BILL NUMBER: SB 876 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Florez
JANUARY 11, 2010
An act to amend Sections 17276.9 and 24416.9 of, and to add
Sections 17207.7, 19057.5, 19306.5, and 24347.7 to, the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 876, as introduced, Florez. Income taxation: net operating
losses: fraudulent investment arrangement losses.
The Personal Income Tax Law and the Corporation Tax Law, in
modified conformity with federal income tax laws, allows a deduction
for losses sustained during the taxable year and not compensated for
by insurance or otherwise. Those state laws conform to specified
revenue rulings and revenue procedures of the Internal Revenue
Service regarding treatment of losses due to investment arrangements
discovered to be criminally fraudulent, except that, among other
things, net operating loss carrybacks and carryforwards are not
allowed.
This bill would provide a safe harbor for determining the year in
which those losses attributable to criminal fraud occurred, as
described in a specified revenue procedure of the Internal Revenue
Service, and would allow a net operating loss carryover or carryback
of any resulting deduction from the losses in conformity with federal
income tax law.
This bill would make a legislative finding and declaration
relating to the public purpose served by the bill.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17207.7 is added to the Revenue and Taxation
Code, to read:
17207.7. (a) (1) For each taxable year beginning on or after
January 1, 2008, if a taxpayer that is a qualified investor, as
defined in the Internal Revenue Service's Revenue Procedure 2009-20,
follows the procedures described in Section 6 of that Revenue
Procedure for federal income tax purposes, and follows the same
procedures for purposes of this part, the Franchise Tax Board shall
not challenge the treatment described in paragraph (2) by the
qualified investor with respect to the qualified loss.
(2) The treatment described in this paragraph means all of the
following:
(A) The loss is deducted as a theft loss.
(B) The taxable year in which the theft was discovered within the
meaning of Section 165(e) of the Internal Revenue Code is the
discovery year described in Section 4.04 of the Internal Revenue
Service's Revenue Procedure 2009-20.
(C) The amount of the deduction is the amount specified in Section
5.02 of the Internal Revenue Service's Revenue Procedure 2009-20.
(b) To the extent a deduction resulting from the application of
this section results in a net operating loss, Section 172 of the
Internal Revenue Code, as applicable for federal income tax purposes
for a taxable year, shall be applicable for purposes of this section
for the same taxable year, without regard to Section 17276.
SEC. 2. Section 17276.9 of the Revenue and Taxation Code is
amended to read:
17276.9. (a) Notwithstanding Sections 17276, 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, and 17276.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2008, and before January 1, 2010.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning
on or after January 1, 2008, and before January 1, 2009.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2011.
(d) The provisions of this section shall not apply to a taxpayer
with net business income of less than five hundred thousand dollars
($500,000) for the taxable year. For purposes of this subdivision,
business income means:
(1) Income from a trade or business, whether conducted by the
taxpayer or by a passthrough entity owned directly or indirectly by
the taxpayer. For purposes of this paragraph, the term "passthrough
entity" means a partnership or an "S" corporation.
(2) Income from rental activity.
(3) Income attributable to a farming business.
(e) This section shall not apply to a loss resulting from the
application of Section 17207.7.
SEC. 3. Section 19057.5 is added to the Revenue and Taxation Code,
to read:
19057.5. Section 6501(h) of the Internal Revenue Code, relating
to limitations on credit or refund with respect to the special period
of limitation with respect to net operating loss or capital loss
carrybacks, shall apply to a net operating loss resulting from the
application of Section 17207.7 or Section 24347.7, except as
otherwise provided.
SEC. 4. Section 19306.5 is added to the Revenue and Taxation Code,
to read:
19306.5. Section 6511(d)(2) of the Internal Revenue Code,
relating to the limitations on credit or refund with respect to the
special period of limitation with respect to net operating loss or
capital loss carrybacks, shall apply to a net operating loss
resulting from the application of Section 17207.7 or Section 24347.7,
except as otherwise provided.
SEC. 5. Section 24347.7 is added to the Revenue and Taxation Code,
to read:
24347.7. (a) (1) For each taxable year beginning on or after
January 1, 2008, if a taxpayer that is a qualified investor, as
defined in the Internal Revenue Service's Revenue Procedure 2009-20,
follows the procedures described in Section 6 of that Revenue
Procedure for federal income tax purposes, and follows the same
procedures for purposes of this part, the Franchise Tax Board shall
not challenge the treatment described in paragraph (2) by the
qualified investor with respect to the qualified loss.
(2) The treatment described in this paragraph means all of the
following:
(A) The loss is deducted as a theft loss.
(B) The taxable year in which the theft was discovered within the
meaning of Section 165(e) of the Internal Revenue Code is the
discovery year described in Section 4.04 of the Internal Revenue
Service's Revenue Procedure 2009-20.
(C) The amount of the deduction is the amount specified in Section
5.02 of the Internal Revenue Service's Revenue Procedure 2009-20.
(b) To the extent a deduction resulting from the application of
this section results in a net operating loss, Section 172 of the
Internal Revenue Code, as applicable for federal income tax purposes
for a taxable year, shall be applicable for purposes of this section
for the same taxable year, without regard to Section 24416.
SEC. 6. Section 24416.9 of the Revenue and Taxation Code is
amended to read:
24416.9. (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2008, and before January 1, 2010.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning
on or after January 1, 2008, and before January 1, 2009.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2011.
(d) The provisions of this section shall not apply to a taxpayer
with income subject to tax under this part of less than five hundred
thousand dollars ($500,000) for the taxable year.
(e) This section shall not apply to a loss resulting from the
application of Section 24347.7.
SEC. 7. The Legislature finds and declares that this act fulfills
a statewide public purpose by providing tax relief for taxpayers who
are innocent victims of fraudulent investment schemes.
SEC. 8. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.