BILL NUMBER: AB 692 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 2, 2009
INTRODUCED BY Assembly Member Charles Calderon
FEBRUARY 26, 2009
An act to amend Section 19503 of the Revenue and Taxation
Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 692, as amended, Charles Calderon. Taxation: corporate
reorganizations: 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. This bill would also clarify the Franchise Tax
Board's authority to promulgate regulations relating to specified
federal income tax interpretations.
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. (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, and Section 382
included no specific authority for regulatory actions by the Internal
Revenue Service or the Department of the Treasury to exempt banks or
other financial institutions from its provisions.
(5) On October 20, 2008, the Internal Revenue Service issued
Notice 2008-83, 2008-42 I.R.B. 905, stating that "[f]or 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 for 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 the application of
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 the Legislature's action
in conforming to Section 382 of the Internal Revenue Code did not
contemplate the substantive change in application of these provisions
set forth in Notice 2008-83.
(8) (A) Section 1261 of the American Recovery and Reinvestment Act
of 2009 (Public Law 111-5), which was signed by President Barack
Obama on February 17, 2009, made the following congressional
findings:
(i) The delegation of authority to the Secretary of the Treasury
under Section 382(m) of the Internal Revenue Code of 1986 does not
authorize the secretary to provide exemptions or special rules that
are restricted to particular industries or classes of taxpayers.
(ii) Internal Revenue Service Notice 2008-83 is inconsistent with
the congressional intent in enacting such Section 382(m).
(iii) The legal authority to prescribe Internal Revenue Service
Notice 2008-83 is doubtful.
(iv) However, as taxpayers should generally be able to rely on
guidance issued by the Secretary of the Treasury, legislation is
necessary to clarify the force and effect of Internal Revenue Service
Notice 2008-83 and restore the proper application under the Internal
Revenue Code of 1986 of the limitation on built-in losses following
an ownership change of a bank.
(B) Based on these congressional findings, Section 1261 limits the
force and effect of Internal Revenue Code Notice 2008-83 to the
period commencing with the date the notice was issued and ending on
January 16, 2009, as provided.
(C) The congressional findings provide additional confirmation
that California did not, and should not, conform to the substantive
changes to Section 382 of the Internal Revenue Code that were
attempted to be made by Internal Revenue Service Notice 2008-83.
(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 the following
finding and directs the Franchise Tax Board to apply it for purposes
of the Personal Income Tax Law and the Corporation Tax Law:
(1) Notice 2008-83, relating to application of Section 382(h) of
the Internal Revenue Code to banks, and any other administrative
guidance issued by the Internal Revenue Service after October 20,
2008, and any federal Treasury regulations promulgated after October
20, 2008, which have the same or similar effect regarding the
application of Section 382 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 subdivision is applicable.
SEC. 2. Section 19503 of the Revenue
and Taxation Code is amended to read:
19503. (a) The Franchise Tax Board shall prescribe all rules and
regulations necessary for the enforcement of Part 10 (commencing with
Section 17001), Part 10.7 (commencing with Section 21001), Part 11
(commencing with Section 23001), and this part and may prescribe the
extent to which any ruling (including any judicial decision or any
administrative determination other than by regulation) shall be
applied without retroactive effect.
(b) (1) Except as otherwise provided in this subdivision, no
regulation relating to Part 10 (commencing with Section 17001), Part
10.7 (commencing with Section 21001), Part 11 (commencing with
Section 23001), or this part shall apply to any taxable year ending
before the date on which any notice substantially describing the
expected contents of any regulation is issued to the public.
(2) Paragraph (1) shall not apply to either of the following:
(A) Regulations issued within 24 months of the date of the
enactment of the statutory provision to which the regulation relates.
(B) Regulations issued within 24 months of the date that temporary
or final federal regulations with respect to statutory provisions to
which California conforms are filed with the Federal Register.
(3) The Franchise Tax Board may provide that any regulation may
take effect or apply retroactively to prevent abuse.
(4) The Franchise Tax Board may provide that any regulation may
apply retroactively to correct a procedural defect in the issuance of
any prior regulation.
(5) The limitation of paragraph (1) shall not apply to any
regulation relating to the Franchise Tax Board's policies, practices,
or procedures.
(6) The limitation of paragraph (1) may be superseded by a
legislative grant of authority to the Franchise Tax Board to
prescribe the effective date with respect to any regulation.
(7) The Franchise Tax Board may provide for any taxpayer to elect
to apply any regulation before the dates specified in paragraph (1).
(8) The Franchise Tax Board may provide that any federal income
tax regulation, rule, notice, or other federal interpretation of
federal income tax laws shall not apply in both of the following
circumstances:
(A) The legal authority of the federal interpretation is doubtful.
(B) Automatic conformity to the federal interpretation may
infringe on the Legislature's authority to make laws involving
significant policy issues.
(c) The amendments made by the act adding this subdivision are
operative with respect to regulations which relate to California
statutory provisions enacted on or after January 1, 1998.