Amended in Assembly May 5, 2014

Amended in Assembly April 1, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2426

Introduced by Assembly Member Nestande

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(Coauthor: Assembly Member Allen)

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(Coauthors: Assembly Members Allen, Bonilla, Grove, Harkey, Maienschein, and Olsen)

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(Coauthor: Senator Cannella)

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February 21, 2014

An act to begin delete add Section 17141.1 to end delete begin insert amend Section 17072 of, and to add Section 17208 to, end insert the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 2426, as amended, Nestande. Income taxes: education savings accounts.

The Personal Income Tax begin delete Law excludes from gross income distributions from a Coverdell education savings account, provided the distributions are used for qualified education expenses, as provided end delete begin insert Law, in modified conformity with federal income tax laws, allows various deductions in computing the income that is subject to the taxes imposed by that law end insert .

This bill would allow as begin delete an exclusion from end delete begin insert a deduction incomputing adjusted end insert gross income begin insert for end insert those amounts contributed to a Coverdell education savings account, up to $750 per taxable year, as provided. begin delete This bill would impose a penalty upon a taxpayer of 2.5% for unauthorized distributions from the account, as specified. end delete

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:

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begin insert SECTION 1. end insert   

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begin insert Section 17072 of the end insert begin insert Revenue and Taxation Code end insert
begin insert is amended to read: end insert

17072.  

(a) Section 62 of the Internal Revenue Code, relating
to adjusted gross income defined, shall apply, except as otherwise
provided.

(b) Section 62(a)(2)(D) of the Internal Revenue Code, relating
to certain expenses of elementary and secondary school teachers,
shall not apply.

(c) Section 62(a)(21) of the Internal Revenue Code, relating to
attorneys fees relating to awards to whistleblowers, shall not apply.

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(d) For taxable years beginning on or after January 1, 2014,
Section 62(a) of the Internal Revenue Code is modified to provide
that the deduction allowed under Section 17208 shall be allowed
in determining adjusted gross income.

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begin delete SECTION 1. end delete
begin insert SEC. 2. end insert   

Section begin delete 17141.1 end delete begin insert 17208 end insert is added to the Revenue and
Taxation Code, to read:

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begin insert 17208. end insert   

(a) Notwithstanding any other provision of this part
or Part 11 (commencing with Section 23001) to the contrary, begin delete any end delete
begin insert a deduction shall be allowed for an end insert amount contributed by a
taxpayer during the taxable year to a Coverdell education savings
account, not to exceed seven hundred fifty dollars ($750) per
taxable year, begin delete shall not be includable in the gross income of the
taxpayer, end delete except as otherwise provided in this section.

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(b) For purposes of this section:

(1) “Coverdell education savings account” shall have the same
meaning as that term is defined by Section 530 of the Internal
Revenue Code.

(2) “Dependent” shall have the same meaning as that term is
defined by Section 152 of the Internal Revenue Code.

(3) “Qualified education expenses” shall have the same meaning
as that term is defined by Section 530 of the Internal Revenue
Code.

(c) (1) Any amount withdrawn or distributed from a Coverdell
education savings account shall subject the taxpayer to a penalty
in an amount equal to 2.5 percent of the payment or distribution,
unless the payment or distribution is made to pay for the qualified
education expenses of the taxpayer that established the account or
his or her spouse or their dependents.

(2) If the withdrawal or distribution from a Coverdell education
savings account is not used to pay for qualified education expenses
then any amount previously excluded from gross income pursuant
to this section shall be included in a taxpayer’s gross income for
the taxable year in which the amount was excluded and the taxpayer
shall be liable for any increase in tax attributable to that inclusion.

(d) Notwithstanding any other provision of this part, the transfer
of a taxpayer’s interest in a Coverdell education savings account
to his or her former spouse under a dissolution decree or under a
written instrument incident to a dissolution is not to be considered
a taxable transfer made by that taxpayer, as long as the transferred
moneys are deposited into another Coverdell education savings
account established by the former spouse.

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(b) For purposes of this section, “Coverdell education savings
account” shall have the same meaning as that term is defined by
Section 530 of the Internal Revenue Code, as modified by Section
23712.

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(c) For purposes of applying Section 530 of the Internal Revenue
Code, relating to Coverdell education savings accounts, the basis
of the Coverdell education savings account shall be reduced by
any amount deducted pursuant to this section.

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begin delete SEC. 2. end delete
begin insert SEC. 3. end insert   

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.