BILL NUMBER: AB 2656	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Charles Calderon

                        FEBRUARY 24, 2012

   An act to amend Section 17085 of the Revenue and Taxation Code,
relating to taxation, to take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2656, as introduced, Charles Calderon. Personal income taxes:
retirement plans: early distributions.
   The Personal Income Tax Law, in modified conformity to federal
income tax laws, imposes an additional tax upon early distributions
from specified retirement plans, as provided.
   This bill would, for taxable years beginning on or after January
1, 2013, not impose that additional tax on the first $50,000, or 50%
of value of the retirement account, whichever is less, distributed to
an individual for the purpose of paying qualified mortgage costs, as
defined.
   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 17085 of the Revenue and Taxation Code is
amended to read:
   17085.  Section 72 of the Internal Revenue Code, relating to
annuities; certain proceeds of endowment and life insurance
contracts, is modified as follows:
   (a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
that the repeal of Section 72(d) of the Internal Revenue Code,
relating to repeal of special rule for employees' annuities, shall
apply only to the following:
   (1) Any individual whose annuity starting date is after December
31, 1986.
   (2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.
   (b) The amount of a distribution from an individual retirement
account or annuity or employee trust or employee annuity that is
includable in gross income for federal purposes shall be reduced for
purposes of this part by the lesser of either of the following:
   (1) An amount equal to the amount includable in federal gross
income for the taxable year.
   (2) An amount equal to the basis in the account or annuity allowed
by Section 17507 (relating to individual retirement accounts and
simplified employee pensions), the increased basis allowed by
Sections 17504 and 17506 (relating to plans of self-employed
individuals), the increased basis allowed by Section 17501, or the
increased basis allowed by Section 17551 that is remaining after
adjustment for reductions in gross income under this provision in
prior taxable years.
   (c) (1) Except as provided in paragraph (2), the amount of the
 penalty   additional tax  imposed under
this part shall be computed in accordance with Sections 72(m), (q),
(t), and (v) of the Internal Revenue Code, as applicable for federal
income tax purposes for the same taxable year, using a rate of 21/2
percent, in lieu of the rate provided in those sections.
   (2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts, as
applicable for federal income tax purposes for the same taxable year,
applies, the rate in paragraph (1) shall be 6 percent in lieu of the
21/2 percent rate specified therein. 
   (3) (A) Notwithstanding paragraphs (1) and (2), for taxable years
beginning on or after January 1, 2013, an individual shall not pay
the additional tax described in paragraph (1) for early withdrawal of
a qualified principal residence mortgage payment distribution from
his or her retirement account when the moneys are used to reduce
qualified mortgage costs.  
   (B) For the purposes of this paragraph:  
   (i) "Qualified mortgage costs" means amounts paid as principal or
interest on acquisition indebtedness, as defined in Section 163(h)(3)
(B) of the Internal Revenue Code, except that the dollar limitation
in Section 163(h)(3)(B)(ii) of the Internal Revenue Code shall not
apply.  
   (ii) "Qualified principal residence mortgage payment distribution"
means a payment or distribution received by an individual to the
extent that the payment or distribution is used by the individual
before the close of the 120th day after the day on which that payment
or distribution is received to pay qualified mortgage costs with
respect to a principal residence of the individual or spouse of the
individual.  
   (C) The aggregate amount of qualified principal residence mortgage
payment distributions received by an individual for all taxable
years shall not exceed fifty thousand dollars ($50,000) or 50 percent
of the value of his or her retirement account on the day of the
withdrawal.  
   (D) The Franchise Tax Board may promulgate regulations as
necessary or appropriate to carry out the purposes of this paragraph.

   (d) Section 72(f)(2) of the Internal Revenue Code shall be
applicable without applying the exceptions which immediately follow
that paragraph.
   (e) The amendments made by Section 844 of the Pension Protection
Act of 2006 (Public Law 109-280) to Section 72(e) of the Internal
Revenue Code, shall not apply.
  SEC. 2.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.