Amended in Assembly May 23, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2754

Introduced by Committee on Revenue and Taxation (Bocanegra (Chair), Gordon, Mullin, Pan, V. Manuel Pérez, and Ting)

March 24, 2014

An act to amend Section 17054 of, and to add Sections 18621.10 and 19171 to, the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 2754, as amended, Committee on Revenue and Taxation. Franchise Tax Board: administration: dependent credit: electronic filing.

The Personal Income Tax Law allows a credit for each dependent of a taxpayer and does not require a tax identification number of the dependent to be included on the return filed with the Franchise Board.

This bill would require, for taxable years beginning on or after January 1, 2015, the tax identification number of a dependent to be included on the taxpayer’s return and would allow the taxpayer who did not provide the taxpayer identification number on the return to thereafter claim a credit or refund of that amount, as provided.

Existing law requires every taxpayer subject to the Personal Income Tax Law or the Corporation Tax Law to timely file a return with the Franchise Tax Board, unless exempt, on a form prescribed by the Franchise Tax Board.

This bill, for taxable years beginning on or after January 1, 2014, would require an acceptable return, as defined, of a business entity, as defined, that was prepared using a tax preparation software to be filed using electronic technology in a form and manner prescribed by the Franchise Tax Board. This bill would require a business entity that fails to comply with that filing requirement for returns filed for taxable years beginning on or after January 1, begin delete 2016, end delete begin insert 2017, end insert to pay begin delete a penalty of $500 end delete begin insert specified penalties end insert for each failure unless the failure is due to reasonable cause, and not willful neglect. This bill would require the Franchise Tax Board to conduct programs to educate business entities on these requirements and liberally interpret and grant waivers of the penalty, as specified.

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 17054 of the Revenue and Taxation Code
is amended to read:

17054.  

In the case of individuals, the following credits for
personal exemption may be deducted from the tax imposed under
Section 17041 or 17048, less any increases imposed under
paragraph (1) of subdivision (d) or paragraph (1) of subdivision
(e), or both, of Section 17560.

(a) In the case of a single individual, a head of household, or a
married individual making a separate return, a credit of fifty-two
dollars ($52).

(b) In the case of a surviving spouse (as defined in Section
17046), or a husband and wife making a joint return, a credit of
one hundred four dollars ($104). If one spouse was a resident for
the entire taxable year and the other spouse was a nonresident for
all or any portion of the taxable year, the personal exemption shall
be divided equally.

(c) In addition to any other credit provided in this section, in
the case of an individual who is 65 years of age or over by the end
of the taxable year, a credit of fifty-two dollars ($52).

(d) (1) A credit of two hundred twenty-seven dollars ($227)
for each dependent (as defined in Section 17056) for whom an
exemption is allowable under Section 151(c) of the Internal
Revenue Code, relating to additional exemption for dependents.
The credit allowed under this subdivision for taxable years
beginning on or after January 1, 1999, shall not be adjusted
pursuant to subdivision (i) for any taxable year beginning before
January 1, 2000.

(2) (A) For taxable years beginning on or after January 1, 2015,
a credit shall not be allowed under paragraph (1) with respect to
any individual unless the identification number, as defined in
Section 6109 of the Internal Revenue Code, of that individual is
included on the return claiming the credit.

(B) A disallowance of a credit due to the omission of a correct
identification number required under this paragraph, may be
assessed by the Franchise Tax Board in the same manner as is
provided by Section 19051 in the case of a mathematical error
appearing on the return. A claimant shall have the right to claim
a credit or refund of adjusted amounts within the period provided
in Section 19306, 19307, 19308, or 19311, whichever period
expires later.

(3) (A) For taxable years beginning on or after January 1, 2009,
the credit allowed under paragraph (1) for each dependent shall
be equal to the credit allowed under subdivision (a). This
subparagraph shall cease to be operative for taxable years beginning
on or after January 1, 2011, unless the Director of Finance makes
the notification pursuant to Section 99040 of the Government
Code, in which case this subparagraph shall cease to be operative
for taxable years beginning on or after January 1, 2013.

(B) For taxable years that subparagraph (A) ceases to be
operative, the credit allowed under paragraph (1) for each
dependent shall be equal to the amount that would be allowed if
subparagraph (A) had never been operative.

(e) A credit for personal exemption of fifty-two dollars ($52)
for the taxpayer if he or she is blind at the end of his or her taxable
year.

(f) A credit for personal exemption of fifty-two dollars ($52)
for the spouse of the taxpayer if a separate return is made by the
taxpayer, and if the spouse is blind and, for the calendar year in
which the taxable year of the taxpayer begins, has no gross income
and is not the dependent of another taxpayer.

(g) For the purposes of this section, an individual is blind only
if either (1) his or her central visual acuity does not exceed 20/200
in the better eye with correcting lenses, or (2) his or her visual
acuity is greater than 20/200 but is accompanied by a limitation
in the fields of vision such that the widest diameter of the visual
field subtends an angle no greater than 20 degrees.

(h) In the case of an individual with respect to whom a credit
under this section is allowable to another taxpayer for a taxable
year beginning in the calendar year in which the individual’s
taxable year begins, the credit amount applicable to that individual
for that individual’s taxable year is zero.

(i) For each taxable year beginning on or after January 1, 1989,
the Franchise Tax Board shall compute the credits prescribed in
this section. That computation shall be made as follows:

(1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change
in the California Consumer Price Index for all items from June of
the prior calendar year to June of the current calendar year, no
later than August 1 of the current calendar year.

(2) The Franchise Tax Board shall add 100 percent to the
percentage change figure which is furnished to them pursuant to
paragraph (1), and divide the result by 100.

(3) The Franchise Tax Board shall multiply the immediately
preceding taxable year credits by the inflation adjustment factor
determined in paragraph (2), and round off the resulting products
to the nearest one dollar ($1).

(4) In computing the credits pursuant to this subdivision, the
credit provided in subdivision (b) shall be twice the credit provided
in subdivision (a).

SEC. 2.  

Section 18621.10 is added to the Revenue and Taxation
Code, to read:

18621.10.  

(a) For taxable years beginning on or after January
1, 2014, if an acceptable return of a business entity was prepared
using a tax preparation software, that return shall be filed using
electronic technology in a form and manner prescribed by the
Franchise Tax Board.

(b) For purposes of this section:

(1) “Acceptable return” means any original or amended return
that is required to be filed pursuant to Article 2 (commencing with
Section 18601), Section 18633, Section 18633.5, or Article 3
(commencing with Section 23771) of Chapter 4 of Part 11, other
than the return for unrelated business taxable income required by
Section 23771.

(2) “Business entity” means a corporation, including an “S”
corporation, an organization exempt from tax pursuant to Chapter
4 (commencing with Section 23701) of Part 11, a partnership, or
a limited liability company.

(3) “Tax preparation software” means any computer software
program used to prepare an acceptable return or for use in tax
compliance.

(4) “Electronic technology” includes, but is not limited to, the
Internet, cloud computing, or an electronic information delivery
system.

(5) “Technology constraints” means an inability of the tax
preparation software used by a begin delete taxpayer end delete begin insert business entity end insert to
electronically file the acceptable return as required by this section
as a result of the complex nature of the return or inadequacy of
the software.

(c) Any business entity required to file a return electronically
under this section may annually request a waiver of the
requirements of this section from the Franchise Tax Board with
respect to an acceptable return filed for a taxable year. The
Franchise Tax Board may grant a waiver if it determines the
business entity is unable to comply with the requirements of this
section due to, but not limited to, technology constraints, where
compliance would result in undue financial burden, or due to
circumstances that constitute reasonable cause, and not willful
neglect begin insert , end insert as applicable with respect to the penalty imposed under
Section 19171.

(d) This section applies to an acceptable return required to be
filed on or after January 1, 2015.

SEC. 3.  

Section 19171 is added to the Revenue and Taxation
Code, to read:

19171.  

(a) A business entity required to electronically file a
return pursuant to Section 18621.10 that files a return in a manner
that fails to comply with Section 18621.10, shall be subject to a
begin insert penalty in the amount of one hundred dollars ($100) for an initial
failure and a end insert penalty in the amount of five hundred dollars ($500)
for each begin insert subsequent end insert failure unless the failure is due to reasonable
cause, and not willful neglect.

begin insert

(b) If a group return is filed on behalf of eligible electing
taxpayer members of a combined reporting group, the penalties
described in subdivision (a) shall apply to the combined reporting
group and not to a taxpayer member of the combined reporting
group.

end insert begin delete

(b)

end delete

begin insert (c) end insert  This section shall apply to returns filed for taxable years
beginning on or after January 1, begin delete 2016 end delete begin insert 2017 end insert .

SEC. 4.  

The Franchise Tax Board shall conduct a robust
education program advising business entities affected by Section
18621.10 of the Revenue and Taxation Code of the requirements
of that section and liberally interpret and grant waivers of the
penalty imposed under Section 19171 of the Revenue and Taxation
Code to minimize any unnecessary adverse impacts to business
entities that experience difficulty complying with these new
requirements.