BILL ANALYSIS
AB 129
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 129 (Ma)
As Amended September 2, 2009
2/3 vote. Urgency
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|ASSEMBLY: |76-0 |(May 28, 2009) |SENATE: |39-0 |(September 4, |
| | | | | |2009) |
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Original Committee Reference: REV. & TAX.
SUMMARY : Re-enacts a statute, which was inadvertently allowed
to sunset on January 1, 2009, to expand the application of the
attorney-client confidential communication privilege to
specified communications between a federally authorized tax
practitioner (TP) and a taxpayer, where the practitioner is
representing the taxpayer on a tax matter before certain state
agencies.
The Senate amendments :
1)Incorporate a new definition of an "abusive tax avoidance
transaction" created by SB 401 (Wolk) by referencing "any
abusive tax avoidance transaction", instead of a "tax
shelter", in the provisions describing when the confidential
communication privilege does not apply to communications
between a federally authorized TP and a taxpayer.
2)Specify that the reference to an "abusive tax avoidance
transaction" will be incorporated by this bill only if both
this bill and SB 401 are enacted and become effective on or
before January 1, 2010, and SB 401 amends Revenue and Taxation
Code (R&TC) Section 19777 to provide for a definition of
"abusive tax avoidance transaction".
3)Do not limit the application of the provisions incorporating
the reference to an "abusive tax avoidance transactions" only
to privileged communications made on or after the effective
date of this bill.
EXISTING STATE LAW :
1)Affords, in modified conformity with the federal income tax
laws, from January 1, 2001, through January 1, 2009, the
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confidentiality privilege to federally authorized TPs
representing California taxpayers in disputes before the Board
of Equalization (BOE), the Franchise Tax Board (FTB), or the
Employment Development Department (EDD). [AB 1016 (Briggs),
Chapter 438, Statutes of 2000; AB 1416 (Bermudez), Chapter
412, Statutes of 2004)].
2)Limits the application of that tax practitioner-client
privilege only to the provision of "tax advice" and did not
extend its application to tax matters in court or to tax
advice pertaining to a "tax shelter." As with the federal
provision, confidentiality was allowed to the extent to which
the communications would be privileged if they occur between a
client and an attorney.
3)Repeals the privilege on January 1, 2009.
AS PASSED BY THE ASSEMBLY , this bill:
1)Provided 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 TP.
2)Specified that the communication between a taxpayer and any
federally authorized TP would be privileged to the extent that
the communication would be considered privileged if it were
between a client and an attorney.
3)Imposed a duty and a legal obligation on the federally
authorized TP to maintain confidentiality with respect to the
privileged communication.
4)Defined "a federally authorized tax practitioner" as an
individual who was authorized, under federal law, to practice
before the Internal Revenue Service (IRS), if the practice was
subject to federal regulation under United States (U.S.) Code
Section 330 of Title 31, as provided by federal law as of
January 1, 2000.
5)Defined "tax advice" as advice given by an individual with
respect to a state tax matter, which may include federal tax
advice if it related to the state tax matter.
6)Defined "federal tax advice" as advice given by an individual
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within the scope of his/her authority to practice before the
IRS on non-criminal tax matters.
7)Specified that the confidentiality privilege described above
only applied to non-criminal tax matters before the State BOE,
FTB, and EDD.
8)Provided that the confidentiality privilege does not apply to
any written communication between a federally authorized TP
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.
9)Defined "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 was the avoidance or evasion of
federal income tax.
10)Stated that this bill applies only to communications made on
or after the effective date of this bill.
11)Declared that this bill is an urgency measure that shall go
into effect immediately.
FISCAL EFFECT : The FTB staff and BOE staff estimate that this
bill will not impact state tax revenues.
COMMENTS : The author states that, "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.
"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.
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Nonconformity 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. The 2008 sunset was
established by AB 1416 (Bermudez) in 2004.
"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 between an Enrolled Agent
and [his/her] client."
This bill is sponsored by the California Society of Enrolled
Agents and the California Society of Certified Public
Accountants. The sponsors assert that nonconformity between
state and federal laws undermines the intent of the 1998 Federal
Taxpayer Bill of Rights for California taxpayers because
information disclosed to FTB, BOE, and EDD is no longer
privileged and is available to the IRS through the information
sharing program between FTB and IRS. The sponsors also point
out that existing federal confidentiality privilege is limited
only to tax advice, other than advice relating to tax shelters,
and applies only in non-criminal situations.
In response to the IRS Restructuring and Reform Act of 1998,
California added a provision in 2000 to state law to allow,
until January 1, 2005, the same practitioner-client privilege to
federally authorized TPs representing California taxpayers (AB
1016). In 2004, its operation was extended until January 1,
2009 (AB 1416). The provisions of the California
confidentiality privilege were, inadvertently, allowed to sunset
on January 1, 2009. In contrast to the federal law, the
application of the California privilege was more limited because
it was not extended to tax matters in court and was not
permanent.
The BOE staff notes that, since enactment of these provisions,
there has been no adverse impact on BOE proceedings. The BOE
staff states that, "Although there was at least one instance
where, prior to enactment of this original provision in 2000, a
taxpayer could have successfully prevented the Board from
viewing a letter at a Board hearing, which may have precluded
the imposition of fraud and failure to file penalties, there has
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not been any adverse impact on Board proceedings since these
provisions were first added to the law in 2000."
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
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