BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 2686 (Committee on Revenue and Taxation) - Taxpayers' Rights
Advocate: discretionary penalty and interest abatement.
Amended: July 5, 2012 Policy Vote: G&F 8-0
Urgency: No Mandate: No
Hearing Date: August 6, 2012
Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 2686 would reinstate the authority for the
Taxpayers' Rights Advocate (Advocate) to relieve taxpayers from
penalties, interest, fees, and additions to tax that are
attributable to a Franchise Tax Board (FTB) error.
Fiscal Impact:
FTB indicates that any impacts on the staff of the Advocate
would be minor and absorbable, and that the bill is expected
to ultimately result in minor administrative savings related
to avoided litigation and appeals costs.
Unknown General Fund impacts; actual revenue impacts would
depend upon the frequency and value of any FTB errors.
Based upon historical experience when the authority provided
by this bill was in effect, FTB estimates minor revenue
impacts (see staff comments).
Background: Existing law, enacted by the Katz-Harris Taxpayers'
Bill of Rights (AB 2788 (Harris), Chap 1573/1988), establishes
the position of the Taxpayers' Rights Advocate to coordinate the
resolution of taxpayer complaints and problems. Existing law in
effect from January 1, 2009 until January 1, 2012 provided the
Advocate with discretionary authority to abate penalties,
interest, fees, or additions to tax owed by a taxpayer as a
result of specified FTB errors or delays (AB 3078 (Revenue and
Taxation Committee), Chap 305/2008). The Advocate could only
provide relief if no part of the error or delay could be
attributable to the taxpayer, and when relief is not otherwise
available.
AB 2686 (Committee on Revenue and Taxation)
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Proposed Law: AB 2686 would reinstate, until January 1, 2016,
the discretionary authority for FTB's Taxpayers' Rights Advocate
to abate penalties, interest, fees, and additions to tax that
are attributable to: (1) erroneous action or inaction by the FTB
in processing documents or payments; (2) unreasonable FTB
delays; or (3) erroneous written advice that does not otherwise
qualify for relief.
The Advocate may only grant relief if no significant part of the
error or delay is attributable to the taxpayer and relief is not
available under existing law. The maximum amount of relief that
may be provided in any given case is $7,500, which may be
adjusted annually for inflation, and any relief exceeding $500
must be approved by FTB's executive officer. Whenever relief is
granted, a public record must be created in the executive
officer's office that documents the taxpayer's name, the total
amount involved, the amount payable or refundable due to the
error or delay, and a summary of why relief is warranted. The
bill would prohibit any other entity from participating in the
decision to provide relief, and specify that any determination
by the Advocate that amounts owed by a taxpayer are attributable
to an FTB error or delay are not subject to administrative or
judicial review.
Staff Comments: AB 2686 would provide a process for taxpayers to
receive relief from penalties, interest, fees, or additional tax
liabilities when those amounts are a direct result of FTB errors
or delays, and if relief of those charges is not available
elsewhere under existing law.
FTB notes that the Advocate exercised the authority to grant
relief on two occasions during the three-year period from
January 1, 2009 to January 1, 2012. One resulted in interest
relief provided to a single taxpayer of $2,000 related to a
processing error of an individual return. The second instance
was attributable to incorrect instructions in the Fiduciary tax
return booklet, which affected about 50 trusts that
inadvertently underpaid the Mental Health Services Tax for up to
four year each as a result of FTB's error. In this case, the
Advocate abated total interest of about $1.1 million. FTB could
not provide relief under the general interest abatement statutes
because the error was discovered before notifying taxpayers of
the error, but relief would have been available if FTB had
contacted taxpayers about the error. In a sense, the Advocate's
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authority to refund interest in this case relieved FTB of the
administrative burden of notifying taxpayers of the error and
processing claims for reimbursement. The ultimate outcome of
providing relief would have been available in either case.
Based upon this experience, FTB anticipates that the authority
provided in this bill would result in a minor General Fund
impact. The actual impact is impossible to estimate because it
would be attributable to future errors and delays caused by FTB
and would depend upon the magnitude of any impacts on taxpayers
affected by those errors and delays.
Recommended Amendments: Staff notes that the recent amendments
that reinstate a sunset appear to inadvertently repeal the
entire section that establishes the position of Taxpayers'
Rights Advocate on January 1, 2016, rather than simply repealing
the Advocate's discretionary authority to abate penalties and
interest as of that date. Staff recommends an amendment to keep
the existing statute intact after the authority provided in this
bill expires.