Bill Text: CA AB2725 | 2009-2010 | Regular Session | Amended
Bill Title: Corporation taxes: penalty. [Track Bill]
Status: 2010-04-19 - In committee: Set, first hearing. Referred to REV. & TAX. suspense file. In committee: Set, first hearing. Held under submission. [AB2725 Detail]
Download: California-2009-AB2725-Amended.html
BILL NUMBER: AB 2725 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 14, 2010
AMENDED IN ASSEMBLY APRIL 8, 2010
INTRODUCED BY Assembly Member Nestande
FEBRUARY 19, 2010
An act to amend Section 19025 of, to add Section 19137
to, to add Chapter 9.2 (commencing with Section 19740) to Part 10.2
of Division 2 of, and to repeal Sections 19136.1, 19136.3, and 19138
of, the Revenue and Taxation Code, to amend Section 35.20 as added to
the Budget Act of 2009 by Assembly Bill 88 of the 2007-08 Regular
Session, and to repeal Section 8 of Chapter 1 of the First
Extraordinary Session of the Statutes of 2008, relating to taxation.
An act to repeal Section 19138 of the Revenue and
Taxation Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 2725, as amended, Nestande. Income taxation:
administration. Corporation taxes: penalty.
Existing law imposes a penalty on a taxpayer subject to the
Corporation Tax Law with a specified understatement of tax, as
defined, in an amount equal to 20% of that understatement, except as
specified.
This bill would delete the provisions imposing that penalty.
(1) Existing income tax laws require specified individuals to pay
estimated income taxes in installments and impose additional
liability for underpayments.
This bill would adjust the amount of those installments under
specified circumstances.
(2) Existing law modifies a specified provision of the Internal
Revenue Code, with respect to an individual's failure to pay
estimated income tax, by revising the amount of required installment
payments for each taxable year beginning on or after January 1, 2009.
Existing law also modifies that law by providing that a specified
provision shall not apply if the adjusted gross income on the
individual's return is $1,000,000 or greater, or $500,000 in the case
of a married individual filing a separate return.
This bill would repeal those provisions.
(3) Existing law imposes personal income and corporate taxes
collected and administered by the Franchise Tax Board.
This bill would require the Franchise Tax Board to administer a
tax amnesty program during the period beginning February 1, 2011, and
ending on March 27, 2011, inclusive, as provided.
(4) Existing law imposes a penalty on a taxpayer subject to the
Corporation Tax Law with a specified understatement of tax, as
defined, in an amount equal to 20% of that understatement.
This bill would repeal those penalty provisions.
This bill would also make changes regarding sections of the
Revenue and Taxation Code added by AB 1452 of the 2007-08 Regular
Session, relating to credits against taxes imposed by the Corporation
Tax Law and fees required under the Personal Income Tax Law.
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 19138 of the Revenue
and Taxation Code is repealed.
19138. (a) (1) A taxpayer subject to the tax imposed under Part
11 (commencing with Section 23001) with an understatement of tax in
excess of one million dollars ($1,000,000) for any taxable year shall
be subject to the penalty imposed under this section.
(2) For taxpayers that are required to be included in a combined
report under Section 25101 or authorized to be included in a combined
report under Section 25101.15, the threshold amount prescribed in
paragraph (1) shall apply to the aggregate amount of tax liability
under Part 11 (commencing with Section 23001) for all taxpayers that
are required to be or authorized to be included in a combined report.
(b) The penalty under this section shall be an amount equal to 20
percent of any understatement of tax. For purposes of this section,
"understatement of tax" means the amount by which the tax imposed by
Part 11 (commencing with Section 23001) exceeds the amount of tax
shown on an original return or shown on an amended return filed on or
before the original or extended due date of the return for the
taxable year. For any taxable year beginning before January 1, 2008,
the amount of tax paid on or before May 31, 2009, and shown on an
amended return filed on or before May 31, 2009, shall be treated as
the amount of tax shown on an original return for purposes of this
section.
(c) The penalty imposed by this section shall be in addition to
any other penalty imposed under Part 11 (commencing with Section
23001) or this part.
(d) Article 3 (commencing with Section 19031), relating to
deficiency assessments, shall not apply with respect to the
assessment or collection of any penalty imposed by subdivision (a).
(e) A refund or credit for any amounts paid to satisfy a penalty
imposed under this section may be allowed only on the grounds that
the amount of the penalty was not properly computed by the Franchise
Tax Board.
(f) (1) No penalty shall be imposed under this section on any
understatement to the extent that the understatement is attributable
to a change in law that is enacted, promulgated, issued, or becomes
final after the earlier of either of the following dates:
(A) The date the taxpayer files the return for the taxable year
for which the change is operative.
(B) The extended due date for the return of the taxpayer for the
taxable year for which the change is operative.
(2) For purposes of this subdivision, a "change of law" means a
statutory change or an interpretation of law or rule of law by
regulation, legal ruling of counsel, within the meaning of
subdivision (b) of Section 11340.9 of the Government Code, or a
published federal or California court decision.
(3) The Franchise Tax Board shall implement this subdivision in a
reasonable manner.
(g) No penalty shall be imposed under this section to the extent
that a taxpayer's understatement is attributable to the taxpayer's
reasonable reliance on written advice of the Franchise Tax Board, but
only if the written advice was a legal ruling by the Chief Counsel,
within the meaning of paragraph (1) of subdivision (a) of Section
21012.
(h) This section shall apply to each taxable year beginning on or
after January 1, 2003, for which the statute of limitations on
assessment has not expired.
SECTION 1. Section 19025 of the Revenue and
Taxation Code is amended to read:
19025. (a) If the amount of estimated tax does not exceed the
minimum tax specified by Section 23153, the entire amount of the
estimated tax shall be due and payable on or before the 15th day of
the fourth month of the taxable year.
(b) Except as provided in subdivision (c), if the amount of
estimated tax exceeds the minimum tax specified by Section 23153, the
amount payable shall be paid in installments as follows:
The following percentages of the
If estimated
the tax
requirements shall be paid on the 15th day of the--
of this ---------------------------------------
subdivision + + +
are first 4th 6th 9th 12th
met-- month month month month
Before the 25 25 25 25
1st day of (but
the 4th not less
month of the than the
taxable year. minimum
tax
provided
in
Section
23153
and any
tax
under
Section
23800.5)
After the
last day of
the 3rd
month and
before the
1st day of
the 6th
month of the
taxable year. __ 33 1/2 33 1/3 33 1/2
After the
last day of
the 5th
month and
before the
1st day of
the 9th
month of the
taxable year. __ __ 50 50
After the
last day of
the 8th
month and
before the
1st day of
the 12th
month of the
taxable year. __ __ __ 100
(c) If a wholly owned subsidiary is first subject to tax under
Section 23800.5 after the last day of the third month of the taxable
year of owner, the amount of the next installment of estimated tax
under subdivision (b) after the wholly owned subsidiary is subject to
tax under Section 23800.5 shall not be less than the amount of the
tax of the wholly owned subsidiary under Section 23800.5 and an
amount equal to that amount shall be due and payable on the date the
installment is required to be paid. For purposes of determining which
installment is the next installment of estimated tax under
subdivision (b), subdivision (b) shall be modified by substituting
"includes the tax of a wholly owned subsidiary under Section 23800.5"
for "exceeds the minimum tax specified by Section 23153."
(d) The amendments made to this section by Section 1 of Chapter 1
of the First Extraordinary Session of the Statutes of 2008 shall
apply to installments due for each taxable year beginning on or after
January 1, 2009, and before January 1, 2010.
(e) The amendments made to this section by Section 2 of Chapter 15
of the Fourth Extraordinary Session of the Statutes of 2009 shall
apply to installments due for each taxable year beginning on or after
January 1, 2010, and before January 1, 2011.
(f) The amendments made to this section by the act adding this
subdivision shall apply to installments due for each taxable year
beginning on or after January 1, 2011.
SEC. 2. Section 19136.1 of the Revenue and
Taxation Code is repealed.
SEC. 3. Section 19136.3 of the Revenue and
Taxation Code is repealed.
SEC. 4. Section 19137 is added to the Revenue
and Taxation Code, to read:
19137. (a) There shall be added to the tax for amounts in each
taxable year for which amnesty could have been requested a penalty in
an amount determined as follows:
(1) For amounts that are due and payable, as provided in
subdivision (f), on the last day of the tax amnesty period, an amount
equal to 50 percent of the accrued 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 last day of the tax amnesty period specified in
Section 19741.
(2) For amounts that become due and payable, as provided in
subdivision (f), after the last date of the tax amnesty period, an
amount equal to 50 percent of the interest computed under Section
19101 on any final amount, including final deficiencies and
self-assessed amounts, for the period beginning on the last date
prescribed by law for the payment of the tax for the year of the
deficiency, determined without regard to extensions, and ending on
the last day of the tax amnesty period specified in Section 19741. In
computing the final amount upon which the penalty is computed,
deposits made before the end of the tax amnesty period pursuant to
Section 19741 shall reduce the amount upon which the penalty is
computed. Payments or deposits made after the end of the tax amnesty
period shall not reduce the amount upon which the penalty is
computed.
(3) For purposes of paragraph (2), Sections 19107, 19108, 19110,
and 19113 shall apply in determining the amount computed under
Section 19101.
(b) 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.
(c) (1) This section shall not apply to any amounts that are
treated as paid during the tax amnesty period under paragraph (1) or
(2) of subdivision (b) of Section 19743.
(2) This section shall not apply to any amount attributable to an
assessment resulting from either of the following:
(A) An examination, within the meaning of Section 19032, where the
Franchise Tax Board first contacted the taxpayer in writing in
connection with that examination before March 27, 2011, and that
assessment was not final before March 27, 2011.
(B) A proposed assessment under Section 19087 where the Franchise
Tax Board first contacted the taxpayer in writing in connection with
failing to file a return before March 27, 2011, and that assessment
was not final before March 27, 2011.
(d) Article 3 (commencing with Section 19031), relating to
deficiency assessments, shall not apply with respect to the
assessment or collection of any penalty imposed by subdivision (a) or
the determination of when an amount is considered due and payable.
(e) A refund or credit for any amounts paid to satisfy a penalty
imposed under this section may be allowed only on the grounds that
the amount of the penalty was not properly computed by the Franchise
Tax Board.
(f) For purposes of this section, amounts are due and payable on
the following dates:
(1) For amounts of any liability disclosed on a return filed on or
before the date payment is due, with regard to any extension of time
to pay, the date the amount is established on the records of the
Franchise Tax Board, except that in no case shall it be prior to the
day after the payment due date.
(2) For amounts of any liability disclosed on a return filed after
the date payment is due, with regard to any extension of time to
pay, the date the amount is established on the records of the
Franchise Tax Board.
(3) For amounts of any liability determined under Section 19081 or
19082, pertaining to jeopardy assessments, the date the notice of
the Franchise Tax Board's finding is mailed or issued.
(4) For all other amounts of liability, the date the assessment is
final.
SEC. 5. Section 19138 of the Revenue and
Taxation Code is repealed.
SEC. 6. Chapter 9.2 (commencing with Section
19740) is added to Part 10.2 of Division 2 of the Revenue and
Taxation Code, to read:
CHAPTER 9.2. TAX AMNESTY 2011
19740. The Franchise Tax Board shall administer a tax amnesty for
taxpayers subject to Part 10 (commencing with Section 17001) and
Part 11 (commencing with Section 23001), as provided in this chapter.
19741. The tax amnesty shall be conducted during the period
beginning February 1, 2011, and ending March 27, 2011, inclusive,
pursuant to Section 19743. The tax amnesty shall apply to tax
liabilities for taxable years beginning on or after January 1, 2005,
and before January 1, 2009.
19742. (a) For any taxpayer who meets each of the requirements of
Section 19743, both of the following shall apply:
(1) The Franchise Tax Board shall waive all unpaid penalties and
fees imposed by this part for each taxable year for which tax amnesty
is allowed, but only to the extent of the amount of any penalty or
fee that is owed as a result of previous nonreporting or
underreporting of tax liabilities or prior nonpayment of any taxes
previously assessed or proposed to be assessed for that taxable year.
(2) Except as provided in subdivision (b), no criminal action
shall be brought against the taxpayer for the taxable years for which
tax amnesty is allowed for the nonreporting or underreporting of tax
liabilities or the nonpayment of any taxes previously assessed or
proposed to be assessed.
(b) This chapter shall not apply to violations of this part for
which, as of February 1, 2011, any of the following apply:
(1) A criminal complaint was filed against the taxpayer.
(2) The taxpayer is under criminal investigation.
(c) This chapter shall not apply to any nonreported or
underreported tax liability amounts attributable to a potentially
abusive tax avoidance transaction. For purposes of this chapter, a
"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.
(d) No refund or credit shall be allowed with respect to any
penalty or fee paid with respect to a taxable year prior to the time
the taxpayer makes a request for tax amnesty for that taxable year
pursuant to Section 19743.
(e) Notwithstanding Chapter 6 (commencing with Section 19301), no
claim for refund or credit for any amounts paid in connection with
the tax amnesty program under this chapter shall be allowed.
19743. (a) This chapter shall apply to any taxpayer that
satisfies all of the following requirements:
(1) During the tax amnesty period specified in Section 19741, is
eligible to participate in the tax amnesty.
(2) During the tax amnesty period specified in Section 19741,
files a completed amnesty application with the Franchise Tax Board
electing to participate in the tax amnesty.
(3) By June 1, 2011, does the following:
(A) (i) For any taxable year eligible for the tax amnesty where
the taxpayer has not filed any required return, files a completed
original tax return for that year.
(ii) For any taxable year eligible for the tax amnesty where the
taxpayer filed a return but underreported tax liability on that
return, files an amended return for that year.
(B) Pays in full any taxes and interest due for each taxable year
described in clauses (i) and (ii) of subparagraph (A), as applicable,
for which amnesty is requested, or applies for an installment
payment agreement under subdivision (b). For taxpayers who have not
paid in full any taxes previously proposed to be assessed, pays in
full the taxes and interest due for that portion of the proposed
assessment for each taxable year for which amnesty is requested or
applies for an installment payment agreement under paragraph (2) of
subdivision (b).
(4) In the case of any taxpayer that has filed for bankruptcy
protection under Title 11 of the United States Code, submits an order
from a Federal Bankruptcy Court allowing the taxpayer to participate
in the tax amnesty.
(b) (1) For purposes of complying with the full payment provisions
of paragraph (3) of subdivision (a), if the full amount due is paid
within the period set forth in paragraph (3) of subdivision (c) of
Section 19101 after the date the Franchise Tax Board mails a notice
resulting from the filing of an amnesty application or the full
amount is paid by June 1, 2011, the full amount due shall be treated
as paid during the amnesty period.
(2) (A) For purposes of complying with the full payment provisions
of subparagraph (B) of paragraph (3) of subdivision (a), the
Franchise Tax Board may enter into an installment payment agreement,
but only if final payment under the terms of that installment payment
agreement is due and is paid no later than June 30, 2012.
(B) Any installment payment agreement authorized by this
subdivision shall include interest on the outstanding amount due at
the rate prescribed in Section 19521.
(C) Failure by the taxpayer to comply fully with the terms of an
installment payment agreement under this subdivision shall render the
waiver of penalties and fees under Section 19742 null and void,
unless the Franchise Tax Board determines that the failure was due to
reasonable cause and not due to willful neglect.
(D) In the case of any failure described under subparagraph (C),
the total amount of tax, interest, fees, and all penalties shall
become immediately due and payable.
(c) (1) The application required under paragraph (2) of
subdivision (a) shall be in the form and manner specified by the
Franchise Tax Board, but in no case shall a mere payment of any taxes
and interest due, in whole or in part, for any taxable year
otherwise eligible for amnesty under this part be deemed to
constitute an acceptable amnesty application under this part. For
purposes of the prior sentence, the application of a refund from one
taxable year to offset a tax liability from another taxable year
otherwise eligible for amnesty shall not, without the filing of an
amnesty application, be deemed to constitute an acceptable amnesty
application under this part.
(2) The Legislature specifically intends that the Franchise Tax
Board, in administering the amnesty application requirement under
this part, make the amnesty application process as streamlined as
possible to ensure that participation in the tax amnesty be available
to as many taxpayers as possible without otherwise compromising the
Franchise Tax Board's ability to enforce and collect the taxes
imposed under Part 10 (commencing with Section 17001) and Part 11
(commencing with Section 23001).
(d) Upon the conclusion of the tax amnesty period, the Franchise
Tax Board may propose a deficiency upon any return filed pursuant to
subparagraph (A) of paragraph (3) of subdivision (a), impose
penalties and fees, or initiate criminal action under this part with
respect to the difference between the amount shown on that return and
the correct amount of tax. This action shall not invalidate any
waivers previously granted under Section 19742.
(e) All revenues derived pursuant to subdivision (c) shall be
subject to Sections 19602 and 19604.
19744. Notwithstanding any other provision of this chapter, if
any overpayment of tax shown on an original or amended return filed
under this article is refunded or credited within 180 days after the
return is filed, no interest shall be allowed under Section 19340 on
that overpayment.
19745. (a) The Franchise Tax Board may issue forms, instructions,
notices, rules, or guidelines, and take any other necessary actions,
needed to implement this chapter, specifically including any forms,
instructions, notices, rules, or guidelines that specify the form and
manner of any acceptable form of amnesty application described in
Section 19743.
(b) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this chapter.
19746. (a) The Franchise Tax Board shall conduct a public
outreach program and adequately publicize the tax amnesty so as to
maximize public awareness and to make taxpayers aware of tax amnesty.
In addition, the Franchise Tax Board shall make taxpayers aware of
the new and increased penalties associated with taxpayer failure to
participate in the tax amnesty.
(b) The Franchise Tax Board shall make reasonable efforts to
identify taxpayer liabilities and, to the extent practicable, shall
send written notice to taxpayers of their eligibility for the tax
amnesty. However, failure of the Franchise Tax Board to notify a
taxpayer of the existence or correct amount of a tax liability
eligible for amnesty shall not preclude the taxpayer from
participating in the tax amnesty, nor shall that failure be grounds
for abating the penalty imposed under Section 19137.
19747. Any taxpayer who has an existing installment payment
agreement under Section 19008 as of the start of the tax amnesty, and
who does not participate in the tax amnesty, may not be subject to
the penalty imposed under Section 19137 with respect to amounts
payable under that agreement.
SEC. 7. Section 35.20, as added to the Budget
Act of 2009 by Assembly Bill 88 of the 2007-08 Regular Session, is
amended to read:
Sec. 35.20. If legislation is enacted amending Section 13302 of
the Government Code to allow the accrual of tax payments due more
than two months after the close of the fiscal year for transactions
occurring in the prior fiscal year, the Department of Finance shall
provide guidance pursuant to Section 13310 of the Government Code
with respect to the methodology to be employed in determining
accruals and the timing of implementation of any changes in tax
accrual practices. This change to accrual treatment of corporation
and franchise tax payments shall apply to the 2007-08 fiscal year and
the balance of the accrual change to corporation income and
franchise tax payments shall be applied to the 2008-09 fiscal year
and subsequent fiscal years.
SEC. 8. Section 8 of Chapter 1 of the First
Extraordinary Session of the Statutes of 2008 is repealed.
