BILL ANALYSIS �
AB 2686
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Date of Hearing: April 9, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2686 (Committee on Revenue and Taxation) - As Introduced:
March 12, 2012
Majority vote. Fiscal committee.
SUBJECT : Taxpayers' Rights Advocate: discretionary authority
to abate penalties and interest.
SUMMARY : Re-enacts prior law authorizing the Taxpayers' Rights
Advocate (Advocate) to relieve taxpayers from penalties, fees,
additions to tax, and interest attributable to the Franchise Tax
Board's (FTB) erroneous actions, as specified. Specifically,
this bill :
1)Permanently authorizes the Advocate, on and after January 1,
2013, to review a taxpayer's application for relief, as
specified, and to abate any penalties, fees, additions to tax,
or interest assessed on a taxpayer, provided that the
penalties, fees, additions to tax, or interest are
attributable to any of the following:
a) Erroneous action or inaction by the FTB in processing
documents filed or payments made by taxpayers;
b) Unreasonable delay caused by the FTB; or,
c) Erroneous written advice that does not qualify for
relief under Chief Counsel authority �Revenue and Taxation
Code (R&TC) Section 21012].
2)Specifies that relief may be granted only if both of the
following conditions are met:
a) No significant aspect of that error or delay is
attributed to the taxpayer involved; and,
b) Relief is not available under any other provision of the
Personal Income Tax Law or the Corporation Tax Law,
including any relief granted under any regulation or other
FTB administrative pronouncement.
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3)Requires any relief in which the total reduction exceeds $500
to be submitted to FTB's Chief Counsel for concurrence.
Requires the Chief Counsel to notify the FTB if the total
amount of the relief granted exceeds $7,500.
4)Authorizes the FTB to adjust the $7,500 amount for inflation,
as specified.
5)Provides that a public record with respect to a relief granted
shall be placed on file in the office of the FTB's executive
officer. Requires the public record to include all of the
following information:
a) The taxpayer's name.
b) The total amount involved.
c) The amount payable or refundable due to the error or
delay.
d) A summary of why the relief is warranted.
6)Specifies that a refund may be paid as a result of the relief
granted only if the written claim for refund is received by
the Advocate within the applicable statute of limitations.
7)States that a determination made by the Advocate is not
subject to administrative or judicial review.
EXISTING LAW:
1)Allows FTB staff to abate penalties, fees, additions to tax,
and interest under very narrow circumstances. Specifically,
interest may be abated in any of the following situations:
a) The interest is attributable to an unreasonable delay by
the FTB in performing a ministerial or managerial act.
b) The FTB issues an assessment based on an Internal
Revenue Service (IRS) assessment and the IRS abates
interest due to an IRS delay.
c) A taxpayer is experiencing an extreme financial hardship
caused by a significant disability or catastrophic
circumstance.
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d) A taxpayer relied on the written advice of a legal
ruling by the FTB's Chief Counsel.
2)Provides that interest may be suspended in situations where
the FTB fails to provide a notice to the taxpayer stating the
amount owed and the basis of the amount owed within 36 months
from the date on which the return was filed, or if later, the
date it is due without regard to extension.
3)Allows an abatement of some penalties in situations where the
penalties carry reasonable-cause exceptions. Allows an
abatement of penalties and fees if the Chief Counsel rescinds
the application of tax shelter penalties or fees as
authorized.
4)Establishes the position of Advocate to coordinate the
resolution of taxpayer complaints and problems and empowers
the Advocate to review actions taken on a taxpayer's account.
5)Authorized the Advocate, from January 1, 2009, until January
1, 2012, to resolve taxpayer issues identified by the FTB and
to waive penalties, fees, additions to tax, or interest
attributable to an error or unreasonable delay on the part of
the FTB.
FISCAL EFFECT : The FTB staff states that, while it is
impossible to quantify future case volumes, this bill would most
likely result in some minor cost savings.
COMMENTS :
1)The Purpose of this Bill . AB 2686, which is sponsored by the
FTB, is intended to help individual and corporate taxpayers
seeking relief from FTB errors.
2)The Taxpayers' Rights Advocate: Background . In 1988, the
Katz-Harris Taxpayers' Bill of Rights Act (Chapter 1573,
Statutes of 1988) codified many existing FTB administrative
procedures and clarified the rights of California taxpayers.
It also established the position of a Taxpayers' Rights
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Advocate to provide specified protections for taxpayers,
including a resolution of taxpayer complaints and problems.
On July 30, 1996, the federal Taxpayer Bill of Rights 2
(P.L.104-168) was passed, and later, California followed by
enacting the Taxpayers' Rights: Conformity Legislation
(Chapter 600, Statutes of 1997). A few years later, the
California Legislature created the Taxpayers' Bill of Rights
Act of 1999, further increasing protection of taxpayers'
rights.
The Taxpayers' Rights Advocate reports directly to the FTB's
Executive Officer. The Advocate or his/her designee
coordinates the resolution of taxpayer complaints and
problems, and, if appropriate, postpone enforcement action
while the case is under review. In 2008, the Legislature
temporarily provided the Advocate with the discretionary
authority to grant relief to taxpayers under limited
circumstances. (Chapter 305, Statutes of 2008).
Specifically, from January 1, 2009, until January 1, 2012, the
Advocate was allowed to provide relief from penalties, fees,
additions to tax, or interest imposed on a taxpayer because of
erroneous actions or inactions of the FTB. According to the
FTB, since January 1, 2009, the Taxpayers' Rights Advocate
used his discretionary authority twice to abate interest
charges. This authority applied to requests received by the
Advocate on or after January 1, 2009, and before January 1,
2012, regardless of the year involved. AB 2686, beginning on
January 1, 2013, would permanently extend the Advocate's
discretionary authority to abate penalties, fees, additions to
tax, or interest attributable to FTB's errors.
3)Is the Advocate's Permanent Authority Justified ? The FTB
staff notes that, in the absence of the Advocate's authority
to grant relief, eligible taxpayers do have other avenues for
obtaining relief from penalties, fees, additions to tax or
interest. For example, those taxpayers may appeal to the
State Board of Equalization (BOE), file a lawsuit for refund
of taxes with a court, or file a claim with the Victim
Compensation and Government Claims Board for refund of tax or
losses caused by the action or inaction of a state agency.
However, in those cases, the taxpayers most likely will have
to incur additional costs, which may exceed the amount of
penalties, interest, or other additions to tax. The sponsor
argues that the Advocate has prudently applied the
discretionary authority and it is time to re-enact the law
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without the sunset provision. The FTB staff notes that the
Advocate's authority to grant relief is the only remedy for
the abatement of penalties, fees, additions to tax, or
interest that had a sunset provision.
REGISTERED SUPPORT / OPPOSITION :
Support
Franchise Tax Board (Sponsor)
California Taxpayers Association
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098