BILL NUMBER: AB 1006INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Cook FEBRUARY 18, 2011 An act to add Part 10.1 (commencing with Section 15706) to Division 3 of Title 2 of the Government Code, and to amend Sections 17024.5, 18526, 19032, 19057, 19058, 19060, 19061, 19065, 19066.5, 23051.5, 24273.5, and 24945 of the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST AB 1006, as introduced, Cook. Taxation: Franchise Tax Board: statute of limitations: burden of proof. Existing law imposes income taxes that are administered and collected by the Franchise Tax Board. Existing law establishes a general four-year statute of limitations, subject to specified exceptions, for actions by the Franchise Tax Board regarding tax liability and also provides that the taxpayer has the burden of proof in court proceedings for purposes of state income tax laws. This bill would provide that the Franchise Tax Board shall have the burden of proof in any court or administrative tax proceedings with respect to any factual issue relevant to ascertaining the tax liability of a taxpayer. This bill would also provide that these provisions shall not subject a taxpayer to unreasonable search or access to records in violation of the law. This bill would additionally revise the statute of limitations regarding specified actions, including audits, conducted by the board and would require the board to have just cause before beginning any audit. 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. This act shall be known, and may be cited, as "The Tax Fairness Act of 2011." SEC. 2. Part 10.1 (commencing with Section 15706) is added to Division 3 of Title 2 of the Government Code, to read: PART 10.1. BURDEN OF PROOF 15706. (a) The Franchise Tax Board shall have the burden of proof in any court or administrative tax proceeding with respect to a factual issue related to ascertaining the tax liability of a taxpayer. (b) For purposes of this section: (1) "Administrative tax proceeding" means, for disputes concerning taxes collected by the Franchise Tax Board, the oral hearing before the members of the State Board of Equalization. (2) "Tax liability" means any tax or fee assessed or determined by the Franchise Tax Board, including any interest accrued or penalties levied in association with the tax or fee. (c) Unless provided otherwise, the burden of proof for purposes of this part shall be a preponderance of the evidence. (d) Nothing in this section shall subject a taxpayer to unreasonable search or access to records in violation of the United States Constitution, the California Constitution, or any other law. (e) This section shall apply only to court and administrative proceedings involving assessments or notices of determination issued on or after the date on which this act becomes operative. SEC. 3. Section 17024.5 of the Revenue and Taxation Code is amended to read: 17024.5. (a) (1) Unless otherwise specifically provided, the terms "Internal Revenue Code," "Internal Revenue Code of 1954," or "Internal Revenue Code of 1986," for purposes of this part, mean Title 26 of the United States Code, including all amendments thereto as enacted on the specified date for the applicable taxable year as follows: Specified Date of Internal Revenue Code Taxable Year Sections (A) For taxable years beginning on or after January 1, 1983, and on or before December 31, 1983....................... January 15, 1983 (B) For taxable years beginning on or after January 1, 1984, and on or before December 31, 1984....................... January 1, 1984 (C) For taxable years beginning on or after January 1, 1985, and on or before December 31, 1985....................... January 1, 1985 (D) For taxable years beginning on or after January 1, 1986, and on or before December 31, 1986....................... January 1, 1986 (E) For taxable years beginning on or after January 1, 1987, and on or before December 31, 1988................. January 1, 1987 (F) For taxable years beginning on or after January 1, 1989, and on or before December 31, 1989....................... January 1, 1989 (G) For taxable years beginning on or after January 1, 1990, and on or before December 31, 1990....................... January 1, 1990 (H) For taxable years beginning on or after January 1, 1991, and on or before December 31, 1991....................... January 1, 1991 (I) For taxable years beginning on or after January 1, 1992, and on or before December 31, 1992....................... January 1, 1992 (J) For taxable years beginning on or after January 1, 1993, and on or before December 31, 1996....................... January 1, 1993 (K) For taxable years beginning on or after January 1, 1997, and on or before December 31, 1997....................... January 1, 1997 (L) For taxable years beginning on or after January 1, 1998, and on or before December 31, 2001....................... January 1, 1998 (M) For taxable years beginning on or after January 1, 2002, and on or before December 31, 2004....................... January 1, 2001 (N) For taxable years beginning on or after January 1, 2005, and on or before December 31, 2009....................... January 1, 2005 (O) For taxable years beginning on or after January 1, 2010................ January 1, 2009 (2) (A) Unless otherwise specifically provided, for federal laws enacted on or after January 1, 1987, and on or before the specified date for the taxable year, uncodified provisions that relate to provisions of the Internal Revenue Code that are incorporated for purposes of this part shall be applicable to the same taxable years as the incorporated provisions. (B) In the case where Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) applies to any provision of the Internal Revenue Code that is incorporated for purposes of this part, Section 901 of the Economic Growth and Tax Relief Act of 2001 shall apply for purposes of this part in the same manner and to the same taxable years as it applies for federal income tax purposes. (3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle H (Repeal of Expired or Obsolete Provisions) of the Revenue Reconciliation Act of 1990 (Public Law 101-508) modified numerous provisions of the Internal Revenue Code and provisions of prior federal acts, some of which are incorporated by reference into this part. Unless otherwise provided, the provisions described in the preceding sentence, to the extent that they modify provisions that are incorporated into this part, are declaratory of existing law and shall be applied in the same manner and for the same periods as specified in the Revenue Reconciliation Act of 1990. (b) Unless otherwise specifically provided, when applying any provision of the Internal Revenue Code for purposes of this part, a reference to any of the following is not applicable for purposes of this part: (1) Except as provided in Chapter 4.5 (commencing with Section 23800) of Part 11 of Division 2, an electing small business corporation, as defined in Section 1361(b) of the Internal Revenue Code. (2) Domestic international sales corporations (DISC), as defined in Section 992(a) of the Internal Revenue Code. (3) A personal holding company, as defined in Section 542 of the Internal Revenue Code. (4) A foreign personal holding company, as defined in Section 552 of the Internal Revenue Code. (5) A foreign investment company, as defined in Section 1246(b) of the Internal Revenue Code. (6) A foreign trust, as defined in Section 679 of the Internal Revenue Code. (7) Foreign income taxes and foreign income tax credits. (8) Section 911 of the Internal Revenue Code, relating to citizens or residents of the United States living abroad. (9) A foreign corporation, except that Section 367 of the Internal Revenue Code shall be applicable. (10) Federal tax credits and carryovers of federal tax credits. (11) Nonresident aliens. (12) Deduction for personal exemptions, as provided in Section 151 of the Internal Revenue Code. (13) The tax on generation-skipping transfers imposed by Section 2601 of the Internal Revenue Code. (14) The tax, relating to estates, imposed by Section 2001 or 2101 of the Internal Revenue Code. (c) (1) The provisions contained in Sections 41 to 44, inclusive, and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369), relating to treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987. (2) The provisions contained in Public Law 99-121, relating to the treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987. (3) For each taxable year beginning on or after January 1, 1987, the provisions referred to by paragraphs (1) and (2) shall be applicable for purposes of this part in the same manner and with respect to the same obligations as the federal provisions, except as otherwise provided in this part. (d) When applying the Internal Revenue Code for purposes of this part, regulations promulgated in final form or issued as temporary regulations by "the secretary" shall be applicable as regulations under this part to the extent that they do not conflict with this part or with regulations issued by the Franchise Tax Board. (e) Whenever this part allows a taxpayer to make an election, the following rules shall apply: (1) A proper election filed with the Internal Revenue Service in accordance with the Internal Revenue Code or regulations issued by "the secretary" shall be deemed to be a proper election for purposes of this part, unless otherwise provided in this part or in regulations issued by the Franchise Tax Board. (2) A copy of that election shall be furnished to the Franchise Tax Board upon request. (3) (A) Except as provided in subparagraph (B), in order to obtain treatment other than that elected for federal purposes, a separate election shall be filed at the time and in the manner required by the Franchise Tax Board. (B) (i) If a taxpayer makes a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to the tax imposed under this part or Part 11 (commencing with Section 23001), that taxpayer is deemed to have made the same election for purposes of the tax imposed by this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001), as applicable, and that taxpayer may not make a separate election for California tax purposes unless that separate election is expressly authorized by this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), or by regulations issued by the Franchise Tax Board. (ii) If a taxpayer has not made a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to tax under this part or Part 11 (commencing with Section 23001), that taxpayer may not make a separate California election for purposes of this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), unless that separate election is expressly authorized by this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), or by regulations issued by the Franchise Tax Board. (iii) This subparagraph applies only to the extent that the provisions of the Internal Revenue Code or the regulation issued by "the secretary" authorizing an election for federal income tax purposes apply for purposes of this part, Part 10.2 (commencing with Section 18401) or Part 11 (commencing with Section 23001). (f) Whenever this part allows or requires a taxpayer to file an application or seek consent, the rules set forth in subdivision (e) shall be applicable with respect to that application or consent.(g) When applying the Internal Revenue Code for purposes of determining the statute of limitations under this part, any reference to a period of three years shall be modified to read four years for purposes of this part.(h)(g) When applying, for purposes of this part, any section of the Internal Revenue Code or any applicable regulation thereunder, all of the following shall apply: (1) References to "adjusted gross income" shall mean the amount computed in accordance with Section 17072, except as provided in paragraph (2). (2) (A) Except as provided in subparagraph (B), references to "adjusted gross income" for purposes of computing limitations based upon adjusted gross income, shall mean the amount required to be shown as adjusted gross income on the federal tax return for the same taxable year. (B) In the case of registered domestic partners and former registered domestic partners, adjusted gross income, for the purposes of computing limitations based upon adjusted gross income, shall mean the adjusted gross income on a federal tax return computed as if the registered domestic partner or former registered domestic partner was treated as a spouse or former spouse, respectively, for federal income tax purposes, and used the same filing status that was used on the state tax return for the same taxable year. (3) Any reference to "subtitle" or "chapter" shall mean this part. (4) The provisions of Section 7806 of the Internal Revenue Code, relating to construction of title, shall apply. (5) Any provision of the Internal Revenue Code that becomes operative on or after the specified date for that taxable year shall become operative on the same date for purposes of this part. (6) Any provision of the Internal Revenue Code that becomes inoperative on or after the specified date for that taxable year shall become inoperative on the same date for purposes of this part. (7) Due account shall be made for differences in federal and state terminology, effective dates, substitution of "Franchise Tax Board" for "secretary" when appropriate, and other obvious differences. (8) Except as otherwise provided, any reference to Section 501 of the Internal Revenue Code shall be interpreted to also refer to Section 23701.(i)(h) Any reference to a specific provision of the Internal Revenue Code shall include modifications of that provision, if any, in this part. SEC. 4. Section 18526 of the Revenue and Taxation Code is amended to read: 18526. A joint return may not be made under Section 18522 in any of the following situations: (a) After the expiration offourthree years from the last date prescribed by law for filing the return for the taxable year (determined without regard to any extension of time granted to either spouse). (b) After there has been mailed to either spouse, with respect to the taxable year, a notice of deficiency under Section 19033, if the spouse, as to that notice, files a protest under Section 19041 or appeal under Section 19045. (c) After either spouse has commenced a suit in any court for the recovery of any part of the tax for that taxable year. (d) After either spouse has entered into a closing agreement under Section 19441 with respect to the taxable year. SEC. 5. Section 19032 of the Revenue and Taxation Code is amended to read: 19032. (a) As soon as practicable after the return is filed, the Franchise Tax Board shall examine it and shall determine the correct amount of the tax. (b) The Franchise Tax Board shall have just cause in order to begin any audit and shall not begin any audit more than three years from the date the return is filed. SEC. 6. Section 19057 of the Revenue and Taxation Code is amended to read: 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 withinfourthree 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 thefour-yearthree-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. SEC. 7. Section 19058 of the Revenue and Taxation Code is amended to read: 19058. (a) If the taxpayer omits from gross income an amount properly includable therein which is in excess of 25 percent of the amount of gross income stated in the return, a notice of a proposed deficiency assessment may be mailed to the taxpayer withinsixthree years after the return was filed. Additionally, in the case of a corporation, a proceeding in court for the collection of the tax may be commenced without assessment at any time withinsixthree years after the return was filed. (b) For purposes of this section both of the following shall apply: (1) In the case of a trade or business, the term "gross income" means the total of the amounts received or accrued from the sale of goods or services (if the amounts are required to be shown on the return) prior to diminution by the cost of the sales or service. (2) In determining the amount omitted from gross income, there shall not be taken into account any amount which is omitted from gross income stated in the return if the amount is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Franchise Tax Board of the nature and amount of the item. SEC. 8. Section 19060 of the Revenue and Taxation Code is amended to read: 19060. (a) If a taxpayer fails to report a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority or fails to file an amended return as required by Section 18622, a notice of proposed deficiency assessment resulting from the adjustment may be mailed to the taxpayer at any time. (b) If, after the six-month period required in Section 18622, a taxpayer or the Internal Revenue Service reports a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority or files an amended return as required by Section 18622, a notice of proposed deficiency assessment resulting from the adjustment may be mailed to the taxpayer withinfourthree years from the date the taxpayer or the Internal Revenue Service notifies the Franchise Tax Board of that change or correction or files that return. SEC. 9. Section 19061 of the Revenue and Taxation Code is amended to read: 19061. In case of a deficiency described in Sections 24945 and 24946, and in Sections 1033(a)(2)(C) and 1033(a)(2)(D) of the Internal Revenue Code, the deficiency may be assessed at any time prior tothe expiration of the time therein providedthree years after the return was filed . SEC. 10. Section 19065 of the Revenue and Taxation Code is amended to read: 19065. If any taxpayer agrees with the United States Commissioner of Internal Revenue for an extension or renewals thereof of the period for proposing and assessing deficiencies in federal income taxes for any year, the period for mailing a notice of a proposed deficiency shall befourthree years after the return was filed or six months after the date of the expiration of the agreed period for assessing deficiencies in the federal income tax, whichever period expires the later. SEC. 11. Section 19066.5 of the Revenue and Taxation Code is amended to read: 19066.5. In the case of any information that is required to be reported to the Franchise Tax Board under Section 19141.2 or 19141.5, the time for assessment of any tax imposed by Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part with respect to any event or period to which that information relates shall not expire before the date that isfourthree years after the date on which the Franchise Tax Board is furnished the information required to be reported under Section 19141.2 or 19141.5, or within the periods provided in Section 19057, 19058, 19059, 19060, 19065, 24945, 24946, Section 1033(a)(2)(C) of the Internal Revenue Code, or Section 1033 (a)(2)(D) of the Internal Revenue Code, whichever period expires later. SEC. 12. Section 23051.5 of the Revenue and Taxation Code is amended to read: 23051.5. (a) (1) Unless otherwise specifically provided, the terms "Internal Revenue Code," "Internal Revenue Code of 1954," or "Internal Revenue Code of 1986," for purposes of this part, mean Title 26 of the United States Code, including all amendments thereto, as enacted on the specified date for the applicable taxable year as defined in paragraph (1) of subdivision (a) of Section 17024.5. (2) (A) Unless otherwise specifically provided, for federal laws enacted on or after January 1, 1987, and on or before the specified date for the taxable year, uncodified provisions that relate to provisions of the Internal Revenue Code that are incorporated for purposes of this part, shall be applicable to the same taxable years as the incorporated provisions. (B) In the case where Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) applies to any provision of the Internal Revenue Code that is incorporated for purposes of this part, Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) shall apply for purposes of this part in the same manner and to the same taxable years as it applies for federal income tax purposes. (3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle H (Repeal of Expired or Obsolete Provisions) of the Revenue Reconciliation Act of 1990 (Public Law 101-508) modified numerous provisions of the Internal Revenue Code and provisions of prior federal acts, some of which are incorporated by reference into this part. Unless otherwise provided, the provisions described in the preceding sentence, to the extent that they modify provisions that are incorporated into this part, are declaratory of existing law and shall be applied in the same manner and for the same periods as specified in the Revenue Reconciliation Act of 1990. (b) Unless otherwise specifically provided, when applying the Internal Revenue Code for purposes of this part, a reference to any of the following is not applicable for purposes of this part: (1) Domestic International Sales Corporations (DISC), as defined in Section 992(a) of the Internal Revenue Code. (2) Foreign Sales Corporations (FSC), as defined in Section 922(a) of the Internal Revenue Code. (3) A personal holding company, as defined in Section 542 of the Internal Revenue Code. (4) A foreign personal holding company, as defined in Section 552 of the Internal Revenue Code. (5) A foreign investment company, as defined in Section 1246(b) of the Internal Revenue Code. (6) A foreign trust as defined in Section 679 of the Internal Revenue Code. (7) Foreign income taxes and foreign income tax credits. (8) Federal tax credits and carryovers of federal tax credits. (c) (1) The provisions contained in Sections 41 to 44, inclusive, and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369), relating to treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987. (2) The provisions contained in Public Law 99-121, relating to the treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987. (3) For taxable years beginning on and after January 1, 1987, the provisions referred to by paragraphs (1) and (2) shall be applicable for purposes of this part in the same manner and with respect to the same obligations as the federal provisions, except as otherwise provided in this part. (d) When applying the Internal Revenue Code for purposes of this part, regulations promulgated in final form or issued as temporary regulations by "the secretary" shall be applicable as regulations issued under this part to the extent that they do not conflict with this part or with regulations issued by the Franchise Tax Board. (e) Whenever this part allows a taxpayer to make an election, the following rules shall apply: (1) A proper election filed with the Internal Revenue Service in accordance with the Internal Revenue Code or regulations issued by "the secretary" shall be deemed to be a proper election for purposes of this part, unless otherwise expressly provided in this part or in regulations issued by the Franchise Tax Board. (2) A copy of that election shall be furnished to the Franchise Tax Board upon request. (3) (A) Except as provided in subparagraph (B), in order to obtain treatment other than that elected for federal purposes, a separate election shall be filed with the Franchise Tax Board at the time and in the manner that may be required by the Franchise Tax Board. (B) (i) If a taxpayer makes a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to the tax imposed under this part or Part 10 (commencing with Section 17001), that taxpayer is deemed to have made the same election for purposes of the tax imposed by this part, Part 10 (commencing with Section 17001), and Part 10.2 (commencing with Section 18401), as applicable, and that taxpayer may not make a separate election for California tax purposes unless that separate election is expressly authorized by this part, Part 10 (commencing with Section 17001), or Part 10.2 (commencing with Section 18401), or by regulations issued by the Franchise Tax Board. (ii) If a taxpayer has not made a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to tax under this part or Part 10 (commencing with Section 17001), that taxpayer may not make a separate California election for purposes of this part, Part 10 (commencing with Section 17001), or Part 10.2 (commencing with Section 18401), unless that separate election is expressly authorized by this part, Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or by regulations issued by the Franchise Tax Board. (iii) This subparagraph applies only to the extent that the provisions of the Internal Revenue Code or regulations issued by "the secretary" authorizing an election for federal income tax purposes apply for purposes of this part, Part 10 (commencing with Section 17001), or Part 10.2 (commencing with Section 18401). (f) Whenever this part allows or requires a taxpayer to file an application or seek consent, the rules set forth in subdivision (e) shall apply to that application or consent.(g) When applying the Internal Revenue Code for purposes of determining the statute of limitations under this part, any reference to a period of three years shall be modified to read four years for purposes of this part.(h)(g) When applying, for purposes of this part, any section of the Internal Revenue Code or any applicable regulation thereunder, all of the following shall apply: (1) For purposes of Chapter 2 (commencing with Section 23101), Chapter 2.5 (commencing with Section 23400), and Chapter 3 (commencing with Section 23501), the term "taxable income" shall mean "net income." (2) For purposes of Article 2 (commencing with Section 23731) of Chapter 4, the term "taxable income" shall mean "unrelated business taxable income," as defined by Section 23732. (3) Any reference to "subtitle," "Chapter 1," or "chapter" shall mean this part. (4) The provisions of Section 7806 of the Internal Revenue Code, relating to construction of title, shall apply. (5) Any provision of the Internal Revenue Code that becomes operative on or after the specified date for that taxable year shall become operative on the same date for purposes of this part. (6) Any provision of the Internal Revenue Code that becomes inoperative on or after the specified date for that taxable year shall become inoperative on the same date for purposes of this part. (7) Due account shall be made for differences in federal and state terminology, effective dates, substitution of "Franchise Tax Board" for "secretary" when appropriate, and other obvious differences. (8) Any provision of the Internal Revenue Code that refers to a "corporation" shall, when applicable for purposes of this part, include a "bank," as defined by Section 23039. (9) Except as otherwise provided, any reference to Section 501 of the Internal Revenue Code shall be interpreted to also refer to Section 23701.(i)(h) Any reference to a specific provision of the Internal Revenue Code shall include modifications of that provision, if any, in this part. SEC. 13. Section 24273.5 of the Revenue and Taxation Code is amended to read: 24273.5. (a) Noncash patronage allocations from farmers' cooperative and mutual associations (whether paid in capital stock, revolving fund certificates, retain certificates, certificates of indebtedness, letters of advice or in some other manner that discloses the dollar amount of such noncash patronage allocations) may, at the election of the taxpayer, be considered as income and included in gross income for the taxable year in which received. (b) If a taxpayer exercises the election provided for in subdivision (a), the amount included in gross income shall be the face amount of such allocations. (c) If a taxpayer elects to exclude noncash patronage allocations from gross income for the taxable year in which received, such allocations shall be included in gross income in the year that they are redeemed or realized upon. (d) If a taxpayer exercises the election provided for in subdivision (c), the face amount of such noncash patronage allocations shall be disclosed in the return made for the taxable year in which such noncash patronage allocations were received. (e) If a taxpayer exercises the election provided for in subdivision (a) or (c) for any taxable year, then the method of computing income so adopted shall be adhered to with respect to all subsequent taxable years unless with the approval of the Franchise Tax Board a change to a different method is authorized. (f) If a taxpayer has made the election provided for in subdivision (c), then (1) the statutory period for the assessment of a deficiency for any taxable year in which the amount of any noncash patronage allocations are realized shall not expire prior to the expiration offourthree years from the date the Franchise Tax Board is notified by the taxpayer (in any manner as the Franchise Tax Board may by regulation prescribe) of the realization of gain on such allocations; and (2) that deficiency may be assessed prior to the expiration of thefour-yearthree-year period, notwithstanding the provisions of Section 19057 or the provisions of any other law or rule of law which would otherwise prevent such assessment. SEC. 14. Section 24945 of the Revenue and Taxation Code is amended to read: 24945. If a taxpayer has made the election provided in Section 24944(a), then-- (a) The statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on such conversion is realized, attributable to such gain shall not expire prior to the expiration offourthree years from the date the Franchise Tax Board is notified by the taxpayer (in such manner as the Franchise Tax Board may by regulations prescribe) of the replacement of the converted property or of an intention not to replace; and (b) Such deficiency may be assessed before the expiration of suchfour-yearthree-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.