BILL ANALYSIS
SB
1065
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SENATE THIRD READING
SB 1065 (Walters)
As Introduced February 17, 2010
Majority vote
SENATE VOTE :35-0
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Portantino, DeVore, |Ayes:|Fuentes, Conway, |
| |Beall, | |Bradford, |
| |Charles Calderon, Coto, | |Huffman, Coto, Davis, De |
| |Fuentes, Gatto, Harkey, | |Leon, Gatto, Hall, |
| |Nestande | |Harkey, Miller, Nielsen, |
| | | |Norby, Skinner, Solorio, |
| | | |Torlakson, Torrico |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Modifies the statutory provisions that grant
"innocent spouse" relief to more closely conform California
law to federal law. Specifically, this bill :
1)Provides that any individual who has been granted "innocent
spouse" relief under Internal Revenue Code (IRC) Section
6015, relating to joint and several liability with respect
to a federal joint income tax return, shall be eligible for
state relief if all of the following conditions are
satisfied:
a) The individual requests relief;
b) The facts and circumstances that apply to the
understatement and liabilities for which relief is
requested are the same facts and circumstances that
applied to the understatement and liabilities for which
the individual was granted relief under IRC Section
6015; and,
c) The individual seeking relief provides the Franchise
Tax Board (FTB) with a copy of the federal determination
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granting relief.
2)Specifies that these relief provisions shall not apply if
the other individual who filed the joint return submits
specified information to FTB indicating that relief should
not be granted.
3)Provides that, if the individual seeking relief
demonstrates to FTB that a federal request for relief has
been filed with the Internal Revenue Service (IRS) and
demonstrates that the federal request for relief involves
the same facts and circumstances as the request pending
before FTB, then FTB may not deny relief with respect to
that request until action on the federal request is final.
4)Allows a taxpayer to appeal FTB's decision on an "equitable
relief" request for innocent spouse relief.
5)Applies on and after January 1, 2009.
EXISTING LAW provides that:
1)Whenever a joint return is filed by a husband and wife, the
liability for the tax on the aggregate income is joint and
several.
2)An individual who has made a joint return may seek innocent
spouse tax relief if the following conditions are met:
a) On that return there is an understatement of tax
attributable to erroneous items of one individual filing
the joint return;
b) The other individual filing the joint return
establishes that he/she did not know of, and had no
reason to know of, that understatement;
c) Taking into account all facts and circumstances, it
is inequitable to hold the other individual liable for
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the deficiency in tax attributable to that
understatement; and,
d) The other individual elects relief within two years
of the date FTB begins collection activities.
3)Upon election, an individual's liability for any deficiency
assessed with respect to a joint return may not exceed the
portion of the deficiency properly allocable to the
individual if:
a) At the time of election, the individual is no longer
married to, or is legally separated from, the person
with whom that individual filed the joint return; or,
b) The individual was not a member of the same household
as the person with whom the joint return was filed at
any time during the 12-month period ending on the date
the election is filed.
4)If relief is not available under the provisions set forth
above, FTB may relieve an individual of liability on
equitable grounds.
FISCAL EFFECT : According to FTB, this bill will result in
revenue losses of $90,000 in fiscal year 2009-10, and
$200,000 annually thereafter.
COMMENTS : Both the author and FTB, which is sponsoring this
bill, note the following:
Most married taxpayers file a joint tax return. In
the event a couple divorces, each individual is what
the law calls "jointly and severally liable" for the
entire tax liability. In situations where one
individual, without the knowledge of the other
individual, has manipulated the joint tax liability
by concealing income or inflating deductions, both
individuals remain "jointly and severally liable."
The law permits a taxpayer relief of the joint and
several liability if they demonstrate they did not
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know or had no reason to know about the improperly
reported income or deductions. This person is
deemed an "innocent spouse." In these situations,
collections efforts cease for the "innocent spouse"
and continue against the remaining responsible
taxpayer.
During the period from January 1, 2004, through December
31, 2008, under changes made by SB 285 (Speier, Stats.
2003, Ch. 370), the FTB could grant innocent spouse
relief where the IRS already made an innocent spouse
finding. These changes relieved the burden on a
taxpayer to show for a second time that they were
entitled to relief and reduced the use of the state's
financial and personnel resources, in short, a WIN-WIN
situation.
In addition to reauthorizing the FTB to rely on federal
innocent spouse determinations, SB 1065 would enhance
equitable treatment by conforming to recent federal
changes that broaden the appeal rights applicable to
innocent spouse relief determinations.
Committee Staff Comments:
1)Background: Under both federal and state law, spouses who
file a joint tax return are individually responsible for
the return's accuracy and for the full tax liability for
that tax year. This concept, referred to as "joint and
several liability," can inequitably impact one spouse in
particular circumstances. Consequently, both the federal
government and the state have enacted "innocent spouse"
legislation. These provisions allow taxpayers, under
specified circumstances, to be relieved of some or all of
the responsibility for a joint tax debt.
2)What would this bill do?: This bill would reenact and make
permanent the statutory requirement that FTB grant innocent
spouse relief when the IRS has granted federal relief under
the same facts and circumstances. This bill would also
allow a taxpayer to appeal FTB's decision on a request for
equitable innocent spouse relief.
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3)Related legislation: SB 285 (Speier), Chapter 370,
Statutes of 2003, requires FTB to grant innocent spouse
relief to an individual who had received federal relief
based on the same facts and circumstances. SB 285 was
repealed by its own provisions effective January 1, 2009.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0005892