BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 129|
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THIRD READING
Bill No: AB 129
Author: Ma (D)
Amended: 9/2/09 in Senate
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE : 5-0, 6/16/09
AYES: Corbett, Harman, Florez, Leno, Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 76-0, 5/28/09 (Consent) - See last page
for vote
SUBJECT : Confidentiality: taxpayer communications
SOURCE : California Society of Certified Public
Accountants
California Society of Enrolled Agents
DIGEST : This bill reenacts a recently expired statute
which created a limited attorney-client confidential
communication privilege applicable to specified
communications between a federally authorized tax
practitioner and a taxpayer, where the practitioner is
representing the taxpayer on a tax matter before certain
state agencies.
Senate Floor Amendments of 9/2/09 correct a drafting error
in the contingency-action language in the bill intended to
address a conflict with SB 401 (Wolk). These amendments
CONTINUED
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are technical in nature and do not substantively amend this
bill.
Senate Floor Amendments of 8/27/09 address a conflict with
SB 401 (Wolk) which provides for a single, consistent
definition for abusive tax shelters (ATS) and modifies the
ATS-use penalty. This bill currently contains references
to "tax shelters." These amendments create a Section 2.5
to reference "abusive tax avoidance transactions" (as
defined in SB 401), which will only become operative if
both bills are chaptered. These amendments are necessary
to ensure that the definitions in the Revenue and Taxation
Code remain consistent if both bills become law.
ANALYSIS : Existing federal law provides that, with
respect to tax advice, the same common law protections that
apply to a communication between a taxpayer and an attorney
shall also apply to a communication between a taxpayer and
a federally authorized practitioner to the extent the
communication would be considered a privileged
communication if it were between a taxpayer and an
attorney. [Section 7525 (a)(1) f the Internal Revenue Code
(I.R.C.)]
Existing federal law limits the privilege described above
to any non-criminal tax matter before the Internal Revenue
Service (IRS), and non-criminal tax proceeding in federal
court brought by or against the United States. [I.R.C.
Sec. 7525 (a)(2)]
This bill provides that, with respect to tax advice, the
protections of confidentiality that apply to a
communication between a client and an attorney shall also
apply to a communication between a taxpayer and any
federally authorized tax practitioner.
This bill specifies that the communication between a
taxpayer and any federally authorized tax practitioner
would be privileged to the extent that the communication
would be considered privileged if it were between a client
and an attorney.
This bill provides that a federally authorized tax
practitioner has the legal obligation and duty to maintain
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confidentiality with respect to such communication.
This bill defines a "federally authorized tax practitioner"
as an individual who is authorized, under federal law, to
practice before the IRS, if the practice is subject to
federal regulation under Section 330 of Title 31 of the
United States Code, as provided by federal law as of
January 1, 2000.
This bill defines "tax advice" as advice given by an
individual with respect to a state tax matter, which may
include federal tax advice if it relates to the state tax
matter.
This bill defines "federal tax advice" as advice given by
an individual within the scope of his/her authority to
practice before the IRS on non-criminal tax matters.
This bill specifies that the confidentiality privilege
described above only applies to non-criminal tax matters
before the Board of Equalization (BOE), the Franchise Tax
Board (FTB), and the Employment Development Department
(EDD).
This bill provides that the confidentiality privilege does
not apply to any written communication between a federally
authorized taxpayer and a director, shareholder, officer,
employee, agent, or representative of a corporation in
connection with the promotion of the participation of the
corporation in any tax shelter or in any proceeding to
revoke or otherwise discipline any license or right to
practice by any government agency.
This bill defines "tax shelter" as a partnership or other
entity, any investment plan or arrangement, or any other
plan or arrangement if a significant purpose of that
partnership, entity, plan, or arrangement is the avoidance
or evasion of federal income tax.
This bill provides that the provisions of this bill apply
only to communica-tions made on or after the effective date
of this bill.
This bill is double-jointed with SB 401 (Wolk).
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 9/3/09)
California Society of Certified Public Accountants
(co-source)
California Society of Enrolled Agents (co-source)
California Taxpayers Association
California Chamber of Commerce
ARGUMENTS IN SUPPORT : The author states:
"Enrolled Agents are tax practitioners licensed by the
U.S. Department of the Treasury to represent taxpayers
before all administrative levels of the Internal Revenue
Service (IRS) and state taxing authorities. Section 7525
of the Internal Revenue Code was enacted as part of the
IRS Restructuring and Reform Act of 1998, and it applies
(with limitations) to communications of tax advice
between the federally authorized tax practitioner and the
client that would otherwise be a protected privileged
communication between the taxpayer and an attorney.
"However, this section was inadvertently allowed to
sunset in December 2008. The law protects the
confidentiality of client-tax representative
communications so that the tax representative can
successfully provide representation to the client.
Non-conformity between state and federal laws relative to
privileged communications between tax practitioners and
client taxpayers prevents California taxpayers from
taking advantage of the protections of confidential and
privileged communications that they are entitled to by
federal law. Because the state and federal officials
often share taxpayer information, AB 129 would prevent
the situation where a California tax agency receives
documents that are confidential for federal purposes, but
not confidential for state purposes.
"AB 129 reinstates conformity of California law with
Federal law that provides confidential communications
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between an Enrolled Agent and their client, to ensure
that tax representatives can fully represent their client
in proceedings."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Feuer, Fletcher, Fong, Fuentes,
Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,
Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Krekorian, Lieu, Logue,
Bonnie Lowenthal, Ma, Miller, Monning, Nava, Niello,
Nielsen, John A. Perez, V. Manuel Perez, Portantino,
Price, Ruskin, Salas, Saldana, Silva, Skinner, Smyth,
Solorio, Audra Strickland, Swanson, Torlakson, Torres,
Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Duvall, Evans, Mendoza, Nestande
RJG:mw 9/3/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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