California Senate Bill SB401 Introduced / Bill

 BILL NUMBER: SB 401INTRODUCED BILL TEXT INTRODUCED BY Senator Wolk FEBRUARY 26, 2009 An act to amend Sections 19116, 19504, 19755, and 19777 of the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST SB 401, as introduced, Wolk. Administration of taxes: potentially abusive tax avoidance transactions. Existing law imposes various taxes and fees, and certain penalties in connection with tax avoidance and abusive tax shelters, including reportable transactions. This bill would remove the reference to reportable transactions, and instead provide for specified penalties to be imposed on potentially abusive tax avoidance transactions, as defined. This bill would also make technical, nonsubstantive changes to conform to this reference. 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 19116 of the Revenue and Taxation Code is amended to read: 19116. (a) In the case of an individual who files a return of tax imposed under Part 10 (commencing with Section 17001) for a taxable year on or before the due date for the return, including extensions, if the Franchise Tax Board does not provide a notice to the taxpayer specifically stating the taxpayer's liability and the basis of the liability before the close of the notification period, the Franchise Tax Board shall suspend the imposition of any interest, penalty, addition to tax, or additional amount with respect to any failure relating to the return which is computed by reference to the period of time the failure continues to exist and which is properly allocable to the suspension period. (b) For purposes of this section: (1) Except as provided in subdivision (e), "notification period" means the 18-month period beginning on the later of either of the following: (A) The date on which the return is filed. (B) The due date of the return without regard to extensions. (2) "Suspension period" means the period beginning on the day after the close of the notification period and ending on the date which is 15 days after the date on which notice described in subdivision (a) is provided by the Franchise Tax Board. (c) This section shall be applied separately with respect to each item or adjustment. (d) This section shall not apply to any of the following: (1) Any penalty imposed by Section 19131. (2) Any penalty imposed by Section 19132. (3) Any interest, penalty, addition to tax, or additional amount involving fraud. (4) Any interest, penalty, addition to tax, or additional amount with respect to any tax liability shown on the return. (5) Any criminal penalty. (6) Any interest, penalty, addition to tax, or additional amount with respect to any gross misstatement. (7) Any interest, penalty, addition to tax, or additional amount relating to any reportable transaction with respect to which the requirements of Section 6664(d)(2)(A) of the Internal Revenue Code are not met, and any listed transaction, as defined in Section 6707A (c) of the Internal Revenue Code.  (8) Any interest, penalty, addition to tax, or additional amount relating to any potentially abusive tax avoidance transaction, as defined in Section 19777, as amended by the act adding this paragraph.  (e) For taxpayers required by subdivision (a) of Section 18622 to report a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority the following rules shall apply: (1) The notification period under subdivision (a) shall be either of the following: (A) One year from the date the notice required by Section 18622 is filed with the Franchise Tax Board by the taxpayer or the Internal Revenue Service, if the taxpayer or the Internal Revenue Service reports that change or correction within six months after the final federal determination. (B) Two years from the date when the notice required by Section 18622 is filed with the Franchise Tax Board by the taxpayer or the Internal Revenue Service, if after the six-month period required in Section 18622, a taxpayer or the Internal Revenue Service reports a change or correction. (2) The suspension period under subdivision (a) shall mean the period beginning on the day after the close of the notification period under paragraph (1) and ending on the date which is 15 days after the date on which notice described in subdivision (a) is provided by the Franchise Tax Board. (f) For notices sent after January 1, 2004, this section does not apply to taxpayers with taxable income greater than two hundred thousand dollars ($200,000) that have been contacted by the Franchise Tax Board regarding the use of a potentially abusive tax  shelter (within   shelter, within  the meaning of Section  19777)   19777, as added by Chapter 656 of the Statutes of 2003 and amended by Section 331 of Chapter 183 of the Statutes of 2004  . (g) This section shall apply to taxable years ending after October 10, 1999. (h) The amendments made to this section by  the act adding this subdivision   Chapter 691 of the Statutes of 2005  shall apply to notices sent after January 1, 2005.  (i) The amendments made to this section by the act adding this subdivision shall apply to notices mailed, or amended returns filed, on or after the effective date of the act adding this subdivision.  SEC. 2. Section 19504 of the Revenue and Taxation Code is amended to read: 19504. (a) The Franchise Tax Board, for the purpose of administering its duties under this part, including ascertaining the correctness of any return; making a return where none has been made; determining or collecting the liability of any person in respect of any liability imposed by Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part (or the liability at law or in equity of any transferee in respect of that liability); shall have the power to require by demand, that an entity of any kind including, but not limited to, employers, persons, or financial institutions provide information or make available for examination or copying at a specified time and place, or both, any book, papers, or other data which may be relevant to that purpose. Any demand to a financial institution shall comply with the California Right to Financial Privacy Act set forth in Chapter 20 (commencing with Section 7460) of Division 7 of Title 1 of the Government Code. Information that may be required upon demand includes, but is not limited to, any of the following: (1) Addresses and telephone numbers of persons designated by the Franchise Tax Board. (2) Information contained on Federal Form W-2 (Wage and Tax Statement), Federal Form W-4 (Employee's Withholding Allowance Certificate), or State Form DE-4 (Employee's Withholding Allowance Certificate). (b) The Franchise Tax Board may require the attendance of the taxpayer or of any other person having knowledge in the premises and may take testimony and require material proof for its information and administer oaths to carry out this part. (c) (1) The Franchise Tax Board may issue subpoenas or subpoenas duces tecum, which subpoenas must be signed by any member of the Franchise Tax Board, and may be served on any person for any purpose. (2) For taxpayers that have been contacted by the Franchise Tax Board regarding the use of a potentially abusive tax  shelter (within the meaning of Section 19777)   avoidance transaction, as defined by Section 19777 as amended by the act amending this paragraph  , the subpoena may be signed by any member of the Franchise Tax Board, the Executive Officer of the Franchise Tax Board, or any designee. (d) Obedience to subpoenas or subpoenas duces tecum issued in accordance with this section may be enforced by application to the superior court as set forth in Article 2 (commencing with Section 11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code. (e) When examining a return, the Franchise Tax Board shall not use financial status or economic reality examination techniques to determine the existence of unreported income of any taxpayer unless the Franchise Tax Board has a reasonable indication that there is a likelihood of unreported income. This subdivision applies to any examination beginning on or after October 10, 1999.  (f) The amendments made to this section shall apply to subpoenas issued on or after the effective date of the act adding this subdivision.  SEC. 3. Section 19755 of the Revenue and Taxation Code, as added by Section 13 of Chapter 654 of the Statutes of 2003, is amended to read: 19755. (a) Notwithstanding Section 19057, with respect to proposed deficiency assessments related to  an   a potentially  abusive tax avoidance transaction, as defined in  subdivision (c) of Section 19753   Section 19777, other than a gross misstatement within the meaning of Section 6404(g)(2)(D) of the Internal Revenue Code  , a notice of a proposed deficiency assessment may be mailed to the taxpayer within eight years after the return was filed, or within the period otherwise provided in Article 3 (commencing with Section 19031) of Chapter 4 of this part, whichever expires later. (b) This section shall apply to any return filed under this part on or after January 1, 2000.  (c) The amendments made to this section by the act adding this subdivision shall apply to taxable years beginning on or after January 1, 2009.  SEC. 4. Section 19755 of the Revenue and Taxation Code, as added by Section 13 of Chapter 656 of the Statutes of 2003, is amended to read: 19755. (a) Notwithstanding Section 19057, with respect to proposed deficiency assessments related to  an   a potentially  abusive tax avoidance transaction, as defined in  subdivision (c) of Section 19753   Section 19777, other than a gross misstatement within the meaning of Section 6404(g)(2)(D) of the Internal Revenue Code  , a notice of a proposed deficiency assessment may be mailed to the taxpayer within eight years after the return was filed, or within the period otherwise provided in Article 3 (commencing with Section 19031) of Chapter 4 of this part, whichever expires later. (b) This section shall apply to any return filed under this part on or after January 1, 2000.  (c) The amendments made to this section by the act adding this subdivision shall apply to taxable years beginning on or after January 1, 2009.  SEC. 5. Section 19777 of the Revenue and Taxation Code is amended to read: 19777. (a) If a taxpayer has been contacted by the Franchise Tax Board regarding a  reportable transaction, as defined in Section 6707A(c)(1) of the Internal Revenue Code with respect to which the requirements of Section 6664(d)(2)(A) of the Internal Revenue Code are not met, any listed transaction, as defined in Section 6707A(c)(2) of the Internal Revenue Code, or a gross misstatement within the meaning of Section 6404(g)(2)(D) of the Internal Revenue Code   potentially abusive tax avoidance transaction  , and has a deficiency, there shall be added to the tax an amount equal to 100 percent of the interest payable under Section 19101 for the period beginning on the last date prescribed by law for the payment of that tax (determined without regard to extensions) and ending on the date the notice of proposed assessment is mailed.  (b) For purposes of this section, "potentially abusive tax avoidance transaction" means any of the following:   (1) A tax shelter as defined in Section 6662(d)(2)(C) of the Internal Revenue Code. For purposes of this chapter, Section 6662(d) (2)(C) of the Internal Revenue Code is modified by substituting the phrase "income or franchise tax" for "Federal income tax."   (2) A reportable transaction, as defined in Section 6707A(c)(1) of the Internal Revenue Code, with respect to which the requirements of Section 6664(d)(2)(A) of the Internal Revenue Code are not met.   (3) A listed transaction, as defined in Section 6707A(c)(2) of the Internal Revenue Code.   (4) Any entity, investment plan or arrangement, or other plan or arrangement which is of a type that the Secretary of the Treasury, Internal Revenue Service, or the Franchise Tax Board determines by regulations, notices, coordinated issue papers, or other official public notification as having a potential for tax avoidance or evasion.   (5) A gross misstatement, within the meaning of Section 6404(g)(2) (D) of the Internal Revenue Code.   (6) Any transaction to which Section 19774 applies.   (b)   (c)  The penalty imposed by this section is in addition to any other penalty imposed under Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part.  (d) (1) If a taxpayer files an amended return reporting a potentially abusive tax avoidance transaction, described in subdivision (b), after the taxpayer is contacted by the Franchise Tax Board regarding that potentially abusive tax avoidance transaction but before a notice of proposed assessment is issued under Section 19033, then the amount of the penalty under this section shall be 50 percent of the interest payable under Section 19101 with respect to the amount of any additional tax reflected in the amended return attributable to that potentially abusive tax avoidance transaction.   (2) If a notice of proposed assessment under Section 19033, with respect to a potentially abusive tax avoidance transaction as described in subdivision (a), is issued after the amended return described in paragraph (1) is filed, the penalty imposed pursuant to subdivision (a) shall be applicable to the additional tax reflected in the notice of proposed assessment attributable to that potentially abusive tax avoidance transaction.   (e) The amendments made to this section by the act adding this subdivision shall apply to notices mailed on or after the effective date of the act and to amended returns filed more than 90 days after the effective date with respect to taxable years for which the statute of limitations for mailing a notice of proposed assessment has not expired as of that date.