BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1065 (Walters)
Hearing Date: 05/27/2010 Amended: As Introduced
Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-0
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BILL SUMMARY: SB 1065 would reenact certain "innocent spouse
relief" provisions and apply them retroactively to January 1,
2009. Specifically, this bill would require the Franchise Tax
Board (FTB) to grant "innocent spouse" relief from taxes and
penalties if the taxpayer has been granted innocent spouse
relief for federal tax purposes, with certain restrictions.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Tax revenue loss $200 $200 $200 General
(additional revenue loss of $90 in
2009-10)
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STAFF COMMENTS: SUSPENSE FILE.
Existing state and federal law provides that spouses who file a
joint tax return are individually liable for the accuracy of the
return and the full tax liability, regardless of the income
earned by each spouse (joint and severable liability). Because
one spouse may not be aware of another spouse's
misrepresentation of tax information on the return, the federal
Internal Revenue Code allows a spouse to be relieved of some or
all of the responsibility of a joint debt under certain
circumstances (innocent spouse relief). State law generally
conforms to the federal provisions that were enacted in 1998.
However, state innocent spouse relief provisions differ from
federal provisions in several ways:
State law does not conform to federal provisions enacted in
2006 that broaden the appeal rights by authorizing the tax
court to review the IRS denial of innocent spouse relief and
suspending the period of limitations while on appeal.
State law allows a taxpayer to seek a divorce court order
relieving that taxpayer of liability for state income tax on a
joint return.
State law allows a taxpayer to seek relief from FTB on any
unpaid self-assessed tax liability on a joint return.
In some circumstances, a taxpayer may be granted innocent spouse
relief under federal law, but not state law.
During the period from January 1, 2004 through December 31,
2008, under changes to innocent spouse relief provisions enacted
by SB 285 (Speier), Chapter 370 of 2003, FTB was required to
grant relief to a taxpayer that previously had received an
innocent spouse relief determination at the federal level and
the facts and circumstances that supported the determination
were the same. SB 285 also authorized the spouse who did not
request relief to provide FTB with information contrary to what
was provided by the requesting spouse and information that may
support a determination that relief should not be granted.
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SB 1065 (Walters)
SB 1065 would reinstate the provisions of SB 285 and apply them
retroactively to January 1, 2009. This bill would also conform
to federal provisions enacted in 2006 to broaden the appeal
rights applicable to innocent spouse relief determinations, and
delete obsolete language that refers to a four year period for
submitting a request for innocent spouse relief.
FTB estimates that this bill would result in a revenue loss of
approximately $90,000 in 2009-10 and $200,000 annually
thereafter. This estimate is based on the relatively small
number of innocent spouse claims filed annually and the few
cases in which an FTB determination may differ from an IRS
ruling.