BILL NUMBER: AB 11 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 14, 2009
AMENDED IN ASSEMBLY APRIL 23, 2009
AMENDED IN ASSEMBLY MARCH 9, 2009
INTRODUCED BY Assembly Member De Leon
(Coauthors: Assembly Members Beall, Carter, Eng, Evans, Hill,
Jones, Lieu, and Salas)
(Coauthor: Senator DeSaulnier)
DECEMBER 1, 2008
An act relating to taxation. An act to add
Section 24458 to the Revenue and Taxation Code, relating to
taxation, and declaring the urgency thereof, to take effect
immediately.
LEGISLATIVE COUNSEL'S DIGEST
AB 11, as amended, De Leon. Corporate reorganization: built-in
losses.
The Corporation Tax Law, in specified conformity to federal income
tax laws, imposes certain limitations on the use of built-in losses
in conjunction with corporate reorganizations.
This bill would clarify that a specified federal administrative
notice relating to those limitations does not apply for purposes of
California law taxes imposed under the
Corporation Tax Law, as specified .
This bill would declare that it is to take effect immediately as
an urgency statute.
Vote: majority 2/3 . Appropriation:
no. Fiscal committee: no. State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 24458 is added to the
Revenue and Taxation Code , to read:
24458. Internal Revenue Service Notice 2008-83, 2008-42 I.R.B.
905, issued on October 20, 2008, relating to the treatment of
deductions under Section 382(h) of the Internal Revenue Code
following an ownership change, shall not be applicable for purposes
of taxes imposed under Part 11 (commencing with Section 23001) of
Division 2, of this code with respect to any ownership change
occurring at any time.
SEC. 2. This act is an urgency statute necessary
for the immediate preservation of the public peace, health, or safety
within the meaning of Article IV of the Constitution and shall go
into immediate effect. The facts constituting the necessity are:
In order to timely clarify the estimated state tax revenues for
purposes of the current budget crisis, it is necessary that this act
go into effect immediately.
SECTION 1. (a) The Legislature finds and
declares the following:
(1) The Personal Income Tax Law (Part 10 (commencing with Section
17001) of Division 2 of the Revenue and Taxation Code) and the
Corporation Tax Law (Part 11 (commencing with Section 23001) of
Division 2 of the Revenue and Taxation Code) provide for specified
conformity to various referenced provisions of the federal Internal
Revenue Code, as enacted as of a specified date.
(2) Those laws provide that for taxable years beginning on or
after January 1, 2005, the conformity date specified in California
law for those referenced Internal Revenue Code sections is January 1,
2005, except as otherwise specifically provided.
(3) Included among the federal provisions conformed to as enacted
as of January 1, 2005, are the provisions of Section 382 of the
Internal Revenue Code, relating to limitations on net operating loss
carryforwards and certain built-in losses following ownership change.
(4) As enacted as of January 1, 2005, Section 382 of the Internal
Revenue Code applied to financial institutions.
(5) On September 30, 2008, the Internal Revenue Service issued
Notice 2008-83, 2008-42 I.R.B. 905, stating that "for purposes of
section 382(h), any deduction properly allowed after an ownership
change (as defined in section 382(g)) to a bank with respect to
losses on loans or bad debts (including any deduction for a
reasonable addition to a reserve for bad debts) shall not be treated
as a built-in loss or a deduction that is attributable to periods
before the change date."
(6) Notice 2008-83, which precludes the application of provisions
of Section 382 of the Internal Revenue Code to financial
institutions, constitutes a substantive change to Section 382 of the
Internal Revenue Code, as enacted as of January 1, 2005.
(7) This state conformed to Section 382 of the Internal Revenue
Code, as enacted as of January 1, 2005, but has not conformed to any
changes to Section 382 of the Internal Revenue Code set forth in
Notice 2008-83.
(8) On February 17, 2009, President Barack Obama signed the
American Recovery and Reinvestment Act of 2009 (Public Law 111-5),
which in part asserts that Internal Revenue Service Notice 2008-83 is
inconsistent with the congressional intent in enacting Section 382
of the Internal Revenue Code. While questioning the legal authority
of Notice 2008-83, Congress grandfathered in transactions that
occurred after the Notice was issued and on or before January 16,
2009, in order to protect the reliability of guidance letters
generally, and avoid punishing taxpayers that rely on this guidance.
(9) California should not conform to the construction of Section
382 of the Internal Revenue Code as described in Notice 2008-83
inasmuch as the legality of that construction has been questioned in
federal statute.
(b) Inasmuch as the Legislature has determined that the changes
set forth in Notice 2008-83 are inconsistent with, and in conflict
with, the intent of the Legislature in conforming with Section 382 of
the Internal Revenue Code, the Legislature makes both of the
following findings for purposes of the Personal Income Tax Law and
the Corporation Tax Law:
(1) Notice 2008-83, relating to the application of Section 382(h)
of the Internal Revenue Code to banks, and any other administrative
guidance issued by the Internal Revenue Service after September 30,
2008, and any federal Treasury regulations promulgated after
September 30, 2008, which have the same or similar effect regarding
the application of Section 382(h) of the Internal Revenue Code to
banks, shall not apply for purposes of the Personal Income Tax Law
and the Corporation Tax Law.
(2) Paragraph (1) shall apply to the same taxable periods to which
any federal guidance described in that paragraph is applicable.