BILL NUMBER: AB 463 CHAPTERED 07/24/00 CHAPTER 183 FILED WITH SECRETARY OF STATE JULY 24, 2000 APPROVED BY GOVERNOR JULY 21, 2000 PASSED THE SENATE JULY 6, 2000 PASSED THE ASSEMBLY JANUARY 26, 2000 AMENDED IN ASSEMBLY JANUARY 13, 2000 AMENDED IN ASSEMBLY JANUARY 3, 2000 AMENDED IN ASSEMBLY APRIL 13, 1999 INTRODUCED BY Assembly Member Maldonado (Coauthor: Assembly Member Knox) FEBRUARY 16, 1999 An act to amend Section 19104 of the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST AB 463, Maldonado. Franchise and income taxes: deficiency assessments. Existing franchise and income tax law provides for interest upon deficiency assessments, and provides for the abatement of interest under certain circumstances. This bill would revise and recast the circumstances under which interest may be abated, and would allow taxpayers to combine certain appeals, provide a specified limitation on the time for taxpayers to appeal, and specify circumstances under which a request to abate interest is deemed denied by the Franchise Tax Board, as provided. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 19104, as amended by Chapter 203 of the Statutes of 1999, of the Revenue and Taxation Code is amended to read: 19104. (a) Interest upon the amount assessed as a deficiency shall be assessed, collected, and paid in the same manner as the tax at the adjusted annual rate established pursuant to Section 19521 from the date prescribed for the payment of the tax or, if the tax is paid in installments, from the date prescribed for payment of the first installment, until the date the tax is paid. If any portion of the deficiency is paid prior to the date it is assessed, interest shall accrue on that portion only to the date paid. (b) If the Franchise Tax Board makes or allows a refund or credit that it determines to be erroneous, in whole or in part, the amount erroneously made or allowed may be assessed and collected after notice and demand pursuant to Section 19051 (pertaining to mathematical errors), except that the rights of protest and appeal shall apply with respect to amounts assessable as deficiencies without regard to the running of any period of limitations provided elsewhere in this part. Notice and demand for repayment must be made within two years after the refund or credit was made or allowed, or during the period within which the Franchise Tax Board may mail a notice of proposed deficiency assessment, whichever period expires the later. Interest on amounts erroneously made or allowed shall not accrue until 30 days from the date the Franchise Tax Board mails a notice and demand for repayment as provided by this subdivision. (c) (1) The Franchise Tax Board may abate all or any part of any of the following : (A) Any interest on a deficiency or related to a proposed deficiency to the extent that interest is attributable in whole or in part to any unreasonable error or delay by an officer or employee of the Franchise Tax Board (acting in his or her official capacity) in performing a ministerial or managerial act. (B) Any interest on a payment of any tax described in Section 19033 to the extent that any delay in that payment is attributable to an officer or employee of the Franchise Tax Board (acting in his or her official capacity) being dilatory in performing a ministerial or managerial act. (C) Any interest accruing from a deficiency based on a final federal determination of tax, for the same period that interest was abated on the related federal deficiency amount under Section 6404(e) of the Internal Revenue Code, and the error or delay occurred on or before the issuance of the final federal determination. This subparagraph shall apply to any ministerial act for which the interest accrued after September 25, 1987, or for any managerial act applicable to a taxable or income year beginning on or after January 1, 1998, for which the Franchise Tax Board may propose an assessment or allow a claim for refund. (2) For purposes of paragraph (1): (A) Except as provided in subparagraph (C), an error or delay shall be taken into account only if no significant aspect of that error or delay can be attributed to the taxpayer involved and after the Franchise Tax Board has contacted the taxpayer in writing with respect to that deficiency or payment. (B) (i) Except as provided in subparagraph (D), after the Franchise Tax Board mails its notice of determination not to abate interest, a taxpayer may appeal the Franchise Tax Board's determination to the State Board of Equalization within the following periods: (I) Thirty days in the case of any unpaid interest described under paragraph (1). (II) Ninety days in the case of any paid interest described under paragraph (1). (ii) The State Board of Equalization shall have jurisdiction over the appeal to determine whether the Franchise Tax Board's failure to abate interest under this section was an abuse of discretion, and may order an abatement. (iii) Except for subclauses I and II of clause (i), the provisions of this subparagraph are operative for requests for abatement of interest made on or after January 1, 1998. The provisions of subclauses I and II of clause (i) shall apply to requests for abatement of interest made on or after January 1, 2001, in accordance with paragraph (4). (C) If the Franchise Tax Board fails to mail its notice of determination on a request to abate interest within six months after the request is filed, the taxpayer may consider that the Franchise Tax Board has determined not to abate interest and appeal that determination to the board. This subparagraph shall not apply to requests for abatement of interest made pursuant to subparagraph (D). (D) A request for abatement of interest related to a proposed deficiency may be made with the written protest of the underlying proposed deficiency filed pursuant to Section 19041 or with an appeal to the board under Section 19045 in the form and manner required by the Franchise Tax Board. The action of the Franchise Tax Board denying any portion of the request for abatement of interest relating to the proposed deficiency shall be considered as part of the appeal of the action of the Franchise Tax Board on the protest of the proposed deficiency. If the taxpayer filed an appeal from the Franchise Tax Board's action of the protest of a proposed deficiency and the deficiency is final pursuant to Section 19048, the taxpayer may not thereafter request an abatement of interest accruing prior to the time the deficiency is final. However, the taxpayer may thereafter request an abatement pursuant to this section limited to interest accruing after the deficiency is final. (3) The Franchise Tax Board shall abate the assessment of all interest on any erroneous refund for which an action for recovery is provided under Section 19411 until 30 days after the date demand for repayment is made, unless either of the following has occurred: (A) The taxpayer (or a related party) has in any way caused that erroneous refund. (B) That erroneous refund exceeds fifty thousand dollars ($50,000). (4) The amendments made to this subdivision by the act adding this paragraph shall apply to requests for abatement of interest and appeals made on or after January 1, 2001. (5) Except as provided in clause (iii) of subparagraph (B) of paragraph (2), the amendments made by Chapter 600 of the Statutes of 1997 are operative with respect to taxable or income years beginning on or after January 1, 1998.