BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1065|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 1065
Author: Walters (R)
Amended: As introduced
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 5-0, 4/14/10
AYES: Wolk, Walters, Alquist, Ashburn, Padilla
SENATE APPROPRIATIONS COMMITTEE : 10-0, 5/27/10
AYES: Kehoe, Alquist, Corbett, Denham, Leno, Price,
Walters, Wolk, Wyland, Yee
NO VOTE RECORDED: Cox
SUBJECT : Income tax: joint returns
SOURCE : Franchise Tax Board
DIGEST : This bill reenacts certain innocent spouse
relief provisions and applies them retroactively to January
1, 2009. Specifically, this bill requires the Franchise
Tax Board 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.
ANALYSIS : 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
CONTINUED
SB 1065
Page
2
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:
1. State law does not conform to federal provisions enacted
in 2006 that broaden the appeal rights by authorizing
the tax court to review the Internal Revenue Service
(IRS) denial of innocent spouse relief and suspending
the period of limitations while on appeal.
2. State law allows a taxpayer to seek a divorce court
order relieving that taxpayer of liability for state
income tax on a joint return.
3. State law allows a taxpayer to seek relief from the
Franchise Tax Board (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, Statutes 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.
This bill reinstates the provisions of SB 285 and applies
them retroactively to January 1, 2009. This bill also
conforms to federal provisions enacted in 2006 to broaden
the appeal rights applicable to innocent spouse relief
determinations, and deletes obsolete language that refers
SB 1065
Page
3
to a four-year period for submitting a request for innocent
spouse relief.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
FTB estimates that this bill will 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.
SUPPORT : (Verified 5/26/10)
Franchise Tax Board (source)
ARGUMENTS IN SUPPORT : The purpose of this FTB-sponsored
bill is to reduce taxpayer burden and confusion by bringing
California's innocent spouse relief provisions into
conformity with federal innocent spouse relief provisions.
DLW:mw 5/27/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****