BILL ANALYSIS
AB 2605
Page 1
Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2605 (De La Torre) - As Amended: April 27, 2010
Policy Committee: Revenue and
Taxation Vote: 6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the Franchise Tax Board to establish a reward
program for information resulting in the identification of
underreported tax liabilities under the personal income tax or
corporate tax. Specifically, the bill:
1)In cases where the information is brought to the attention of
the FTB by the informant, that individual may receive a reward
of 25% of collected proceeds from a subsequent administrative
action, hearing or settlement, up to $250,000.
2)In cases arising from an FTB administrative hearing, audit,
investigation, news media account, or hearing, the a person
providing relevant information may receive an award equal to
10% of resulting collections. In this case, the FTB
determines the reward based on the importance of the person's
information and the role of the person contributing to the
administrative hearing, judicial hearing, or settlement.
3)Limits the rewards program as it pertains to under reported
personal income taxes to cases where the amount in dispute in
the administrative or judicial action exceeds $2 million, and
when the underpayment is attributable to an individual with
gross income of more than $250,000.
FISCAL EFFECT
Based on current FTB estimates, the reward program would lose
money during the next three years, and in subsequent years would
barely break even. Normally, the Legislature requires a 5:1
benefit-cost ratio to justify funding for new or expanded
AB 2605
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collections programs at FTB. Specifically:
1)FTB staff estimates on-going costs of approximately $420,000
for five positions to track informant tips, audit new cases,
manually track collection cases, and monitor disbursements
from collected proceeds.
2)FTB staff estimates the program would yield additional
collections totaling $200,000 in 2010-11, $350,000 in 2011-12,
and $400,000 in 2012-13.
COMMENTS
1)Purpose . According to the author's office, the purpose of
this bill is to offer a monetary reward to motivate citizens
to bring alleged violations of tax laws to the attention of
the FTB.
2)Background . The Internal Revenue Service (IRS) can, at its
discretion, pay rewards to informers for information about tax
law violations. The amount of the reward generally does not
exceed 15 percent of the additional taxes, penalties, and
fines collected as a result of the informant's information.
States generally do not maintain rewards programs. Though
California state tax law has authorized the FTB to conduct an
informant reward program since 1984, no money has been
appropriated to pay informants and the program has never been
operational. Similarly, a review of other large states by FTB
found that none has such a program.
3)Fiscal concern . A key reason for the lack of state interest in
rewards program is that an informant is likely to go to the
IRS rather than state collection agencies, given the larger
amount of federal taxes involved and potentially greater
rewards available. Based on FTB's current estimates, the money
needed to operate this program could be more effectively spent
on other collections programs.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081