiated. If settlement to the state's demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs. (e) For purposes of this section: (1) "Electronic funds transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape, so as to order, instruct, or authorize a financial institution to debit or credit an account. Electronic funds transfer shall be accomplished by an automated clearinghouse debit, {+ an +} automated clearinghouse credit, {- or by -} {+ a +} Federal Reserve Wire Transfer (Fedwire) {+ , or an international funds transfer +} . (2) "Automated clearinghouse" means any federal reserve bank, or an organization established by agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and that authorizes an electronic transfer of funds between those banks or bank accounts. (3) "Automated clearinghouse debit" means a transaction in which any department of the state, through its designated depository bank, originates an automated clearinghouse transaction debiting the taxpayer's bank account and crediting the state's bank account for the amount of tax. Banking costs incurred for the automated clearinghouse debit transaction by the taxpayer shall be paid by the state. (4) "Automated clearinghouse credit" means an automated clearinghouse transaction in which the taxpayer, through its own bank, originates an entry crediting the state's bank account and debiting its own bank account. Banking costs incurred by the state for the automated clearinghouse credit transaction may be charged to the taxpayer. (5) "Fedwire" means any transaction originated by the taxpayer and utilizing the national electronic payment system to transfer funds through federal reserve banks, pursuant to which the taxpayer debits its own bank account and credits the state' s bank account. Electronic funds transfers may be made by Fedwire only if prior approval is obtained from the Franchise Tax Board and the taxpayer is unable, for reasonable cause, to make payments pursuant to paragraph (3) or (4). Banking costs charged to the taxpayer and to the state may be charged to the taxpayer. (6) {+ "International funds transfer" means any transaction originated by the taxpayer and utilizing the international electronic payment system to transfer funds, pursuant to which the taxpayer debits its own bank account, and credits the funds to a United States bank that credits the state's bank account. Banking costs charged to the taxpayer and to the state may be charged to the taxpayer. (7) +} In determining whether a payment or total tax liability exceeds the amounts established in subdivision (a), all taxpayers whose income derived from, or attributable to, sources within this state is required to be determined by a combined report shall be aggregated and the total aggregate amount shall be considered to be the payment or total tax liability of a single taxpayer. SEC. 26. Section 19033 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: 19033. If the Franchise Tax Board determines that the tax disclosed by the taxpayer on an original or amended return, including an amended return reporting federal adjustments pursuant to Section {- 18451 -} {+ 18622 +} , is less than the tax disclosed by its examination, it shall mail notice or notices to the taxpayer of the deficiency proposed to be assessed. {+ SEC. 26.1. Section 19043 of Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 19043. (a) For purposes of this part, "deficiency" means the amount by which the tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) exceeds the excess of (1) The sum of (A) The amount shown as the tax by the taxpayer on an original or amended return, if an original or amended return was filed, plus (B) The amounts previously assessed (or collected without assessment) as a deficiency, over (2) The amount of rebates, as defined in paragraph (2) of subdivision (b), made. (b) For purposes of this {- section -} {+ section: +} (1) The tax imposed {+ by Part 10 (commencing with Section 17001) and Part 11 (commencing with Section 23001) +} and the tax shown on an original or amended return shall both be determined without regard to payments on account of estimated tax, and without regard to the credit under Section 19002. (2) "Rebate" means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) was less than the excess of the amount specified in paragraph (1) of subdivision (a) over the rebates previously made. (3) "Deficiency" includes the amount by which a credit subject to carryover is reduced by any action of the Franchise Tax Board. SEC. 27. Section 19057 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: 19057. (a) Except in the case of a {+ false or +} fraudulent return and except as otherwise expressly provided in this part, every notice of a proposed deficiency assessment shall be mailed to the taxpayer within four years after the return was filed. No deficiency shall be assessed or collected with respect to the year for which the return was filed unless the notice is mailed within the four-year period or the period otherwise provided. (b) The running of the period of limitations provided in subdivision (a) on mailing a notice of proposed deficiency assessment shall, in a case under Title 11 of the United States Code, be suspended for any period during which the Franchise Tax Board is prohibited by reason of that case from mailing the notice of proposed deficiency assessment and 60 days thereafter. (c) Where, within the 60-day period ending on the day on which the time prescribed in this section for the assessment of any tax imposed under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) for any taxable year would otherwise expire, the Franchise Tax Board receives a written document, other than an amended return or a report required by Section 18622, signed by the taxpayer showing that the taxpayer owes an additional amount of that tax for that taxable year, the period for the assessment of an additional amount in excess of the amount shown on either an original or amended return shall not expire before the day 60 days after the day on which the Franchise Tax Board receives that document. (d) If a taxpayer determines in good faith that it is an exempt organization and files a return as such under Section 23772, and if the taxpayer is thereafter held to be a taxable organization for the taxable year for which the return is filed, that return shall be deemed the return of the organization for the purposes of this section. SEC. 28. Section 19059 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: 19059. (a) If a taxpayer is required by subdivision (a) of Section 18622 to report a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority and does report the change or correction within six months after the final federal determination, a notice of proposed deficiency assessment resulting from those adjustments may be mailed to the taxpayer within two years from the date when the notice is filed with the Franchise Tax Board by the taxpayer, or within the periods provided in Sections 19057, 19058, and 19065, whichever period expires {- the -} later. (b) If a taxpayer is required by subdivision (b) of Section 18622 to file an amended return and does file the return within six months of filing an amended return with the Commissioner of Internal Revenue, a notice of proposed deficiency assessment in excess of the self-assessed tax on the amended return in excess of the self-assessed tax on the amended return, and resulting from the adjustments may be mailed to the taxpayer within two years from the date when the amended return is filed with the Franchise Tax Board by the taxpayer, or within the periods provided in Sections 19057, 19058, and 19065, whichever period expires later. {+ SEC. 28.1. Section 19136.5 is added to the Revenue and Taxation Code, to read: 19136.5. No addition to tax shall be made under Section 19136 for any installment of tax due on or after January 1, 1993, to the extent that the underpayment is attributable solely to changes made to the laws of other states applicable to the determination of credits that make Section 18001 inapplicable, by its terms, to a resident of this state. SEC. 28.2. Section 19167 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 19167. A penalty shall be imposed under this section for any of the following: (a) In accordance with Section 6695(a) of the Internal Revenue Code, for failure to furnish a copy of the return to the taxpayer, as required by Section {- 19255 -} {+ 18625 +} . (b) In accordance with Section 6695(c) of the Internal Revenue Code, for failure to furnish an identifying number, as required by Section {- 19254 -} {+ 18624 +} . (c) In accordance with Section 6695(d) of the Internal Revenue Code, for failure to retain a copy or list, as required by Section {- 19255 -} {+ 18625 +} . {+ SEC. 28.3. Section 19254 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 19254. (a) (1) If any person {+ , other than an organization exempt from taxation under Section 23701, +} fails to pay any amount of tax, penalty, addition to tax, interest, or other liability imposed and delinquent under Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part, a collection cost recovery fee shall be imposed if the Franchise Tax Board has mailed notice to that person for payment that advises that continued failure to pay the amount due may result in collection action, including the imposition of a collection cost recovery fee. The collection cost recovery fee shall be in the amount of: (A) In the case of an individual, partnership, or fiduciary, eighty-eight dollars ($88) or an amount as adjusted under subdivision (b). (B) In the case of a bank or corporation, one hundred sixty-six dollars ($166) or an amount as adjusted under subdivision (b). (2) If any person {+ , other than an organization exempt from taxation under Section 23701, +} fails or refuses to make and file a tax return required by Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part, within 25 days after formal legal demand to file the tax return is mailed to that person by the Franchise Tax Board, the Franchise Tax Board shall impose a filing enforcement cost recovery fee in the amount of: (A) In the case of an individual, partnership, or fiduciary, fifty-one dollars ($51) or an amount as adjusted under subdivision (b). (B) In the case of a bank or corporation, one hundred nineteen dollars ($119) or an amount as adjusted under subdivision (b). (b) For fees imposed under this section during the fiscal year 1993-94 and fiscal years thereafter, the amount of those fees shall be set to reflect actual costs and shall be specified in the annual Budget Act. (c) Interest shall not accrue with respect to the cost recovery fees provided by this section. (d) The amounts provided by this section are obligations imposed by this part and may be collected in any manner provided under this part for the collection of a tax. (e) Subdivision (a) is operative with respect to the notices for payment or formal legal demands to file, either of which is mailed on or after September 15, 1992. (f) The Franchise Tax Board shall determine the total amount of the cost recovery fees collected or accrued through June 30, 1993, and shall notify the Controller of that amount. The Controller shall transfer that amount to the Franchise Tax Board, and that amount is hereby appropriated to the board for the 1992-93 fiscal year for reimbursement of its collection and filing enforcement efforts. {- SEC. 29. Section 19273 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: 19273. (a) For the collection pursuant to this article of any child support delinquency from any obligated parent who is out of state, the Franchise Tax Board may utilize the procedures and mechanisms currently available for collection of taxes owed from out-of-state taxpayers, pursuant to Section 19376. As necessary, the Franchise Tax Board shall seek reciprocal agreements with other states to improve its ability to collect child support payments from out-of-state obligated parents on behalf of custodial parents residing in California. The Franchise Tax Board shall also share with the Internal Revenue Service any tax return information with respect to the location of the obligated parent, and may pursue agreements with the Internal Revenue Service, as permitted by federal law, to improve collections of child support delinquencies from out-of-state obligated parents through cooperative agreements with the service. (b) (1) The Statewide Automated Child Support System, established pursuant to Section 10815 of the Welfare and Institutions Code, shall, for purposes of this article, include the capacity to interface and exchange information with the Franchise Tax Board, and if feasible, the Internal Revenue Service, to enable the immediate reporting and tracking of obligated parent information. (2) Information disclosed pursuant to this article shall be in accordance with Article 2 (commencing with Section 19530) of Chapter 21, relating to disclosure of information. (c) The State Department of Social Services and the Franchise Tax Board shall enter into any interagency agreements that are necessary for the implementation of this article. -} {+ SEC. 29. Section 19311 of the Revenue and Taxation Code, as added by Chapter 93 of the Statutes of 1993, is amended to read: +} 19311. (a) If a change or correction is made or allowed by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, {- or an amended return is required under Section 18622 and is filed timely, -} a claim for credit or refund resulting from the adjustment may be filed by the taxpayer within two years from the date of the final federal determination, or within the period provided in Section 19306, 19307, or 19308, whichever period expires later. (b) This section shall apply to any federal determination that becomes final on or after January 1, 1993. SEC. 30. Section 19393 is added to the Revenue and Taxation Code, to read: 19393. For the purposes of the tax imposed under Chapter 2 (commencing with Section 23101) of Part 11, if any deduction, credit or exclusion provided for in Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001) is finally adjudged discriminatory against a national banking association contrary to Section 548 of Title 12 of the United States Code, or is for any reason finally adjudged invalid, or discriminatory under the California Constitution, or the laws or the Constitution of the United States, the tax of the favored taxpayer shall be recomputed by the Franchise Tax Board for the taxable year in question, as of the time of allowance of the deduction, credit, or exclusion, by disallowing the deduction, credit, or exclusion, and any difference between the amount of the tax as recomputed and the amount of the tax as originally computed shall be subject to the provisions hereof relating to original computations. {+ SEC. 30.1. Section 19702 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 19702. The prosecutor may, with the consent of the Franchise Tax Board, compromise any penalty for which he or she may bring action under this chapter. The penalties provided by this chapter are additional to all other penalties provided in {+ Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or +} this part. SEC. 31. Section 23002 of the Revenue and Taxation Code is amended to read: 23002. Except where otherwise expressly provided, all of the provisions of this part are applicable to the taxes imposed respectively under Chapter 2 (commencing with Section 23101), Chapter 2.5 (commencing with Section 23400), or Chapter 3 (commencing with Section 23501), or to the predecessor acts of this part, the Bank and Corporation Franchise Tax Act or the Corporation Income Tax Act, respectively. SEC. 32. Section 23038.5 of the Revenue and Taxation Code is amended to read: 23038.5. Section 7704 of the Internal Revenue Code, relating to certain publicly traded partnerships treated as corporations, shall apply, except as otherwise provided. SEC. 33. Section 23045.6 of the Revenue and Taxation Code is amended to read: 23045.6. Section 7701(a)(20) of the Internal Revenue Code, relating to the definition of "employee," shall apply, except as otherwise provided. SEC. 34. Section 23046 of the Revenue and Taxation Code is amended to read: 23046. Section 7701(a)(46) of the Internal Revenue Code, relating to determination of whether there is a collective bargaining agreement, shall apply, except as otherwise provided. SEC. 35. Section 23047 of the Revenue and Taxation Code is amended to read: 23047. Section 7701(e) of the Internal Revenue Code, relating to treatment of certain contracts for providing services, etc., shall apply, except as otherwise provided. SEC. 36. Section 23049 of the Revenue and Taxation Code is amended to read: 23049. Section 7701(h) of the Internal Revenue Code, relating to motor vehicle operating leases, shall apply, except as otherwise provided. {- SEC. 37. Section 23609 of the Revenue and Taxation Code is amended to read: 23609. For each income year beginning on or after January 1, 1987, and before January 1, 1998, there shall be allowed as a credit against the "tax" (as defined by Section 23036) an amount determined in accordance with Section 41 of the Internal Revenue Code, relating to credit for increasing research activities, except as follows: (a) (1) The reference to "20 percent" in Section 41(a)(1) of the Internal Revenue Code is modified to read "8 percent." (2) The reference to "20 percent" in Section 41(a)(2) of the Internal Revenue Code is modified to read "12 percent." (b) "Qualified research" and "basic research" shall include only research conducted in California. (c) The provisions of Section 41(e)(7)(A) of the Internal Revenue Code, shall be modified so that "basic research," for purposes of this section, includes any basic or applied research including scientific inquiry or original investigation for the advancement of scientific or engineering knowledge or the improved effectiveness of commercial products, except that the term does not include any of the following: (1) Basic research conducted outside California. (2) Basic research in the social sciences, arts, or humanities. (3) Basic research for the purpose of improving a commercial product if the improvements relate to style, taste, cosmetic, or seasonal design factors. (4) Any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (d) In the case where the credit allowed by this section exceeds the "tax," the excess may be carried over to reduce the "tax" in the following year, and succeeding years if necessary, until the credit has been exhausted. (e) (1) Section 41 (h) of the Internal Revenue Code, relating to termination, shall not apply. (2) This section shall apply only to amounts incurred on or after January 1, 1988, and paid or incurred before January 1, 1998. (f) (1) In the case of a taxpayer to whom paragraph (2) of subdivision (g) does not apply, the following rules shall apply: (A) In the case of any income year which begins before January 1, 1988, and ends after December 31, 1987, any amount with respect to that income year shall be the amount which bears the same ratio to that amount for that base period as the number of days in that income year after December 31, 1987, bears to the total number of days in that income year. (B) In the case of any income year which begins before January 1, 1998, and ends after December 31, 1997, any amount for any base period with respect to that income year shall be the amount which bears the same ratio to that amount for that base period as the number of days in that income year before January 1, 1998, bears to the total number of days in that income year. (2) (A) In the case of a taxpayer to whom paragraph (2) of subdivision (g) applies, subparagraph (B) shall apply. (B) In the case of any income year which begins before January 1, 1998, and ends after December 31, 1997, the base amount with respect to that income year shall be the amount which bears the same ratio to the base amount for that year (determined without regard to this subparagraph) as the number of days in that income year before January 1, 1998, bears to the total number of days in that income year. (g) (1) Except as provided in paragraph (2), the following rules, in lieu of Section 41(c) of the Internal Revenue Code, shall apply for purposes of this part: (A) The term "base amount" means the average of the qualified research expenses for each year in the "base period." (B) The term "base period" means the three income years immediately preceding the income year for which the determination is being made (hereafter in this subdivision referred to as the "determination year"). (C) In no event shall the "base amount" be less than 50 percent of the qualified research expenses for the determination year. (2) In the case of a taxpayer described in Section 41(c)(3) (B) of the Internal Revenue Code, relating to startup companies, Section 41(c) of the Internal Revenue Code shall apply, but only to the first income year for which a credit is claimed under this section and the number of income years immediately following that income year that are necessary in order for the taxpayer to have three income years beginning after December 31, 1987, in which the taxpayer had both gross receipts and qualified research expenses. (h) This section shall remain in effect only until December 1, 1998, and as of that date is repealed. However, any unused credit may continue to be carried forward, as provided in subdivision (d), until the credit has been exhausted. -} {+ SEC. 37. Section 23058 of the Revenue and Taxation Code, as added by Chapter 31 of the Statutes of 1993, is amended to read: +} 23058. Unless otherwise specifically provided therein, the provisions of any act: (a) That affect the imposition or computation of taxes, additions to tax {- other than Sections 19142 to 19151, inclusive, -} penalties, or the allowance of credits against the tax, shall be applied to income years beginning on or after January 1 of the year in which the act takes effect. (b) {- That change the provisions of Sections 19023 to 19027, inclusive, (relating to payment of estimated tax) or Sections 19142 to 19151, inclusive, (relating to underpayment of estimated tax) shall be applied to income years beginning on or after January 1 of the year immediately following the year in which the act takes effect. (c) -} That otherwise affect the provisions of this part shall be applied on and after the date the act takes effect. {+ SEC. 37.2. Section 23101.5 of the Revenue and Taxation Code is amended to read: +} 23101.5. (a) The Franchise Tax Board may determine that a corporation is not doing business in this state for purposes of this chapter or deriving income from sources within this state for purposes of Chapter 3 (commencing with Section 23501) if its only activities within this state consist of either or both of the following: (1) The purchase of personal property or services solely for its own use or use by its affiliate outside this state if: (A) The corporation does not have more than 100 employees in this state, whose duties are limited to solicitation, negotiation, liaison, monitoring, auditing, and inspecting the personal property or services acquired, or providing technical advice with respect to its requirements, and (B) The corporation does not have more than 200 employees in this state, whose duties are limited to solicitation, negotiation, liaison, monitoring, auditing, and inspecting the personal property or services acquired, or providing technical advice with respect to its requirements, and the personal property or services purchased by the corporation or its affiliate are used for the construction or modification of a physical plant or facility located outside the state, and (C) The combined number of employees in this state pursuant to subparagraphs (A) and (B) does not exceed 200. (2) The presence of employees in this state only for the purpose of attending a public or private school, college or university. (b) A corporation may petition the Franchise Tax Board for a determination in accord with procedures established by the Franchise Tax Board. The filing of that petition shall be deemed a waiver of the confidentiality provisions of Section 26451 with respect to the facts alleged in the petition and any additional evidence produced with respect to those facts. (c) If the determination is made, it shall remain in force for five years as long as the corporation continues to meet the above criteria. However, with respect to corporations meeting the above criteria on or before January 1, 1978, the determination shall remain in force indefinitely as long as the corporation continues to meet the above criteria. (d) The corporation shall annually confirm with the Franchise Tax Board within two months and 15 days after the close of its fiscal year, in the manner as the Franchise Tax Board may prescribe, that the facts relevant to the granting of the determination then in effect remain unchanged or shall state and explain any changes that have occurred since the preceeding report was filed. (e) Where a corporation applying for or relying on the determination is engaged in a unitary business, the limitation of 100 or 200 employees, as applicable, that is specified in paragraph (1) of subdivision (a) shall apply to the aggregation of all corporations within the unitary group. (f) Each taxpayer that sells property or services to a corporation with more than 100 employees in this state, with respect to which the determination has been made, shall file annually with the Franchise Tax Board in the manner as the Franchise Tax Board may prescribe, a report identifying the number of its employees within this state directly attributable to the construction or modification of a physical plant or facility located outside the state. {+ (g) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. +} {+ SEC. 37.5. Section 23101.5 is added to the Revenue and Taxation Code, to read: 23101.5. (a) The Franchise Tax Board may determine that a corporation is not doing business in this state for purposes of this chapter or deriving income from sources within this state for purposes of Chapter 3 (commencing with Section 23501) if its only activities within this state are either or both of the following: (1) The purchase of personal property or services solely for its own use or use by its affiliate outside this state if: (A) The corporation does not have more than 100 employees in this state, whose duties are limited to solicitation, negotiation, liaison, monitoring, auditing, and inspecting the personal property or services acquired, or providing technical advice with respect to its requirements, and (B) The corporation does not have more than 200 employees in this state, whose duties are limited to solicitation, negotiation, liaison, monitoring, auditing, and inspecting the personal property or services acquired, or providing technical advice with respect to its requirements, and the personal property or services purchased by the corporation or its affiliate are used for the construction or modification of a physical plant or facility located outside the state, and (C) The combined number of employees in this state pursuant to subparagraphs (A) and (B) does not exceed 200. (2) The presence of employees in this state only for the purpose of attending a public or private school, college, or university. (b) A corporation may petition the Franchise Tax Board for a determination in accord with procedures established by the Franchise Tax Board. The filing of that petition shall be deemed a waiver of the confidentiality provisions of Section 19542 with respect to the facts alleged in the petition and any additional evidence produced with respect to those facts. (c) If the determination is made, it shall remain in force for five years as long as the corporation continues to meet the above criteria. However, with respect to corporations meeting the above criteria on or before January 1, 1978, the determination shall remain in force indefinitely so long as the corporation continues to meet the above criteria. (d) The corporation shall annually confirm with the Franchise Tax Board within two months and 15 days after the close of its fiscal year, in the manner as the Franchise Tax Board may prescribe, that the facts relevant to the granting of the determination then in effect remain unchanged or shall state and explain any changes that have occurred since the preceding report was filed. (e) Where a corporation applying for or relying on the determination is engaged in a unitary business, the limitation of 100 or 200 employees, as applicable, that is specified in paragraph (1) of subdivision (a) shall apply to the aggregation of all corporations within the unitary group. (f) Each taxpayer that sells property or services to a corporation with more than 100 employees in this state, with respect to which the determination has been made, shall file annually with the Franchise Tax Board, in the manner as the Franchise Tax Board may prescribe, a report identifying the number of its employees within this state directly attributable to the construction or modification of a physical plant or facility located outside the state. (g) This section shall become operative on January 1, 1994. +} SEC. 38. Section 23732 of the Revenue and Taxation Code is amended to read: 23732. Section 512 of the Internal Revenue Code, relating to unrelated business taxable income, shall apply, except as otherwise provided. (a) Section 512(a)(2) of the Internal Revenue Code, relating to special rules for foreign organizations, shall not be applicable. (b) Section 512(a)(3) of the Internal Revenue Code, relating to special rules applicable to certain organizations, shall be modified as follows: (1) The reference to Section 501(c)(7) of the Internal Revenue Code, relating to clubs organized for pleasure, recreation, and other nonprofitable purposes, shall be modified to refer to Section 23701g. (2) The reference to Section 501(c)(9) of the Internal Revenue Code, relating to voluntary employees' beneficiary associations, shall be modified to refer to Section 23701i. (3) The reference to Section 501(c)(17) of the Internal Revenue Code, relating to trusts providing for payment of supplemental unemployment compensation benefits, shall be modified to refer to Section 23701n. (4) The reference to Section 501(c)(20) of the Internal Revenue Code, relating to qualified group legal services plans, shall be modified to refer to Section 23701q. (c) Section 512(b)(10) of the Internal Revenue Code, relating to charitable contributions, shall be modified to provide that such deductions shall not exceed 5 percent of the unrelated business taxable income, rather than 10 percent. SEC. 39. Section 23734 of the Revenue and Taxation Code is amended to read: 23734. (a) Section 513 of the Internal Revenue Code, relating to unrelated trade or business, shall apply, except as otherwise provided. (b) Section 513(g) of the Internal Revenue Code, relating to certain pole rentals, shall not apply. SEC. 40. Section 23735 of the Revenue and Taxation Code is amended to read: 23735. (a) Section 514 of the Internal Revenue Code, relating to unrelated debt-financed income, shall apply, except as otherwise provided. (b) Section 10214 of Public Law 100-203, relating to the treatment of certain partnership allocations, shall apply to income years beginning on or after January 1, 1990, for property acquired by the partnership after October 13, 1987, and partnership interests acquired after October 13, 1987. SEC. 41. Section 24271 of the Revenue and Taxation Code is amended to read: 24271. (a) Section 61 of the Internal Revenue Code, relating to gross income defined, shall apply, except as otherwise provided. (b) A distributive share of partnership gross income shall be determined in accordance with Part 10 (commencing with Section 17001). (c) Income from an interest in an estate or trust shall be determined in accordance with Part 10 (commencing with Section 17001). SEC. 42. Section 24276 of the Revenue and Taxation Code is amended to read: 24276. Section 90 of the Internal Revenue Code, relating to illegal federal irrigation subsidies, shall apply to water delivered to the taxpayer on or after January 1, 1988, in income years beginning on or after January 1, 1989, except as otherwise provided. SEC. 43. Section 24307 of the Revenue and Taxation Code is amended to read: 24307. (a) Section 108 of the Internal Revenue Code, relating to income from discharge of indebtedness, shall apply, except as otherwise provided. (b) Section 108(b)(2)(B) of the Internal Revenue Code, relating to general business credit, is modified by substituting "this part" in lieu of "Section 38 (relating to general business credit)." (c) Section 108(b)(2)(E) of the Internal Revenue Code, relating to foreign tax credit carryovers, shall not apply. In the case where more than one credit is allowable under this part, the credit shall be reduced on a pro rata basis. (d) Section 108(b)(3)(B) of the Internal Revenue Code, relating to credit carryover reduction, is modified by substituting "11.1 cents" in lieu of "33 1/3 cents." (e) Section 108(g)(3)(B) of the Internal Revenue Code, relating to adjusted tax attributes, is modified by substituting "$9" in lieu of "$3." SEC. 44. Section 24343 of the Revenue and Taxation Code is amended to read: 24343. (a) Section 162 of the Internal Revenue Code, relating to trade as business expenses, shall apply, except as otherwise provided. (b) For purposes of applying Section 162 of the Internal Revenue Code, any reference to Section 170 of the Internal Revenue Code shall be modified to refer to Sections 24357 to 24359.1, inclusive, of this part. SEC. 45. Section 24344 of the Revenue and Taxation Code is amended to read: 24344. (a) Section 163 of the Internal Revenue Code, relating to interest, shall apply, except as otherwise provided. (b) If income of the taxpayer which is derived from or attributable to sources within this state is determined pursuant to Section 25101 or 25110, the interest deductible shall be an amount equal to interest income subject to apportionment by formula, plus the amount, if any, by which the balance of interest expense exceeds interest and dividend income (except dividends deductible under the provisions of Section 24402 and dividends subject to the deductions provided for in Section 24411 to the extent of those deductions) not subject to apportionment by formula. Interest expense not included in the preceding sentence shall be directly offset against interest and dividend income (except dividends deductible under the provisions of Section 24402 and dividends subject to the deductions provided for in Section 24411 to the extent of those deductions) not subject to apportionment by formula. (c) Notwithstanding subdivision (b), interest expense allowable under Section 163 of the Internal Revenue Code that is incurred for purposes of foreign investments may be offset against dividends deductible under Section 24411. (d) The provisions of Section 7210(b) of Public Law 101-239, relating to the effective date for limitation on deduction for certain interest paid to a related person, shall apply. (e) Section 163(j)(6)(C) of the Internal Revenue Code, relating to treatment of an affiliated group, is modified to apply to all members of a combined report filed under Section 25102. SEC. 46. Section 24347.5 of the Revenue and Taxation Code is amended to read: 24347.5. (a) In lieu of Section 24347, Section 165(i) of the Internal Revenue Code, relating to disaster losses, shall apply to each of the following: (1) Forest fire or any other related casualty occurring in 1985 in California. (2) Storm, flooding, or any other related casualty occurring in 1986 in California. (3) Any loss sustained during 1987 as a result of a forest fire or any other related casualty. (4) Earthquake, aftershock, or any other related casualty occurring in October 1987 in California. (5) Earthquake, aftershock, or any related casualty occurring in October 1989 in California. (6) Any loss sustained during 1990 as a result of fire or any other related casualty in California. (7) Earthquake, aftershock, or any other related casualty occurring in April 1992 in the County of Humboldt. (8) Riots, arson, or any other related casualty occurring in April or May 1992 in California. (b) To the extent that losses under subdivision (a) exceed the net income of the year of loss or, if the election under Section 165(i) of the Internal Revenue Code is made, the net income of the year preceding the loss, then that "excess loss," at the election of the taxpayer, may be carried forward to each of the five income years following the income year the loss is claimed. However, if there is any "excess loss" remaining after the five-year period, then 50 percent of that "excess loss" may be carried forward to each of the next 10 income years. (c) The entire amount of any "excess loss" as defined in subdivision (b) shall be carried to the earliest of the income years to which, by reason of subdivision (b), the loss may be carried. The portion of the loss which shall be carried to each of the other income years shall be the excess, if any, of the amount of "excess loss" over the sum of the net income for each of the prior income years to which that "excess loss" may be carried. (d) This section and Section 165(i) of the Internal Revenue Code shall be applicable to any of the following losses sustained in any county or city in this state which was proclaimed by the Governor to be in a state of disaster: (1) Any loss sustained during February 1986 as a result of storm, flooding, or any other related casualty. (2) Any loss sustained during 1987 as a result of forest fire or any other related casualty. (3) Any loss sustained during October 1987 as the result of earthquake, aftershock, or any other related casualty. (4) Any loss resulting from the earthquake which occurred in October 1989, aftershock, or any other related casualty. (5) Any loss sustained during 1990 as the result of fire in the County of Santa Barbara. (6) Any loss sustained during April 1992 as a result of earthquake, aftershock, or any other related casualty in the County of Humboldt. (7) Any loss sustained during April or May 1992 as a result of riots, arson, or any other related casualty. (e) Any corporation subject to the provisions of Section 25101 or 25101.15 that has disaster losses pursuant to this section, shall determine the "excess loss" to be carried to other income years under the principles specified in Section 25108 relating to net operating losses. (f) Losses described in this section may not be taken into account in computing a net operating loss deduction under Section 24416 or 24416.1. SEC. 47. Section 24349.1 of the Revenue and Taxation Code is amended to read: 24349.1. (a) Section 280F of the Internal Revenue Code, relating to limitations on depreciation for luxury automobiles and certain property used for personal purposes, shall apply, except as otherwise provided. (b) Except as provided in subdivision (c), Section 280F of the Internal Revenue Code shall be modified as follows: (1) The terms "deduction" or "recovery deduction," relating to amounts allowable as a deduction under Section 168 of the Internal Revenue Code, mean the amount allowable as a deduction for depreciation under this part. (2) The term "recovery period," relating to property under Section 168 of the Internal Revenue Code, means the class life asset depreciation range allowable under this part. (3) The provisions of Section 280F of the Internal Revenue Code which relate to the investment tax credit shall not be applicable for purposes of this part. (c) Paragraphs (1) and (2) of subdivision (b) shall not apply to Section 24356.2 property. SEC. 48. Section 24365 of the Revenue and Taxation Code is amended to read: 24365. (a) Section 174 of the Internal Revenue Code, relating to research and experimental expenditures, shall apply, except as otherwise provided. (b) Section 174(b) of the Internal Revenue Code is modified to refer to subdivision (a) of Section 24916 in lieu of Section 1016(a)(1) of the Internal Revenue Code. (c) Section 174(c) of the Internal Revenue Code is modified to refer to Sections 24349 to 24356, inclusive, in lieu of Section 167 of the Internal Revenue Code. SEC. 49. Section 24369 of the Revenue and Taxation Code is amended to read: 24369. Section 175 of the Internal Revenue Code, relating to soil and water conservation expenditures, shall apply, except as otherwise provided. SEC. 50. Section 24371 of the Revenue and Taxation Code is repealed. SEC. 51. Section 24372.3 of the Revenue and Taxation Code is amended to read: 24372.3. (a) Section 169 of the Internal Revenue Code, relating to amortization of pollution control facilities, shall apply, except as otherwise provided. (b) The deduction allowed by this section shall be available only with respect to facilities located in this state. (c) The "state certifying authority," as defined in Section 169(d)(2) of the Internal Revenue Code, means the State Air Resources Board, in the case of air pollution, and the State Water Resources Control Board, in the case of water pollution. SEC. 52. Section 24379 of the Revenue and Taxation Code is amended to read: 24379. Section 83 of the Internal Revenue Code, relating to property transferred in connection with performance of services, shall apply, except as otherwise provided. SEC. 53. Section 24382 of the Revenue and Taxation Code is amended to read: 24382. (a) Section 216 of the Internal Revenue Code, relating to deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder, shall apply, except as otherwise provided. (b) Section 6282(b) of Public Law 100-647, relating to the effective date for distributions by cooperative housing corporations, shall apply. SEC. 54. Section 24414 of the Revenue and Taxation Code is amended to read: 24414. (a) Section 195 of the Internal Revenue Code, relating to startup expenditures, shall apply, except as otherwise provided. (b) Sections 163(a), 164, 165, and 174 of the Internal Revenue Code, relating to interest, taxes, losses, and research and experimental expenditures, shall be modified to refer to Sections 24344, 24345, 24347, and 24365, respectively. SEC. 55. Section 24422.3 of the Revenue and Taxation Code is amended to read: 24422.3. Section 263A of the Internal Revenue Code, relating to capitalization and inclusion in inventory costs of certain expenses, shall apply, except as otherwise provided. SEC. 56. Section 24427 of the Revenue and Taxation Code is amended to read: 24427. Section 267 of the Internal Revenue Code, relating to losses, expenses, and interest with respect to transactions between related taxpayers, shall apply, except as otherwise provided. SEC. 57. Section 24436.5 of the Revenue and Taxation Code is amended to read: 24436.5. (a) In the case of a taxpayer who derives rental income from substandard housing located in this state, no deductions for interest, depreciation, taxes, or amortization under Section 24343, 24344, 24345, 24349, or 24354.2 shall be allowed which relate to that substandard housing. (b) Substandard housing means housing for which both of the following apply: (1) The housing has been determined by a state or local government regulatory agency to violate state law or local codes dealing with health, safety, or building. (2) Either of the following occur: (A) After written notice of violation by the regulatory agency, specifying the applicability of this section, the housing has not been repaired or brought to a condition of compliance within six months after the date of the notice or the time prescribed in the notice, whichever period is longest. (B) Good faith efforts for compliance have not been commenced, as determined by the regulatory agency. "Substandard housing" shall also mean employee housing that has not, within 30 days of the date of the written notice of violation or the date for compliance prescribed in the written notice of violation, been brought into compliance with the conditions stated in the written notice of violation of the Employee Housing Act (Part 1 (commencing with Section 17000) of Division 13 of the Health and Safety Code) issued by the enforcement agency that specifies the application of this section. The regulatory agency may, for good cause shown, extend the compliance date prescribed in a violation notice. (c) (1) When the period specified in subdivision (b) has expired without compliance, the government regulatory agency shall mail to the taxpayer a notice of noncompliance. The notice of noncompliance shall be in a form and shall include information prescribed by the Franchise Tax Board, shall be mailed by certified mail to the taxpayer at his or her last known address, and shall advise the taxpayer (A) of an intent to notify the Franchise Tax Board of the noncompliance within 10 days unless an appeal is filed, (B) where an appeal may be filed, and (C) a general description of the tax consequences of that filing with the Franchise Tax Board. Appeals shall be made to the same body and in the same manner as appeals from other actions of the regulatory agency. If no appeal is made within 10 days or after disposition of the appeal if the regulatory agency is sustained, the regulatory agency shall notify, in writing, the Franchise Tax Board of the noncompliance. (2) The notice of noncompliance shall contain the legal description or the lot and block numbers of the real property, the assessor's parcel number, and the name of the owner of record as shown on the latest equalized assessment roll. In addition, the regulatory agency shall, at the same time as notification of the notice of noncompliance is sent to the Franchise Tax Board, record a copy of the notice of noncompliance in the office of the recorder for the county in which the substandard housing is located that includes a statement of tax consequences that may be determined by the Franchise Tax Board. However, the failure to record a notice with the county recorder shall not relieve the liability of any taxpayer nor shall it create any liability on the part of the regulatory agency. (3) The regulatory agency may charge the taxpayer a fee in an amount not to exceed the regulatory agency's costs incurred in recording any notice of noncompliance or issuing any release of that notice. The notice of compliance shall be recorded and shall serve to expunge the notice of noncompliance. The notice of compliance shall contain the same recording information required for the notice of noncompliance. No deduction by the taxpayer, or any other taxpayer who obtains title to the property subsequent to the recordation of the notice of noncompliance, shall be allowed for the items provided in subdivision (a) from the date of the notice of noncompliance until the date the regulatory agency determines that the substandard housing has been brought to a condition of compliance. The regulatory agency shall mail to the Franchise Tax Board and the taxpayer a notice of compliance, which notice shall be in the form and include the information prescribed by the Franchise Tax Board. In the event the period of noncompliance does not cover an entire income year, the deductions shall be denied at the rate of 1/12 for each full month during the period of noncompliance. (4) If the property is owned by more than one owner or the recorded title is in the name of a fictitious owner, the notice requirements provided in subdivision (b) and this subdivision shall be satisfied for each owner if the notices are mailed to one owner or to the fictitious name owner at the address appearing on the latest available property tax bill. However, notices made pursuant to this subdivision shall not relieve the regulatory agency from furnishing taxpayer identification information required to implement this section to the Franchise Tax Board. (d) For the purposes of this section, a notice of noncompliance shall not be mailed by the regulatory agency to the Franchise Tax Board if any of the following occur: (1) The rental housing was rendered substandard solely by reason of earthquake, flood or other natural disaster except where the condition remains for more than three years after the disaster. (2) The owner of the rental housing has secured financing to bring the housing into compliance with those laws or codes which have been violated, causing the housing to be classified as substandard, and has commenced repairs or other work necessary to bring the housing into compliance. (3) The owner of rental housing which is not within the meaning of housing accommodation, as defined in subdivision (d) of Section 35805 of the Health and Safety Code, has done both of the following: (A) Attempted to secure financing to bring the housing into compliance with those laws or codes which have been violated, causing the housing to be classified as substandard. (B) Been denied that financing solely because the housing is located in a neighborhood or geographical area in which financial institutions do not provide financing for rehabilitation of any of that type of housing. (e) The provisions of this section do not apply to deductions from income derived from property rendered substandard solely by reason of a change in applicable state or local housing standards unless those violations cause substantial danger to the occupants of the property, as determined by the regulatory agency which has served notice of violation pursuant to subdivision (b). (f) The owner of rental housing found to be in noncompliance shall, upon total or partial divestiture of interest in the property, immediately notify the regulatory agency of the name and address of the person or persons to whom the property has been sold or otherwise transferred and the date of the sale or transference. (g) By July 1 of each year, the regulatory agency shall report to the appropriate legislative body of its jurisdiction all of the following information, for the preceding calendar year, regarding its activities to secure code enforcement, which shall be public information: (1) The number of written notices of violation issued for substandard dwellings under subdivision (b). (2) The number of violations complied with within the period prescribed in subdivision (b). (3) The number of notices of noncompliance issued pursuant to subdivision (c). (4) The number of appeals from those notices pursuant to subdivision (c). (5) The number of successful appeals by owners. (6) The number of notices of noncompliance mailed to the Franchise Tax Board pursuant to subdivision (c). (7) The number of cases in which a notice of noncompliance was not sent pursuant to the provisions of subdivision (d). (8) The number of extensions for compliance granted pursuant to subdivision (b) and the mean average length of the extensions. (9) The mean average length of time from the issuance of a notice of violation to the mailing of a notice of noncompliance to the Franchise Tax Board where the notice is actually sent to the Franchise Tax Board. (10) The number of cases where compliance is achieved after a notice of noncompliance has been mailed to the Franchise Tax Board. (11) The number of instances of disallowance of tax deductions by the Franchise Tax Board resulting from referrals made by the regulatory agency. This information may be filed in a supplemental report in succeeding years as it becomes available. SEC. 58. Section 24437 of the Revenue and Taxation Code is amended to read: 24437. Section 277 of the Internal Revenue Code, relating to deductions incurred by certain membership organizations in transactions with members, shall apply, except as otherwise provided. SEC. 59. Section 24440 of the Revenue and Taxation Code is amended to read: 24440. (a) Section 280C(b) of the Internal Revenue Code relating to credit for qualified clinical testing expenses for certain drugs, shall apply, except as otherwise provided. (b) (1) Section 280C(c) of the Internal Revenue Code, relating to credit for increasing research activities, shall apply, except as otherwise provided. (2) Section 280C(c)(3)(B) of the Internal Revenue Code is modified to refer to Section 23151, 23186, or 23802 in lieu of Section 11(b)(1) of the Internal Revenue Code. SEC. 60. Section 24442.5 of the Revenue and Taxation Code is amended to read: 24442.5. Section 280H of the Internal Revenue Code, relating to limitation on certain amounts paid to employee-owners by personal service corporations electing alternative taxable years, shall apply to income years beginning on or after January 1, 1989, except as otherwise provided. SEC. 61. Section 24443 of the Revenue and Taxation Code is amended to read: 24443. (a) Section 274 of the Internal Revenue Code, relating to the disallowance of certain entertainment, gift, travel, etc., expenses, shall apply, except as otherwise provided. (b) For each income year beginning in 1987 or 1988, Section 274(n) of the Internal Revenue Code shall not apply to any expense if the expense is for food or beverage (1) Required by federal law to be provided to crew members of a vessel at sea, or (2) Provided on an oil or gas platform or drilling rig located offshore in Alaska. (c) For each income year beginning on or after January 1, 1989, the amendments made to Section 274 of the Internal Revenue Code by Section 6003 of Public Law 100-647, relating to only 80 percent of meal and entertainment expenses allowed as a deduction, shall apply. SEC. 62. Section 24449 of the Revenue and Taxation Code is amended to read: 24449. (a) Section 291 of the Internal Revenue Code, relating to special rules relating to corporate preference items, shall apply, except as otherwise provided. (b) For purposes of this section: (1) The reference in Section 291(a)(3) to "a deduction under this chapter" shall be modified to mean the deduction under Section 24348 of this part. (2) The reference in Section 291(b)(1) to "Section 263(c)" shall be modified to mean the deduction under Section 24423 of this part. SEC. 63. Section 24652 of the Revenue and Taxation Code is amended to read: 24652. Section 447 of the Internal Revenue Code, relating to method of accounting for corporations engaged in farming, shall apply, except as otherwise provided. SEC. 64. Section 24654 of the Revenue and Taxation Code is amended to read: 24654. (a) Section 448 of the Internal Revenue Code, relating to limitation on use of cash method of accounting, shall apply, except as otherwise provided. (b) For purposes of applying Section 448 of the Internal Revenue Code, Sections 801(d)(2), 801(d)(3), and 801(d) (5) of the Tax Reform Act of 1986 (Public Law 99-514), as modified by Section 1008(a) of Public Law 100-647, shall apply to each income year beginning on or after January 1, 1987. SEC. 65. Section 24661 of the Revenue and Taxation Code is amended to read: 24661. (a) Section 451 of the Internal Revenue Code, relating to the general rule for taxable year of inclusion, shall apply, except as otherwise provided. (b) The amendments to Section 451 of the Internal Revenue Code made by Section 6030 of Public Law 100-647 shall be applied in the same manner as specified by Section 6030(b) of that act. (c) The amendments to Section 451 of the Internal Revenue Code made by Section 6033 of Public Law 100-647 shall be applied in the same manner as specified by Section 6033(b) of that act. SEC. 66. Section 24667 of the Revenue and Taxation Code is amended to read: 24667. (a) (1) Sections 453, 453A, and 453B of the Internal Revenue Code, relating to installment method, special rules for nondealers, and gain or loss on disposition of installment obligations, respectively, shall apply, except as otherwise provided. (2) Sections 811(c)(2), 811(c)(4), 811(c)(6), and 811(c)(7) of Public Law 99-514, as modified by Section 1008(f) of Public Law 100-647, shall apply to each income year beginning on or after January 1, 1988. (3) Section 812 of Public Law 99-514, relating to the disallowance of use of the installment method for certain obligations, as modified by Section 1008(g) of Public Law 100-647, shall apply to each income year beginning on or after January 1, 1988. (b) For purposes of subdivision (a), any references in the Internal Revenue Code to sections that have not been incorporated into this part by reference shall be deemed to refer to the corresponding section, if any, of this part. (c) In the case of any taxpayer who made sales under a revolving credit plan and was on the installment method under former Section 24667 or 24668 for the taxpayer's last income year beginning before January 1, 1988, the provisions of this section shall be treated as a change in method of accounting for the first income year beginning after December 31, 1987, and all of the following shall apply: (1) That change shall be treated as initiated by taxpayer. (2) That change shall be treated as having been made with the consent of the Franchise Tax Board. (3) The period for taking into account adjustments under Article 6 (commencing with Section 24721) by reason of that change shall not exceed four years. (d) The repeal of Section 453C of the Internal Revenue Code by Section 10202(a) of Public Law 100-203, relating to repeal of the proportionate disallowance of the installment method, shall apply to dispositions on or after January 1, 1990, in income years beginning on or after January 1, 1990. (e) (1) In the case of any installment obligations to which Section 453(l)(2)(B) of the Internal Revenue Code applies, in lieu of the provisions of Section 453(l)(3)(A) of the Internal Revenue Code, the "tax" (as defined by subdivision (a) of Section 23036) for any income year for which payment is received on that obligation shall be increased by the amount of interest determined in the manner provided under Section 453(l)(3)(B) of the Internal Revenue Code. (2) Sections 10202 and 10204 of Public Law 100-203, are modified to provide for each of the following: (A) Section 10202 shall apply to dispositions in income years beginning on or after January 1, 1990. (B) Section 10204 shall apply to costs incurred in income years beginning on or after January 1, 1990. (C) Any adjustments required by Section 481 of the Internal Revenue Code shall be included in gross income as follows: (i) Fifty percent in the first income year beginning on or after January 1, 1990. (ii) Fifty percent in the second income year beginning on or after January 1, 1990. (f) (1) The amendments to Section 453A of the Internal Revenue Code made by Section 2004 of Public Law 100-647, relating to special rules for nondealers, shall apply to each income year beginning on or after January 1, 1990. (2) In the case of any installment obligation to which Section 453A of the Internal Revenue Code applies and which is outstanding as of the close of the income year, in lieu of the provisions of Section 453A(c)(1) of the Internal Revenue Code, the "tax" (as defined by subdivision (a) of Section 23036) for the income year shall be increased by the amount of interest determined in the manner provided under Section 453A(c)(2) of the Internal Revenue Code. (3) The provisions of Section 453A(c)(3)(B) of the Internal Revenue Code, relating to the maximum rate used in calculating the deferred tax liability, are modified to refer to the maximum rate of tax imposed under Section 23151, 23186, or 23802, whichever applies, in lieu of the maximum rate of tax imposed under Section 1 or 11 of the Internal Revenue Code. SEC. 67. Section 24673.2 of the Revenue and Taxation Code is amended to read: 24673.2. (a) Section 460 of the Internal Revenue Code, relating to special rules for long-term contracts, shall apply, except as otherwise provided. (b) (1) Section 804(d) of Public Law 99-514, relating to the effective date of modifications in the method of accounting for long-term contracts, shall apply to income years beginning on or after January 1, 1987. (2) In the case of a contract entered into after February 28, 1986, during an income year beginning before January 1, 1987, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between state and federal law for the income year in which the contract began. (c) (1) The amendments to Section 460 of the Internal Revenue Code made by Section 10203 of Public Law 100-203, relating to a reduction in the percentage of items taken into account under the completed contract method, shall apply to each income year beginning on or after January 1, 1990. (2) In the case of a contract entered into after October 13, 1987, during an income year beginning before January 1, 1990, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between state and federal law for each income year beginning prior to January 1, 1990. (d) (1) The amendments to Section 460 of the Internal Revenue Code made by Section 5041 of Public Law 100-647, relating to a reduction in the percentage of items taken into account under the completed contract method, shall apply to each income year beginning on or after January 1, 1990. (2) In the case of a contract entered into after June 20, 1988, during an income year beginning before January 1, 1990, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between state and federal law for each income year beginning prior to January 1, 1990. (e) (1) The amendments to Section 460 of the Internal Revenue Code made by Section 7621 of Public Law 101-239, relating to the repeal of the completed contract method of accounting for long-term contracts, shall apply to each income year beginning on or after January 1, 1990. (2) In the case of a contract entered into after July 10, 1989, during an income year beginning on or before January 1, 1990, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between state and federal law for each income year beginning prior to January 1, 1990. (f) For purposes of applying paragraphs (2) to (5), inclusive, of Section 460(b) of the Internal Revenue Code, relating to the look-back method, any adjustment to income computed under paragraph (2) of subdivision (b), (c), (d), or (e) shall be deemed to have been reported in the income year from which the adjustment arose, rather than the income year in which the contract was completed. SEC. 68. Section 24681 of the Revenue and Taxation Code is amended to read: 24681. Section 461 of the Internal Revenue Code, relating to the general rule for taxable year of deduction, shall apply, except as otherwise provided. SEC. 69. Section 24682 of the Revenue and Taxation Code is amended to read: 24682. Section 464 of the Internal Revenue Code, relating to limitations on deductions for certain farming expenses, shall apply, except as otherwise provided. SEC. 70. Section 24688 of the Revenue and Taxation Code is amended to read: 24688. Section 467 of the Internal Revenue Code, relating to certain payments for the use of property or services, shall apply, except as otherwise provided. SEC. 71. Section 24689 of the Revenue and Taxation Code is amended to read: 24689. Section 468 of the Internal Revenue Code, relating to special rules for mining and solid waste reclamation and closing costs, shall apply, except as otherwise provided. SEC. 72. Section 24692 of the Revenue and Taxation Code is amended to read: 24692. (a) Section 469 of the Internal Revenue Code, relating to passive activity losses and credits limited, shall apply, except as otherwise provided. (b) For purposes of this part, Section 469(d)(2) of the Internal Revenue Code, relating to passive activity credits, is modified to refer to the following credits: (1) The credit for research expenses allowed by Section 23609. (2) The credit for clinical testing expenses allowed by Section 23609.5. (3) The credit for low-income housing allowed by Section 23610.5. (4) The credit for certain wages paid (targeted jobs) allowed by Section 23621. (c) For purposes of applying Section 469(i) of the Internal Revenue Code, relating to the twenty-five thousand dollars ($25,000) offset for rental real estate activities, the dollar limitation for the credit allowed under Section 23610.5 (relating to low-income housing) shall be equal to seventy-five thousand dollars ($75,000) in lieu of the amount specified in Section 469(i)(2) of the Internal Revenue Code. (d) Section 502 of the Tax Reform Act of 1986 (Public Law 99-514) shall apply. (e) For each income year beginning on or after January 1, 1987, Section 10212 of Public Law 100-203, relating to treatment of publicly traded partnerships under Section 469 of the Internal Revenue Code, shall apply, except as otherwise provided. (f) The amendments to Section 469(k) of the Internal Revenue Code made by Section 2004 of Public Law 100-647, relating to separate application of section in case of publicly traded partnerships, shall apply to each income year beginning on or after January 1, 1990, except as otherwise provided. SEC. 73. Section 24693 of the Revenue and Taxation Code is amended to read: 24693. (a) Section 468B of the Internal Revenue Code, relating to special rules for designated settlement funds, shall apply, except as otherwise provided. (b) Section 468B(b) of the Internal Revenue Code, which imposes a tax upon the designated settlement fund, shall be modified for purposes of this part to provide that a tax shall be imposed upon the gross income of the fund at a rate equal to the rate in effect for the taxable year under Section 23501. The income tax imposed upon the gross income of the fund by this section is in lieu of any other tax imposed by this part or Part 10 (commencing with Section 17001) upon or measured by that income. SEC. 74. Section 24701 of the Revenue and Taxation Code is amended to read: 24701. (a) Section 471 of the Internal Revenue Code, relating to the general rule for inventories, shall apply, except as otherwise provided. (b) Section 472 of the Internal Revenue Code, relating to last-in, first-out inventories, shall apply, except as otherwise provided. SEC. 75. Section 24708 of the Revenue and Taxation Code is amended to read: 24708. Section 474 of the Internal Revenue Code, relating to simplified dollar-value LIFO method for certain small businesses, shall apply, except as otherwise provided. SEC. 76. Section 24721 of the Revenue and Taxation Code is amended to read: 24721. Section 481 of the Internal Revenue Code, relating to adjustments required by changes in method of accounting, shall apply, except as otherwise provided. SEC. 77. Section 24726 of the Revenue and Taxation Code is amended to read: 24726. Section 483 of the Internal Revenue Code, relating to interest on certain deferred payments, shall apply, except as otherwise provided. SEC. 78. Section 24872 of the Revenue and Taxation Code is amended to read: 24872. Sections 856 to 860, inclusive, of the Internal Revenue Code, relating to real estate investment trusts, shall be applicable for purposes of this part, except that: (a) In applying Section 857(a)(1) of the Internal Revenue Code, a real estate investment trust subject to this part shall be subject to this section if it satisfies the distribution requirements for real estate investment trusts for federal purposes. (b) (1) Section 857(b)(1) of the Internal Revenue Code, relating to imposition of tax on real estate investment trusts, shall not apply. (2) Every real estate investment trust shall be subject to the taxes imposed under Chapter 2 (commencing with Section 23101) and Chapter 3 (commencing with Section 23501), except that its "net income" shall be equal to its "real estate investment trust income," as defined in subdivision (b). (c) "Real estate investment trust income" means real estate investment trust taxable income, as defined in Section 857(b)(2) of the Internal Revenue Code, modified as follows: (1) In lieu of the provisions of Section 857(b)(2)(A) of the Internal Revenue Code, relating to special deductions for corporations, no deduction shall be allowed under Section 24402. (2) Section 857(b)(2)(D) of the Internal Revenue Code, relating to an exclusion for an amount equal to the net income from foreclosure property, shall not apply. (3) Section 857(b)(2)(E) of the Internal Revenue Code, relating to a deduction for an amount equal to the tax imposed in the case of failure to meet certain requirements for the taxable year, shall not apply. (4) Section 857(b)(2)(F) of the Internal Revenue Code, relating to an exclusion for an amount equal to any net income derived from prohibited transactions, shall not apply. (d) Section 857(b)(3) of the Internal Revenue Code, relating to an alternative tax in case of capital gains, shall not apply. (e) Section 857(b)(4)(A) of the Internal Revenue Code, relating to the imposition of tax on income from foreclosure property, shall not apply. (f) Section 857(b)(5) of the Internal Revenue Code, relating to the imposition of tax in case of failure to meet certain requirements, shall not apply. (g) Section 857(b)(6)(A) of the Internal Revenue Code, relating to the imposition of tax on income from prohibited transactions, shall not apply. (h) Section 857(c) of the Internal Revenue Code, relating to restrictions applicable to dividends received from real estate investment trusts is modified to refer to Sections 24106, 24110, 24402, and 24406 in lieu of Section 243 of the Internal Revenue Code. (i) The amendments to this section by the act adding this subdivision are clarifications of legislative intent and shall apply to taxable and income years beginning on or after January 1, 1987. SEC. 79. Section 24905 of the Revenue and Taxation Code is amended to read: 24905. (a) Section 988 of the Internal Revenue Code, relating to treatment of certain foreign currency transactions, shall apply, except as otherwise provided. (b) Section 988(a)(3) of the Internal Revenue Code, relating to source, shall not apply. SEC. 80. Section 24918 of the Revenue and Taxation Code is amended to read: 24918. Section 1017 of the Internal Revenue Code, relating to discharge of indebtedness, shall apply, except as otherwise provided. References to affiliated groups which file a consolidated return under Section 1501 of the Internal Revenue Code shall be treated as meaning members of the same unitary group which file a combined report under Article 1 (commencing with Section 25101) of Chapter 17. SEC. 81. Section 24941 of the Revenue and Taxation Code is amended to read: 24941. Section 1031 of the Internal Revenue Code, relating to exchange of property held for productive use or investment, shall apply, except as otherwise provided. SEC. 82. Section 24950 of the Revenue and Taxation Code is amended to read: 24950. Section 1035 of the Internal Revenue Code, relating to certain exchanges of insurance policies, shall apply, except as otherwise provided. SEC. 83. Section 24951 of the Revenue and Taxation Code is amended to read: 24951. Section 1036 of the Internal Revenue Code, relating to stock for stock of same corporation, shall apply, except as otherwise provided. SEC. 84. Section 24954 of the Revenue and Taxation Code is amended to read: 24954. (a) Section 1042 of the Internal Revenue Code, relating to sales of stock to employee stock ownership plans or certain cooperatives, shall apply, except as otherwise provided. (b) (1) This section shall not apply to income years beginning on or after January 1, 1995. (2) This section shall remain in effect only until December 1, 1995, and as of that date is repealed. SEC. 85. Section 24966.1 of the Revenue and Taxation Code is amended to read: 24966.1. Section 1059A of the Internal Revenue Code, relating to limitation on taxpayer's basis or inventory cost in property imported from related persons, shall apply, except as otherwise provided. SEC. 86. Section 24966.2 of the Revenue and Taxation Code is amended to read: 24966.2. Section 1060 of the Internal Revenue Code, relating to special allocation rules for certain asset acquisitions, shall apply, except as otherwise provided. SEC. 87. Section 24981 of the Revenue and Taxation Code is amended to read: 24981. Section 1081 of the Internal Revenue Code, relating to nonrecognition of gain or loss on exchanges or distributions in obedience to orders of the federal Securities and Exchange Commission, shall apply, except as otherwise provided. SEC. 88. Section 24988 of the Revenue and Taxation Code is amended to read: 24988. For purposes of Section 24981, Section 1082 of the Internal Revenue Code, relating to basis for determining gain or loss, shall apply, except as otherwise provided. SEC. 89. Section 24989 of the Revenue and Taxation Code is amended to read: 24989. Section 1056 of the Internal Revenue Code, relating to basis limitation for player contracts transferred in connection with the sale of a franchise, shall apply, except as otherwise provided. SEC. 90. Section 25662 of the Revenue and Taxation Code is amended to read: 25662. (a) If the Franchise Tax Board determines that the self-assessed tax disclosed by the taxpayer on an original or amended return, including an amended return reporting federal adjustments pursuant to Section 25432, is less than the tax disclosed by its examination it shall mail notice or notices to the taxpayer of the additional tax proposed to be assessed. Each notice shall set forth the reasons for the proposed additional assessment and the details of the computation thereof. (b) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 91. Section 25662.1 of the Revenue and Taxation Code is amended to read: 25662.1. (a) For purposes of this part, the term "deficiency" means the amount by which the tax imposed by this part exceeds the excess of (1) The sum of (A) The amount shown as the tax by the taxpayer upon its original or amended return, if an original or amended return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus (B) The amounts previously assessed (or collected without assessment) as a deficiency, over (2) The amount of rebates, as defined in paragraph (2) of subdivision (b), made. (b) For purposes of this section: (1) The tax imposed by this part and the tax shown on the original or amended return shall both be determined without regard to payments on account of estimated tax. (2) "Rebate" means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed by this part was less than the excess of the amount specified in paragraph (1) of subdivision (a) over the rebates previously made. (3) The term "deficiency" shall include the amount by which a credit subject to carryover is reduced by any action of the Franchise Tax Board. (c) This section shall remain in effect only until January 1, 1994, and as of that date is repeal. SEC. 92. Section 25663 of the Revenue and Taxation Code is amended to read: 25663. (a) Except in the case of a false or fraudulent return, and except as otherwise expressly provided in this part, every notice of additional tax proposed to be assessed shall be mailed to the taxpayer within four years after the return was filed. No deficiency shall be assessed or collected with respect to the year for which such return was filed unless the notice is mailed within the four-year period or as otherwise provided. (b) For the purposes of this section and Sections 25663a and 25663c a return filed before the last day prescribed by law for the filing thereof (determined without regard to any extension of time for filing the return) shall be considered as filed on such last day. For purposes of Section 26073, payment of any portion of the tax made before the last day prescribed for the payment of the tax shall be considered made on such last day. (c) If a taxpayer determines in good faith that it is an exempt organization and files a return as such under Section 23772, and if such taxpayer is thereafter held to be a taxable organization for the taxable year for which the return is filed, such return shall be deemed the return of the organization for the purposes of this section. (d) The running of the period of limitations provided in subdivision (a) on mailing a notice of additional tax proposed to be assessed shall, in a case under Title 11 of the United States Code, be suspended for any period during which the Franchise Tax Board is prohibited by reason of such case from mailing a notice of additional tax proposed to be assessed and 60 days thereafter. (e) Where, within the 60-day period ending on the day on which the time prescribed in this section for the assessment of any tax imposed by this part for any year would otherwise expire, the Franchise Tax Board receives a written document signed by the taxpayer showing that the taxpayer owes an additional amount in excess of the amount shown on either an original or an amended return of that tax for that year, the period for the assessment of an additional amount shall not expire before the day 60 days after the day on which the Franchise Tax Board receives that document. (f) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 93. Section 25674 of the Revenue and Taxation Code is amended to read: 25674. (a) If a taxpayer is required by subdivision (a) of Section 25432 to report a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority and does report the change or correction within six months after the final federal determination, a notice of proposed deficiency assessment resulting from those adjustments may be mailed to the taxpayer within two years from the date the notice is filed with the Franchise Tax Board by the taxpayer, or within the periods provided in Sections 25663, 25663a, and 25663c, whichever period expires later. (b) If a taxpayer is required by subdivision (b) of Section 25432 to file an amended return and does file the return within six months of filing an amended return with the Commissioner of Internal Revenue, a notice of proposed deficiency assessment in excess of the self-assessed tax on the amended return, and resulting from the adjustments may be mailed to the taxpayer within two years from the date when the amended return is filed with the Franchise Tax Board by the taxpayer, or within the periods provided in Sections 25663, 25663a, and 25663c, whichever period expires later. (c) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 94. Section 25937 of the Revenue and Taxation Code is amended to read: 25937. (a) The provisions of Section 6657 of the Internal Revenue Code, relating to bad checks, shall apply. (b) Section 6657 of the Internal Revenue Code, relating to bad checks, is modified to apply to payments made by credit card remittance or electronic funds transfer (as provided by Section 25555.5) in addition to payments made by check or money order. (c) For payments received prior to January 1, 1993, this section shall be applied only to payments pertaining to income years beginning on or after January 1, 1990. (d) For payments received on or after January 1, 1993, this section shall be applied to all payments without regard to income year. (e) This section shall remain in effect only until January 1, 1994, and as of that date is repealed. SEC. 95. {+ Section 2629.1 of the Unemployment Insurance Code is amended to read: +} 2629.1. (a) Nothing in Section 2629 shall be construed to authorize the delay of payment of unemployment compensation disability benefits except where the claimant is currently in receipt of other benefits or where the department has received notice that the claimant's employer or insurer has agreed to commence the payment of other benefits. (b) Notwithstanding Section 2701.5, payments shall commence within 14 days after notice to the employer or insurer under this section unless the employer or insurer has either paid or has agreed to commence the payment of other benefits. (c) Upon the filing of a claim for unemployment compensation disability benefits, the department shall make an initial determination as to the claimant's entitlement to other benefits for purposes of Section 2629. (1) The department shall notify the claimant and the claimant' s employer if it determines that the claimant is entitled to other benefits. (2) The notice to the claimant shall inform the claimant that disability benefits will be paid pending receipt of other benefits if the employer fails to agree to pay these other benefits within 14 days of notification of industrial injury and shall advise the claimant of the provisions of Section 2629. (3) The department shall also include with the claimant's notice a pamphlet to be provided by the Department of Industrial Relations which meets the criteria specified in subdivision (b) of Section 139.6 of the Labor Code. (4) The notice to the employer shall constitute a claim for compensation and knowledge of an injury for purposes of Section 5402 of the Labor Code, and shall inform the employer of its potential liability for interest and penalties under this section. (d) If the employer or the insurance carrier disputes liability for the payment of other benefits, or the extent thereof, the department's right to reimbursement shall be subject to the jurisdiction of the Workers' Compensation Appeals Board in accordance with Part 4 (commencing with Section 5300) of Division 4 of the Labor Code. (e) An employer or insurance carrier who subsequently assumes liability or is determined to be liable for reimbursement to the department for unemployment compensation disability benefits which the department has paid in lieu of other benefits shall be assessed for this liability by the department. In addition, the employer shall pay the department interest on the disability benefits at the annual rate provided in Section {- 19269 -} {+ 19521 +} of the Revenue and Taxation Code. The employer shall also pay a penalty of 10 percent of the amount reimbursed to the department if the Workers' Compensation Appeals Board finds that the failure of the employer to pay other benefits upon notice by the department under this section was unreasonable and a penalty has not been awarded for the delay under Section 5814 of the Labor Code. All funds received by the department pursuant to this section shall be deposited in the Disability Fund. (f) The employer shall reimburse the department in accordance with subdivision (e) within 60 days of either voluntarily accepting liability for other benefits or after a final award, order, or decision of the Workers' Compensation Appeals Board. {+ SEC. 96. Section 13017 of the Unemployment Insurance Code is amended to read: +} 13017. Unless otherwise specifically provided, the provisions of any law effecting changes in withholding under this division shall begin in the manner set forth by Section {- 18806.5 -} {+ 18665 +} of the Revenue and Taxation Code. {+ SEC. 97. Section 13043 of the Unemployment Insurance Code is amended to read: +} 13043. (a) The amount to be deducted and withheld under this division shall be prescribed pursuant to Section {- 18806 -} {+ 18663 +} of the Revenue and Taxation Code when a payment of wages is made to an employee by an employer in any of the following cases: (1) With respect to a payroll period or other period, any part of which is included in a payroll period or other period with respect to which wages are also paid to the employee by the employer. (2) Without regard to any payroll period or other period, but on or prior to the expiration of a payroll period or other period with respect to which wages are also paid to the employee by the employer. (3) With respect to a period beginning in one and ending in another calendar year. (4) Through an agent, fiduciary, or other person who also has the control, receipt, custody, or disposal of, or pays, the wages payable by another employer to the employee. (b) For purposes of this section, an employee's remuneration may consist of wages paid for a payroll period and supplemental wages. Supplemental wages include, but are not limited to, bonus payments, overtime payments, commissions, sales awards, back pay including retroactive wage increases, and reimbursements for nondeductible moving expenses that are paid for the same or different period, or without regard to a particular period. (c) When any supplemental wages are paid subsequent to the payment of regular wages, the employer may determine the personal income tax to be withheld from supplemental wages paid by (1) using a flat percentage rate pursuant to subdivision (b) of Section {- 18806 -} {+ 18663 +} of the Revenue and Taxation Code without allowance for exemptions and credits and without reference to any regular payment of wages, or (2) adding the supplemental wages to the regular wages paid the employee and computing the personal income tax to be withheld on the whole amount (the computed tax minus the tax withheld from the regular wages shall be withheld from the supplemental wages). Where supplemental wages are paid at the same time as regular wages, the personal income tax to be withheld shall be computed on the total of the supplemental and regular wages and shall be determined as if the total of the supplemental wages and the regular wages constituted a single wage payment for the regular payroll period. {+ SEC. 98. Section 13050 of the Unemployment Insurance Code is amended to read: +} 13050. (a) Every employer or person required to deduct and withhold from an employee a tax under Section 986, 3260, or 13020, or who would have been required to deduct and withhold a tax under Section 13020 (determined without regard to Section 13025) if the employee had claimed no more than one withholding exemption, shall furnish to each employee in respect of the remuneration paid by the person to the employee during the calendar year, on or before January 31 of the succeeding year, or, if his or her employment is terminated before the close of the calendar year, on the day on which the last payment of remuneration is made, a written statement showing all of the following: (1) The name of the person. (2) The name of the employee, and his or her social security or identifying number if wages have been paid. (3) The total amount of wages, except that in the case of tips received by an employee in the course of his or her employment, the amounts required shall include only those tips included in statements furnished to the employer pursuant to Section 13055. (4) The total amount deducted and withheld as tax under Section 13020. (5) The total amount of worker contributions paid by the employee pursuant to Section 986. (6) The total amount of worker contributions paid by the employee pursuant to Section 3260. (7) The total amount of elective deferrals (within the meaning of Section 402(g)(3) of the Internal Revenue Code) and compensation deferred pursuant to Section 457 of the Internal Revenue Code. (b) The statement required to be furnished pursuant to this section in respect of any remuneration shall be furnished at other times, shall contain other information, and shall be in a form, as the department may by authorized regulations prescribe. (c) A duplicate of any statement made pursuant to this section and in accordance with authorized regulations prescribed by the department shall, when required by the regulations, be filed with the department. (d) If, during any calendar year, any person makes a payment of third-party sick pay to an employee, that person shall, on or before January 15 of the succeeding year, furnish a written statement to the employer in respect of whom the payment was made showing all of the following: (1) The name and, if there is withholding under this division, the social security number of that employee. (2) The total amount of the third-party sick pay paid to that employee during the calendar year. (3) The total amount, if any, deducted and withheld from that sick pay under this division. For purposes of the preceding sentence, the term "third-party sick pay" means any sick pay, as defined in subdivision (b) of Section 13028.6, which does not constitute wages for purposes of this division, determined without regard to subdivision (a) of Section 13028.6. (A) The reporting requirements of subdivision (a) with respect to any payments shall, with respect to those payments, be in lieu of the requirements of subdivision (a) and of Section {- 18802 -} {+ 18637 +} of the Revenue and Taxation Code. (B) For purposes of Chapter 10 (commencing with Section 2101) of Part 1 of Division 1, the statements required to be furnished by this subdivision shall be treated as statements required under this section to be furnished to employees. (C) Every employer who receives a statement under this subdivision with respect to sick pay paid to any employee during any calendar year shall, on or before January 31 of the succeeding year, furnish a written statement to that employee showing all of the following: (i) The information shown on the statement furnished under this subdivision. (ii) If any portion of the sick pay is excludable from gross income pursuant to Article 3 (commencing with Section 17131) of Chapter 3 of Part 10 of Division 2 of the Revenue and Taxation Code, the portion which is not so excludable and the portion which is so excludable. To the extent practicable, the information required under the preceding sentence shall be furnished on or with the statement, if any, required under subdivision (a). (e) The Franchise Tax Board shall be allowed access to the information filed with the department pursuant to this section. {+ SEC. 99. Sections 37.2 and 37.5 of this act shall become operative only if Senate Bill 26 of the 1993-94 Regular Session is chaptered during 1993 and amends Section 23101.5 of the Revenue and Taxation Code. SEC. 100. The Legislature finds and declares that the repeal, by Section 50 of this act, of Section 24371 and the addition, by Section 30 of this act, of Section 19393 to Part 10.2 of the Revenue and Taxation Code (commencing with Section 18401) as added by Chapter 31 of the Statutes of 1993, constitutes a clarification and recodification of existing law. SEC. 101. The Legislature finds and declares that the amendments to Sections 17078 and 24905 of the Revenue and Taxation Code made by Sections 13 and 79 of this act are declaratory of existing law. SEC. 102. +} This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect. {- However, Sections 19, 26, 27, 28, and 29 of this act shall become operative on January 1, 1994. -} {+ However, Sections 7.1, 19, 23.1, 25, 26, 26.1, 27, 28, 28.1, 28.2, 28.3, 29, 30.1, 37, 95, 96, 97, and 98 of this act shall become operative on January 1, 1994. +}