Amended in Assembly May 1, 2014

Amended in Assembly April 1, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1984

Introduced by Assembly Member Harkey

February 19, 2014

An act to amend begin delete Section 19362 end delete begin insert Sections 19057, 19306, and 19340 end insert of, and to add Sections begin delete 19022 and 19367 end delete begin insert 19001.5, 19051.5, and 19307.5 end insert to, the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 1984, as amended, Harkey. Income taxes: net operating losses: carrybacks: overpayments: estimated tax.

The Personal Income Tax Law and the Corporation Tax Law, in modified conformity to federal law, allow taxpayers to utilize net operating losses and carryovers and carrybacks of those losses for purposes of offsetting their tax liabilities. Existing law allows net operating losses attributable to taxable years beginning on or after January 1, 2013, to be carrybacks to each of the preceding 2 taxable years, as provided. begin insert Existing law allows for a credit against estimated tax of an overpayment of tax for a preceding year. end insert Federal income tax law includes begin delete procedures end delete begin insert provisions end insert that allow a taxpayer with net operating loss carrybacks to obtain a tentative refund of taxes paid in prior tax years by filing a tentative carryback adjustment application and allow a corporation to apply to extend the time for payment of taxes for the immediately preceding taxable year.

This bill would begin insert additionally end insert conform to those federal provisions begin insert , as provided end insert .

begin delete

Existing law provides for the establishment of the Franchise Tax Board and prescribes its various powers and duties regarding the administration of state personal income taxes and corporation franchise and income taxes, including an authorization to prescribe regulations providing for the crediting against the estimated tax of the amount determined to be an overpayment of tax for a preceding taxable year.

end delete begin delete

This bill would require the Franchise Tax Board to prescribe the above-described regulations on or before January 1, 2016.

end delete

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 begin delete 19022 end delete begin insert 19001.5 end insert is added to the Revenue
and Taxation Code, to read:

begin delete 19022. end delete
begin insert 19001.5. end insert   

(a) Section 6164 of the Internal Revenue Code,
relating to extension of time for payment of taxes by corporations
expecting carrybacks shall apply.

(b) (1) Section 6164 of the Internal Revenue Code is modified
by substituting the phrase “Secretary or the Franchise Tax Board”
for the word “Secretary” in each place it appears.

(2) Section 6164(a) of the Internal Revenue Code, relating to
in general, is modified by substituting the phrase “Part 11
(commencing with Section 23001)” in lieu of the phrase “subtitle
A”.

(3) Section 6164(b) of the Internal Revenue Code, relating to
contents of statement, is modified by substituting the phrase
“Section 24416.20” in lieu of the phrase “section 172(b)”.

(4) Section 6164(d)(2) of the Internal Revenue Code is modified
by substituting the phrase “Section begin delete 19367” end delete begin insert 19307.5 end insert begin insert ” end insert in lieu of the
phrase “section 6411”.

(5) Section 6164(h) of the Internal Revenue Code, relating to
jeopardy, is modified as follows:

(A) By substituting the phrase “he or the Franchise Tax Board”
for the word “he” in each place it appears.

(B) By substituting the phrase “him or the Franchise Tax Board”
for the word “him” in each place it appears.

begin insert

(6) Section 6164(i) of the Internal Revenue Code, relating to
consolidated returns, is modified by substituting the phrase
“combined report” in lieu of the phrase “consolidated return” in
each place it appears.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 19051.5 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

begin insert

begin insert 19051.5. end insert   

If the Franchise Tax Board determines that the
amount applied, credited, or refunded under Section 19307.5 is
in excess of the over assessment attributable to the carryback with
respect to which that amount was applied, credited, or refunded,
the Franchise Tax Board may assess the amount of the excess as
an overstatement of a credit pursuant to Section 19054.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 19057 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

19057.  

(a) Except in the case of a false or fraudulent return
and except as otherwise expressly provided in this part, every
notice of a proposed deficiency assessment shall be mailed to the
taxpayer within four years after the return was filed. No deficiency
shall be assessed or collected with respect to the year for which
the return was filed unless the notice is mailed within the four-year
period or the period otherwise provided. For purposes of this
chapter, the term “return” means the return required to be filed by
the taxpayer and does not include a return of any person from
whom the taxpayer has received an item of income, gain, loss,
deduction, or credit.

(b) The running of the period of limitations provided in
subdivision (a) on mailing a notice of proposed deficiency
assessment shall, in a case under Title 11 of the United States
Code, be suspended for any period during which the Franchise
Tax Board is prohibited by reason of that case from mailing the
notice of proposed deficiency assessment and for 60 days
thereafter.

(c) Where, within the 60-day period ending on the day on which
the time prescribed in this section for the assessment of any tax
imposed under Part 10 (commencing with Section 17001) or Part
11 (commencing with Section 23001) for any taxable year would
otherwise expire, the Franchise Tax Board receives a written
document, other than an amended return or a report required by
Section 18622, signed by the taxpayer showing that the taxpayer
owes an additional amount of that tax for that taxable year, the
period for the assessment of an additional amount in excess of the
amount shown on either an original or amended return shall not
expire before the day 60 days after the day on which the Franchise
Tax Board receives that document.

(d) If a taxpayer determines in good faith that it is an exempt
organization and files a return as an exempt organization under
Section 23772, and if the taxpayer is thereafter held to be a taxable
organization for the taxable year for which the return is filed, that
return shall be deemed the return of the organization for the
purposes of this section.

begin insert

(e) In the case of a deficiency attributable to the application to
the taxpayer of a net operating loss carryback, a notice of proposed
assessment may be mailed at any time before the expiration of the
period within which a deficiency for the taxable year of the net
operating loss which results in that carryback may be proposed.

end insert begin insert

(f) In a case where an amount has been applied, credited, or
refunded under Section 19307.5 by reason of a net operating loss
carryback to a prior taxable year, the period described in
subdivision (a) for mailing a notice of proposed deficiency
assessment for that prior taxable year shall be extended to include
the period described in subdivision (e), except that the amount
that may be proposed to be assessed solely by reason of this
subdivision shall not exceed the amount so applied, credited, or
refunded under Section 19307.5, reduced by any amount that may
be proposed to be assessed solely by reason of subdivision (e).

end insert

begin delete

SEC. 2.  

Section 19362 of the Revenue and Taxation Code is
amended to read:

19362.  

(a) On or before January 1, 2016, the Franchise Tax
Board shall prescribe regulations providing for the crediting against
the estimated tax for any taxable year of the amount determined
by the taxpayer or the Franchise Tax Board to be an overpayment
of the tax for a preceding taxable year.

end delete

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 19306 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

19306.  

(a) No credit or refund shall be allowed or made after
a period ending four years from the date the return was filed (if
filed within the time prescribed by Section 18567 or 18604,
whichever is applicable), four years from the last day prescribed
for filing the return (determined without regard to any extension
of time for filing the return), or after one year from the date of the
overpayment, whichever period expires later, unless before the
expiration of that period a claim therefor is filed by the taxpayer,
or unless before the expiration of that period the Franchise Tax
Board allows a credit, makes a refund, or mails a notice of proposed
overpayment on a preprinted form prescribed by the Franchise
Tax Board.

(b) The amendments to this section by the act adding this
subdivision shall be applied to all claims and refunds, without
regard to taxable year, for which the statute of limitations has not
expired on the date that this act takes effect.

begin insert

(c) If the claim for credit or refund relates to an overpayment
attributable to a net operating loss carryback allowed under
subdivision (c) of Section 17276.20 or subdivision (d) of Section
24416.20, in lieu of the four year period of limitation prescribed
in subdivision (a), the period shall be that period that ends four
years after the date the return was filed, if filed within the time
prescribed by Section 18567 or 18604, whichever is applicable,
or four years from the last date provided for filing the return,
determined without regard to extension of time for filing the return,
for the taxable year of the net operating loss that results in the
carryback.

end insert begin insert

(d) (1) If the allowance of a credit or refund of an overpayment
of tax attributable to a net operating loss carryback is otherwise
prevented by the operation of any law or rule of law other than
Section 19443, the credit or refund may be allowed or made if the
claim therefor is filed within the period provided in subdivision
(c).

end insert begin insert

(2) If the allowance of an application, credit, or refund of a
decrease in tax determined under Section 19307.5 is otherwise
prevented by the operation of any law or rule of law other than
Section 19443, that application, credit, or refund may be allowed
or made if application for a tentative carryback adjustment is made
within the period provided in Section 19307.5.

end insert begin insert

(3) In the case of that claim for refund or that application for
a tentative carryback adjustment, the determination by any court
in any proceeding in which the decision of the court has become
final shall be conclusive, except with respect to the net operating
loss deduction and the effect of the deduction, to the extent that
deduction is affected by a carryback that was not an issue in that
proceeding.

end insert

begin delete SEC. 3. end delete
begin insert SEC. 5. end insert   

Section begin delete 19367 end delete begin insert 19307.5 end insert is added to the Revenue and
Taxation Code, to read:

begin delete 19367. end delete
begin insert 19307.5. end insert   

(a) Section 6411 of the Internal Revenue Code,
relating to tentative carryback and refund adjustments, shall apply
only to an application for a tentative carryback adjustment of the
tax for a prior taxable years affected by a net operating loss
carryback.

(b) (1) Section 6411 of the Internal Revenue Code is modified
begin delete by substituting the phrase “Secretary or the Franchise Tax Board”
for the word “Secretary” in each place it appears. end delete begin insert as follows: end insert

begin insert

(A) By substituting the phrase “Secretary or the Franchise Tax
Board” for the word “Secretary” in each place it appears.

end insert begin insert

(B) By substituting the number “180” for the number “90” in
each place it appears.

end insert

(2) Section 6411(a) of the Internal Revenue Code, relating to
application for adjustment, is modified as follows:

(A) By substituting the phrase “Section begin insert 17276.20 or end insert 24416.20”
in lieu of the phrase “section 172(b)”.

(B) By substituting the phrase “Section 18621” in lieu of the
phrase “section 6065”.

(3) Section 6411(b) of the Internal Revenue Code, relating to
allowance of adjustments, is modified by substituting the phrase
“Section 19022” in lieu of the phrase “section 6164”.

begin insert

(c) Notwithstanding Section 6411(a) of the Internal Revenue
Code, relating to application for adjustment, a taxpayer may file
an application for a tentative carryback adjustment for a net
operating loss attributable to the 2013 taxable year within 6 months
after the effective date of the act adding this section or within 12
months after the end of the taxpayer’s 2013 taxable year, whichever
is later.

end insert

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 19340 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

19340.  

Interest shall be allowed and paid on any overpayment
in respect of any tax, at the adjusted annual rate established
pursuant to Section 19521 as follows:

(a) In the case of a credit, from the date of the overpayment to
the due date of the amount for which the credit is allowed. Any
interest allowed on any credit shall first be credited on any amounts
due from the taxpayer under Part 10 (commencing with Section
17001), this part, or Part 11 (commencing with Section 23001).

(b) In the case of a refund, including a refund in excess of tax
liability as prescribed in subdivision (j) of Section 17053.5, from
the date of the overpayment to a date preceding the date of the
refund warrant by not more than 30 days, the date to be determined
by the Franchise Tax Board.

begin insert

(c) For purposes of this section, if any overpayment of the “net
tax” imposed under Part 10 (commencing with Section 19001) or
the “tax” imposed under Part 11 (commencing with Section 23001)
results from a net operating loss carryback allowed under
subdivision (c) of Section 17276.20 or subdivision (d) of Section
24416.20, that overpayment shall not be deemed to have been
made before the filing date for the taxable year in which that net
operating loss carryback arises.

end insert begin insert

(d) (1) For purposes of subdivision (c), the term “filing date”
means the last date prescribed for filing the return of “net tax”
imposed under Part 10 (commencing with Section 17001) or the
“tax” imposed under Part 11 (commencing with Section 23001)
for the taxable year, determined without regard to extensions.

end insert begin insert

(2) (A) For purposes of Section 19341, the following shall
apply:

end insert begin insert

(i) Any overpayment described in subdivision (c) shall be treated
as an overpayment for the loss year.

end insert begin insert

(ii) Subdivision (c) shall be applied with respect to the
overpayment by treating the return for the loss year as not filed
before a claim for that overpayment is filed.

end insert begin insert

(B) For purposes of this paragraph, the term “loss year” means
the taxable year in which that loss arises.

end insert begin insert

(3) For purposes of clause (ii) of subparagraph (A), if a taxpayer
files a claim for refund of any overpayment described in subdivision
(c) with respect to the taxable year to which a loss or credit is
carried back, and subsequently files an application under Section
19307.5 with respect to that overpayment, then the claim for
overpayment shall be treated as having been filed on the date the
application under Section 19307.5 was filed.

end insert