BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2686 HEARING: 6/27/12
AUTHOR: Committee on Revenue & TaxationFISCAL: Yes
VERSION: 3/12/12 TAX LEVY: No
CONSULTANT: Miller
TAXATION: TAXPAYERS' RIGHTS ADVOCATE
Repeals the sunset for the Taxpayer Advocate Equity Relief
Program at the FTB.
Background and Existing Law
Existing state law allows the FTB staff to abate penalties,
fees, additions to tax and interest under four
circumstances:
1. The interest is attributable to an unreasonable
delay by the FTB in performing a ministerial or
managerial act.
2. The FTB issues an assessment based on an Internal
Revenue Service (IRS) assessment and the IRS abates
interest due to an IRS delay.
3. A taxpayer is experiencing an extreme financial
hardship caused by a significant disability or
catastrophic circumstance.
4. A taxpayer relied on the written advice of a legal
ruling by the FTB's Chief Counsel.
Existing state law also allows interest to be suspended if
the FTB fails to inform the taxpayer of the amount owed
within 36 months after the return was filed, or if later,
the date it is due without regard to extension. Penalties
that carry reasonable cause exceptions may be abated. The
law allows only the Chief Counsel to rescind or abate the
application of tax shelter fees and penalties as well if
the taxpayer successfully makes a case to him or her.
The office of the Taxpayer Advocate (Advocate) within the
FTB was created to coordinate the resolution of taxpayer
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complaints and problems. The Advocate is empowered to
review actions taken on a taxpayer's account. Existing law
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 if the three conditions are met.
1. Erroneous action or inaction by the FTB in
processing documents filed or payments made by
taxpayers;
2. Unreasonable delay caused by the FTB; or,
3. Erroneous written advice that does not qualify for
relief under Chief Counsel authority
The Advocate may only grant relief as long as no
significant part of the error is due to the taxpayer and
when relief is not allowed under any other law. The
Advocate may relieve amounts below $500; anything above is
subject to concurrence by the Chief Counsel. If the relief
exceeds $7,500, the Chief Counsel must inform the FTB (the
FTB may adjust the $7,500 for inflation). The Advocate
must also provide a public record of the relief in the
FTB's office with the taxpayer's name, total amount of tax
involved, total amount refundable or payable, and a summary
of why the relief is warranted. A determination made by
the Advocate is not subject to administrative or judicial
review.
Proposed Law
Assembly Bill 2696 repeals the sunset and allows the
Advocate to continue to relieve taxpayers from penalties,
fees, additions to tax, and interest attributable to the
Franchise Tax Board's (FTB) erroneous actions permanently.
State Revenue Impact
According to the FTB, they are unable to quantify future
case volumes, but expect that the bill will ultimately save
minor litigation and appeal costs.
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Comments
1. Purpose of the bill . This bill is sponsored by the FTB
in order to reenact the discretionary authority of the
Taxpayer Advocate to grant relief to taxpayers from
penalties, fees, additions to tax, or interest imposed on a
tax liability because of erroneous actions of the
department.
2. Jury is still out . This statute has been used twice
since its enactment: (1) the first instance was for a
processing error on an individual return and resulted in
the interest being cancelled for $2,000. (2) The second
instance was for incorrect instructions in FTB's fiduciary
and trust return booklet (541), which affected about 50
trusts and resulted in $2,000. The FTB states that since
the FTB located the errors prior to the written contract
with the taxpayers, they couldn't receive relief under
existing law. During the three years the FTB has used this
authority, it is still unclear whether it is absolutely
necessary.
The Committee may wish to consider three amendments to
determine whether this authority is working and provide
additional limitations: (1) The Executive Officer of the
FTB should make the final determination, not the Chief
Counsel since the authority is very broad; (2) Impose
another three-year sunset for purposes of review and
evaluation; and (3) Cap the relief amount at $7,500 rather
than providing for a notification to the FTB from the Chief
Counsel.
Assembly Actions
Assembly Revenue and Taxation: 8-0
Assembly Appropriations: 17-0
Assembly Floor: 73-0
Support and Opposition (6/21/12)
Support : Franchise Tax Board (Sponsor).
Opposition : Unknown.
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