BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1492 -
Committee on Revenue and Taxation
Amended: As Introduced March 15, 2010
Hearing: April 14, 2010 Fiscal: Yes
SUMMARY: Makes Three Changes to Franchise Tax Board's
Voluntary Disclosure Agreement Program.
EXISTING LAW allows the Franchise Tax Board (FTB) to
enter into an agreement with taxpayers to file returns and
pay tax for the last six years in exchange for waiving
penalties, called voluntary disclosure agreements (VDAs);
taxes, additions to tax, penalties, and fees imposed before
the last six years are waived (AB 2280, Caldera, 1994).
The Legislature enacted this program to promote voluntary
compliance among some out of state taxpayers, primarily
business entities and trusts, that fail to realize they
have a CA filing requirement. These taxpayers may enter
into an agreement with FTB when they fail to make and file
a return; pay tax on time; underpay estimated tax; pay
penalties; fail to file a Corporate Organization Statement,
partnership or informational returns; or fail to furnish
information, or maintain records.
The FTB must approve all VDAs by majority vote. Approved
taxpayers must remit a signed written agreement, make all
payment, and submit all returns within 120 days of the
signing date of the VDA. Taxpayers may remain anonymous
until the signed agreement is submitted to FTB. Taxpayers
may also make installment arrangements, which allow the
taxpayer to make payments for a period longer than the 120
days from the signing date of the VDA.
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EXISTING LAW specified the persons or entities eligible
for the VDA: qualified business entities such as out of
state corporations, qualified shareholders, qualified
members of LLCs not organized in California or registered
with the Secretary of State, and qualified trusts and its
beneficiaries.
THIS BILL makes three changes to the VDA program,
effective for all VDAs entered into on or after January 1,
2011:
Prevents taxpayers from having to file the most
recent tax return before its actual statutory due date
by pushing the deadline out to the extended due date.
Eliminates the underpayment-of-estimated-tax
penalty where the agreement is signed after the
quarterly tax payment due date, and
Allows taxpayers who request a payment plan
additional time to pay an outstanding tax bill if FTB
denies the request for a payment plan after the
voluntary disclosure agreement expires.
FISCAL EFFECT:
According to FTB, SB 1492 does not impact state income
tax revenue.
COMMENTS:
A. Purpose of the Bill
According to the FTB, sponsor of the measure: "The
purpose of this Franchise Tax Board-sponsored bull is to is
to revise the VDA statutes to eliminate impediments to
satisfying the VDA, thus reducing the risk of taxpayers
failing to comply with the VDA and incurring penalties and
collective actions."
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B. Program Background
According to the FTB: "Some out-of-state taxpayers
that conduct business in California as defined by the R&TC
may not be aware of their California franchise or income
tax liability or filing requirements. The FTB also may not
readily identify such taxpayers through its filing
enforcement or other compliance programs. Given the
substantial penalties for delinquent filing of returns and
late payment of taxes, and the open statute to audit all
taxable years preceding identification, these taxpayers may
be reluctant to disclose their California presence and
report any tax liability voluntarily.
Current VDA statutes allow qualified entities,
qualified shareholders, or qualified beneficiaries to
disclose their liability voluntarily through a VDA. The
qualified entities, qualified shareholders, or
beneficiaries that choose to participate in a VDA may
anonymously apply to the FTB and in exchange, if
accepted, must disclose their California tax liability
for the immediately preceding six taxable years. Under
the VDA statute, the FTB in turn waives its authority to
assess taxes, additions to tax, fees, or certain
penalties for the taxable years ending before the six
taxable years covered by the VDA.
The Multistate Tax Commission (MTC) has an agreement
with 30 states, including California, which provides
incentives for taxpayers to request a VDA. The states that
participate in MTC's voluntary disclosure program follow
guidelines and processes provided by the MTC, thereby
allowing applicants to request VDAs for multiple states
through the MTC. The voluntary disclosure period in these
states is the four taxable years ending before the signing
date of the VDA.
Each of these states allows the taxpayer to remain
anonymous during the application period. As a result,
the estimated tax payments due in the year immediately
after the voluntary disclosure period may be late, and
the taxpayer is penalized for the late payments. The
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other states in the MTC Compact address penalties on a
case-by-case basis.
With the exception of California's six-year VDA
period, current state law generally conforms to the MTC's
VDA application procedures and guidelines."
Support and Opposition
Support:Franchise Tax Board (sponsor)
Oppose:None received.
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Consultant: Colin Grinnell