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MAY/JUNE 2002

Innocent Spouse Program


aims to be flexible, responsive
When two people file a joint state
income tax return, both individuals are
legally responsible for paying the
Governor proposes
entire tax. However, there are mandatory e-file
provisions in the Revenue and The Governor’s 2002-2003 initial Tax forgiveness for
Taxation Code authorizing relief for budget plan calls for the service members
qualifying taxpayers from this joint implementation of a mandatory
and several liability. e-file program.
who die in combat
In 1970, the United States Congress Page 2
Under such a program, tax preparers
first enacted legislation to provide who prepare more than 100
relief for married taxpayers who were California individual income tax
innocent spouses. The California returns for tax year 2001 must file all Ask the Advocate:
legislature thereafter passed a similar subsequently prepared individual
state innocent spouse provision. The income tax returns electronically.
Guidelines for
federal and state provisions for The objective, of course, is to filing protest
innocent spouse relief were later reduce the cost of processing
amended to broaden the availability Page 3
paperwork, both for preparers and
of relief. for the state.
In 1998, the federal innocent spouse This proposed mandatory e-file
provisions were substantially revised program could result in a shift of 2.5 Go online for fast
to provide greater opportunities for to 4.5 million returns from paper to help with our notices
relief. The following year California e-file, resulting in a savings of over
conformed to the new federal one million tax dollars in its first
Page 4
provisions by enacting the Taxpayer’s year of implementation.
Bill of Rights of 1999, which revised
and amended California’s Revenue The proposal, which will be
and Taxation Code section 18533. The presented as legislation in the near
new state provisions required future, will affect Revenue and October 15, 2002 –
significant changes in the Taxation Code sections 18409, Last day to e-file!
administration of our Innocent Spouse 18621.9, and 19170. It imposes a
$50 per return penalty on those tax
Page 4
Program, a virtual reorganization of
the program. practitioners or businesses that did
not comply.
During the reorganization of our
Innocent Spouse Program we We will provide you more Proposed legislation
conducted focus groups with tax information regarding mandatory
e-file as it becomes available. But as
affecting credits,
practitioners. This allowed the tax
practitioners to express their concerns the proposal develops, we’d like to conformity, losses,
regarding the program administration. know what you think. Please let us exclusions, etc.
As a result of such input and our know by contacting
reexamination of program Julie.Moreno@ftb.ca.gov. Page 5
administration, improvements to the

Continued on page 3
Page 2

State provides tax forgiveness for


Volume 00-3 May/June 2002
service members who die in combat
TAX NEWS is a bimonthly publication of
the Communications Services Bureau, The Victims of Terrorism Tax Relief Act of aggression (or the threat of such violence or
California Franchise Tax Board. Its primary aggression) against the United States or
objective is to provide information to income
2001 enacted earlier this year made some
tax practitioners about state income tax laws, revisions to combat zone/terrorist-military its allies.
regulations, policies and procedures. action tax forgiveness for federal purposes
Joint returns
Members of the Board: While California has not yet conformed to Only the decedent’s part of the joint income
Kathleen Connell, Chair these changes, service members who die tax liability is eligible for the refund or tax
State Controller
while serving in a combat zone or as a forgiveness (See Revenue and Taxation
John Chiang
Chair, State Board of Equalization result of wounds, injuries, or disease Code Section 17142.5).
B. Timothy Gage incurred in a combat zone; are entitled to a
Claiming tax forgiveness
Director, Department of Finance certain amount of tax forgiveness in
————————
If either of these tax forgiveness provisions
California.
Executive Officer: applies to a prior year’s tax that has been
Gerald H. Goldberg If a service person dies while on active paid, a claim for refund can be filed within
Editor: service in a declared combat zone, or as a the statute of limitations for refunds.
Marvin Meek
result of wounds, injuries, or disease
For the current year’s tax, file a timely
To update or correct your address or to incurred in a combat zone, the decedent’s
subscribe to TAX NEWS (send $12 original return to claim the tax forgiveness
entire income tax liability is forgiven for the
for a one-year subscription), write: and get a refund of tax withheld or estimated
year of death and for any earlier tax year
TAX NEWS tax payments.
PO Box 2708 beginning with the year of service in a
Rancho Cordova, CA 95741-2708 combat zone. Attach a certification from the Department
or call: (916) 845-7070 of Defense or Department of State to
This forgiveness provision also applies to
substantiate that the requirements for tax
To view TAX NEWS on the Internet or to service members serving outside the combat
request an electronic mail subscription, forgiveness have been met.
zone if:
contact FTB on our website:
www.ftb.ca.gov • The service was in direct support of a Note: If death occurred in a combat zone or
military operation in the combat zone, from wounds, disease or injury incurred in a
For information about a and combat zone, the deadline for filing a return
client’s account, contact:
• The service member qualified for special or claim for refund is extended under the
Tax Practitioner Support Unit
phone: (916)845-7057 military pay for duty subject to hostile California Combat Zone Extension. (See
fax: (916)845-6377 fire or imminent danger. Revenue and Taxation Code Sections 18570
and 18571.)
For recorded answers to questions on Terroristic or military action forgiveness
California taxes, to order forms, The tax liability is forgiven for an
or to check on a refund, call:
individual who:
(800)338-0505
From outside U.S. (916)845-6600 • Is a military or civilian U.S. employee at San Francisco
death, and
To send a facsimile about a
• Dies from wounds or injuries incurred in
field office relocates
client’s account, transmit to:
Electronic Correspondence a terroristic or military action outside the
(916)845-6377
Our San Francisco field office is
United States.
————————— scheduled to relocate in June. The
Information Center The forgiveness applies to the tax year new address will be:
(800)852-5711
From outside U.S. (916)845-6500
death occurred and for any earlier tax year
121 Spear Street,
beginning with the year before the year in
Hearing Impaired Suite 400
TDD (800)822-6268
which the wounds or injury occurred.
San Francisco CA
—————————
FTB on the Internet
A terroristic or military action is any 94105-1584
www.ftb.ca.gov terroristic activity primarily directed against
We don’t anticipate any
Printed on recycled paper the United States or its allies, and any
interruption of service.
military action involving the U.S. Armed
Forces and resulting from violence or

May/June 2002
Page 3

Innocent spouse and liability thresholds prescribed in


Revenue and Taxation Code section
Continued from page 1 19006(b). Such an amendment would Ask the Advocate
allow couples to resolve many state tax
program administration were made. Here liabilities within their marriage
are some of the improvements: dissolution process.
New Innocent Spouse Unit. We formed a New brochure. We have revised our
team of specialists dedicated solely to innocent spouse brochure to simplify the
the Innocent Spouse Program. The language and format. The new brochure
mission of the team is to relieve is now available. Debbie Newcomb
qualifying taxpayers of tax liabilities, Taxpayer
related penalties and interest, for which Innocent spouse application form. We Advocate
their spouse (or former spouse) is liable. are working on a simple form that will
These innocent spouse specialists, help taxpayers determine which innocent
dedicated to high quality customer spouse provisions may apply to their Q: My client does not agree with
service, are using a more proactive, circumstances and what information we the results of a Franchise Tax Board
service-oriented approach. need to consider their case. audit. How do I file a protest against
the Notice of Proposed
The following timeframes apply to all New web page. We are creating a web Assessment?
requests for relief other than those made page where the public can learn about
under protest. Within 48 hours of receipt the Innocent Spouse Program. By A: When we issue a Notice of
of a claim for relief, we’ll send written answering a few questions, they can Proposed Assessment, your client
notification to applicants or their determine whether they may qualify for has 60 days from the date we mailed
representatives letting them know that innocent spouse relief and what the notice to file a letter of protest
their claim has been received. Within 45 documentation needs to be submitted. with us. Information on the front of
days, our specialists will contact the notice indicates the deadline for
Our evaluation of the Innocent Spouse your client to file a protest. We also
applicants or their representatives by Program resulted in the conclusion that
telephone to discuss their requests and include instructions on how to file a
many more taxpayers may qualify for letter of protest with the Notice of
assist them in obtaining the relief from tax liabilities if they, or their
documentation needed to evaluate their Proposed Assessment. The protest
family law attorneys, possessed the does not stop the accrual of
case. When full relief cannot be granted, information necessary to properly
the specialist will assist in exploring other interest. Interest accrues on unpaid
address tax liabilities during divorce taxes from the original due date of
options for the voluntary resolution of proceedings. While taxpayers often
the liability. The specialists of the the return until the date we receive
attempt to address the issue of payment. We may suspend or
Innocent Spouse Unit are available outstanding, or potential, tax liabilities
between 8 a.m. and 5 p.m. at waive interest in limited
within their marital settlement circumstances.
(916) 845-7072. agreements, only a small number actually
An examination of our policies and follow the specific statutory provisions Your written protest must clearly
procedures. We have sought to create for obtaining relief as part of the divorce state what you are protesting and
policies and procedures that embody the process that are contained in Revenue why. Please include:
letter and spirit of the new provisions for and Taxation Code section 19006(b). The
A copy of the notice. If you cannot
innocent spouse relief and our focus on number of post-marital claims for
provide us a copy, send us the date
seamless customer service. This has innocent spouse relief would be greatly
of the Notice of Proposed
resulted in a more flexible approach to reduced by an increase in the number of
Assessment and the identifying
making sure applicants for relief satisfy divorce actions that accurately follow the
number that appears on the notice.
the statutory requirements for relief. provisions of section 19006(b).
Because of the change in the law, policies Your client’s name and social
To assist taxpayers in obtaining relief
and procedures, there have been a security number or entity
from tax liabilities, we are taking
greater number of applicants and a identification number.
advantage of opportunities to educate
greater percentage of applicants able to taxpayers, tax practitioners, and family
demonstrate entitlement to relief. law attorneys on the qualifying criteria.
Law changes. We are working on a A clearer understanding of the criteria Continued on page 12
legislative proposal to amend the income Continued on page 12
Page 4

Send clients online for fast help with our notices


If you have clients who haven’t filed than their predecessors were; and, there notice, and resolve their own case if
their tax year 2000 returns yet, they can are various ways taxpayers can respond they have already filed the required
probably expect to find a reminder from to the notices, including: return. The number is (866) 204-7902
us in their mailbox in the • Our public website at www.ftb.ca.gov/ For those who don’t like phones or don’t
upcoming weeks. INC. Taxpayers can receive have access to the Internet, they can
information geared towards the type always fax their response to the number
Notices are currently being mailed to
of notice they received, obtain listed on their notice or just mail it to the
approximately 700,000 individuals whom
additional time to reply to the notice, address shown on the notice. While
we have identified as possibly having a
download tax forms, and even resolve there are various options on how to
requirement to file, but for whom no 2000
their own case if they have already respond, the only thing that really
tax return is on file.
filed the required return. matters is that they do respond to the
The year 2000 is the second tax year for • Our Interactive Voice Response notice. Failure to do so will likely result in
which we generated notices using our phone system. Taxpayers can get an assessment being issued based on
new Integrated Nonfiler Compliance answers to commonly asked whatever information we have available,
system. The notices issued by this new questions, order tax forms, request and could include some avoidable
system are much easier to understand additional time to respond to the penalties, interest and fees.

Oct. 15, 2002 –


Last day to e-file! Interest Rates
You can still e-file California tax returns
For the period of July 1, 2002, through December 31, 2002, the adjusted interest
during the six-month extension period
rate on underpayments and overpayments of California income taxes will be
following the April 15, 2002 deadline.
six percent. Here is a chronicle of the interest rate since January 1991.
We will accept both refund and balance
due returns through October 15, 2002. Effective Date Rate Effective Date Rate
(Note: The extended due date for the
Internal Revenue Service is August 15, 1 July 1991 to 31 Dec. 1991 10% 1 Jan. 1997 to 30 June 1997 9%
2002.) Please remember that any taxes
owed must have been paid by April 15, 1 Jan. 1992 to 30 June 1992 10% 1 July 1997 to 31 Dec. 1997 9%
2002 to avoid any penalties and
interest. 1 July 1992 to 31 Dec. 1992 9% 1 Jan. 1998 to 30 June 1998 9%

Take advantage of the many benefits of 1 Jan. 1993 to 30 June 1993 8% 1 July 1998 to 31 Dec. 1998 9%
e-file. If you are not yet an approved
Electronic Return Originator (ERO) and 1 July 1993 to 31 Dec. 1993 7% 1 Jan. 1999 to 30 June 1999 8%
you want to e-file your clients’ tax
returns during the extension period, 1 Jan. 1994 to 30 June 1994 7% 1 July 1999 to 31 Dec. 1999 7%
complete the fillable form FTB 8633,
California Application to Participate in 1 July 1994 to 1 Dec. 1994 7% 1 Jan. 2000 to 30 June 2000 8%
the e-file Program, online at http://
www.ftb.ca.gov/elecserv/ in the section 1 Jan. 1995 to 30 June 1995 8% 1 July 2000 to 31 Dec. 2000 8%
for e-file professionals. Once you have
completed the application, print, sign, 1 July 1995 to 31 Dec. 1995 9% 1 Jan. 2001 to 30 June 2001 9%
and send it to us. You may fax the
completed application to our e-file Help 1 Jan. 1996 to 30 June 1996 9% 1 July 2001 to 31 Dec. 2001 9%
Desk at (916) 845-0287, or mail it to the
address shown on the application. 1 July 1996 to 31 Dec. 1996 9% Jan. 2001 to 30 June 2001 7%

May/June 2002
Page 5

Proposed Legislation
Among the measures recently introduced California Breast Cancer indexing in $500 increments thereafter.
or amended in the California Legislature Research Fund Individuals 50 years and older would
are assembly (AB) and senate (SB) bills be allowed to contribute an additional
SB 1365 (Speier)
affecting credits, conformity, losses, and $500 to an IRA or Roth IRA in 2002
As introduced February 6, 2002
exclusions, as well as several Franchise through 2005 and an additional $1,000
Tax Board sponsored bills. This bill would extend the operation of beginning in 2006.
the California Breast Cancer Research • Contributions to 401(k) plans and
These are only summaries. If you want to
Fund from January 1, 2003, to other employer-sponsored plans
learn more about a legislative measure
January 1, 2008. would increase to $11,000 in 2002, and
you read about here, go to our Law and
would increase incrementally to
Legislation webpage located on our California Tax Commission $15,000 by 2006 and thereafter, with
Website, www.ftb.ca.gov. You also can
ACA 13 (Leonard) indexing in $500 increments thereafter.
find comprehensive information about all
As amended January 7, 2002 Individuals would be allowed to
legislative measures on the Internet at
contribute to both 457 and
www.leginfo.ca.gov, the Official This bill would propose a state 401(k) plans.
California Legislation Information constitutional amendment that would:
Website. • Change the name of the five-member This bill also would conform to the
Board of Equalization to the California increase in the federal child and
Amnesty dependent care (CDC) credit. Thus,
Tax Commission, and
SB 1439 (Oller) Require the California Tax taxpayers could claim the same dollar
As introduced February 14, 2002 Commission to collect and administer amount of credit for state and federal
taxes on or measured by income, purposes. (EGTRRA increased the
Under the Administration of Franchise maximum amount of eligible expenses
and Income Tax Law, this bill would herein referred to as income taxes.
from $2,400 to $3,000 and from $4,800 to
require us to conduct a penalty amnesty Conformity $6,000, and increased the maximum credit
program from January 1, 2003, to June 30, from 30 percent to 35 percent. The
2003, for liabilities under the Personal AB 1122 (Corbett)
As amended March 20, 2002 federal changes also changed the phase-
Income Tax Law and the Corporation Tax out of the credit (but not below 20
Law for taxable years beginning before This bill would conform state law to child percent) from $15,000 to $43,000 of
January 1, 2002. and dependent care credit, pension plan, adjusted gross income).
For any taxpayer who meets the Education Individual Retirement
Arrangement (Coverdell Education In addition, this bill would conform state
requirements of the amnesty program, we law to the federal changes made to
would waive all penalties that are owed Saving Account or Coverdell Account),
and Qualified Tuition Plan changes qualified tuition plans that would permit
as a result of the nonreporting or the transfer of credits from one qualified
underreporting of tax liabilities for the contained in the Federal Economic
Growth and Tax Relief Reconciliation Act tuition program to another qualified
taxable years for which amnesty is tuition program for the benefit of the
requested. In addition, criminal action of 2001. (EGTRRA). In particular, this bill
would increase the following limitations: same beneficiary.
would not be brought against the
taxpayer for the taxable years for which • Education Individual Retirement This bill also would conform to the
amnesty has been requested. The Arrangement (IRA) annual federal treatment of gifts of appreciated
amnesty would not apply to the contribution limits would increase property for alternative minimum tax
nonpayment of any taxes for which a from $500 to $2,000 and would permit purposes, estimated tax payments of
notice of proposed assessment has been contributions to be used for individuals, and the disallowance of club
issued, unless the notice was issued elementary and secondary dues.
prior to January 1, 1999, and enforcement school expenses.
• IRA and Roth IRA contribution limits AB 1743 (Campbell, John)
action had not been taken. As amended January 29, 2002
would increase to $3000 in 2002
through 2004, and eventually to This bill would conform state law to the
$5,000 by 2008 and thereafter, with
Continued on page 6
Page 6

Proposed AB 2670 (Wyman)


As introduced February 22, 2002
In particular, this bill would eliminate the
80 percent income subject to withholding
Legislation Under the Personal Income Tax Law and
safe harbor, and would conform to the 90
percent current year tax liability safe
the Corporation Tax Law, this bill would
Continued from page 5 harbor. In addition, the bill would require
exempt from taxation any California
that alternative minimum tax be included
pension plan, Education Individual resident who died while on active duty
in the computation of required estimated
Retirement Arrangement (Coverdell with any branch of the armed forces of
tax payments. This bill would not
Education Saving Account or Coverdell the United States during the taxable year,
conform to the federal $1,000 de minimis
Account), and Qualified Tuition Plan regardless of the cause of death.
safe harbor but instead would retain the
changes contained in the Federal
AB 2978 (Assembly Revenue and state $200 de minimis exception.
Economic Growth and Tax Relief
Reconciliation Act of 2001. In addition, Taxation Committee)
SB 657 (Scott)
this bill would conform state law to the As introduced February 27, 2002
As amended February 26, 2002
two new federal retirement related credits: This bill would conform state law to the
This bill would conform state law to the
• A credit up to $2,000 for specified federal changes enacted by the Victims of
pension plan, Education IRA (Coverdell
individuals for qualified Terrorism Relief Act of 2001 (Public Law
Education Savings Account), and
retirement savings. 107-134), relating to items that are
Qualified State Tuition Plan Changes
• A credit up to $500 for the first three specifically excluded from gross income.
contained in the Federal Economic
years for pension plan start-up costs. Accordingly, the following items would
Growth and Tax Relief Reconciliation Act
AB 1744 (Corbett) be excluded:
of 2001. This bill also would conform to
As amended January 31, 2002 • Specified survivor benefits and the federal change denying the
insurance payments received as deduction for club dues and the
This bill would conform to the Economic compensation for deaths or injuries deduction of excess compensation for
Growth & Tax Relief Reconciliation Act of incurred as a result of terrorist attacks officers of a publicly held company.
2001 (EGTRRA) relating to Internal against the United States.
Revenue Code Section 457 rollovers and • Any discharge of indebtedness by SB 1256 (Brulte)
purchase of service credits by reason of the death or injury of a As amended February 25, 2002
public employees. person arising from terrorists’ attacks
This bill would conform state law to the
occurring on or after September 11,
AB 1834 (Wyland) pension plans, Education IRA (Coverdell
2001, and before January 1, 2002, also
As introduced January 23, 2002 Education Saving Account or Coverdell
would be excluded from income.
Account), and Qualified Tuition Plan
This bill would allow taxpayers to carry • In addition, this bill would conform to
changes contained in the Federal
forward 100 percent of the net operating the federal extension of time for the
Economic Growth and Tax Relief
losses incurred in taxable years payment of tax liabilities owed by
Reconciliation Act of 2001.
beginning on or after January 1, 2003. persons affected by terrorist attacks
This is accomplished by limiting the 60 occurring on or after September SB 1724 (Speier)
percent net operating losses carryover 11, 2001. As introduced February 21, 2002
modification of federal law to apply only • Additionally, insurance benefits paid
to taxable years beginning on or after by an exempt charitable organization This bill would further conform state law
January 1, 2002, and before by reason of terrorists’ attacks on or with federal income tax laws by denying a
January 1, 2003. after September 11, 2001, and before deduction for certain lobbying and
January 1, 2002, would be treated as political expenditures.
This bill would limit the 10-year net
payments made in the furtherance of Conservation
operating losses carryover modification
the charitable purpose of
of federal law to apply only to taxable AB 2630 (Harman)
that organization.
years beginning on or before January 1, As introduced February 22, 2002
2003, and thus conform to the federal 20- SB 145 (Perata)
year carryover period for net operating As amended January 29, 2002 Under the Personal Income Tax Law and
losses incurred in taxable the Corporation Tax Law, this bill would
Under the Administration of Franchise delete the 5-year limitation on the
years beginning on or after
and Income Tax Law, this bill would carryover of any excess qualified
January 1, 2003.
conform to the federal safe harbor
provisions related to required estimated
tax payments. Continued on page 7

May/June 2002
Page 7

Proposed eligible amount paid or incurred by a


qualified taxpayer for continued group
thereof. The second credit would equal
50 percent of the cost paid or incurred by
Legislation health plan coverage. the taxpayer during the taxable year for
providing home-school education for
Continued from page 6 AB 2164 (Cogdill)
kindergarten, grades 1 to 12, inclusive, or
As introduced February 20, 2002
any portion thereof, for any child of the
conservation contribution and would
Under the Personal Income Tax Law, this taxpayer.
allow a carryover to all succeeding
taxable years until exhausted. bill would allow a credit equal to 25
AB 2720 (Aanestad)
percent of the net tax of an individual
As introduced February 22, 2002
Corporation Income Tax who is a qualified medical
care professional. Under the Personal Income Tax Law, this
AB 2560 (Vargas)
bill would allow a 100 percent credit for
As introduced February 21, 2002 AB 2304 (Wyman)
the costs of medical and health services
As introduced February 21, 2002
Under the Corporation Tax Law, this paid or incurred by a qualified
bill would: Under the Personal Income Tax Law and senior citizen.
• Change the apportionment formula the Corporation Tax Law, this bill would
AB 2694 (Hollingsworth)
used to determine the amount of allow a credit equal to a specified
As introduced February 22, 2002
business income taxable by California percentage of qualified wages. The
AB 2702 (Zettel)
to a single-factor apportionment percentage would vary from 50 percent
As introduced February 22, 2002
formula based on sales; to 10 percent, depending on the
• Require certain corporations to use taxable year. Under the Personal Income Tax Law and
the current three-factor formula based the Corporation Tax Law, this bill would
AB 2487(Bates)
on property, payroll, and double- provide complete conformity to the
As introduced February 21, 2002
weighted sales; and federal credit percentages as of January
SB 1631 (Morrow)
• Allow extractive businesses to 1, 1998, for the alternative incremental
As introduced February 21, 2002
choose either the current three-factor research expense credit. Thus, the credit
formula based on property, payroll, Under the Personal Income Tax Law and percentages would be increased from
and single-weighted sales, or use the the Corporation Tax Law, this bill would 1.49 percent to 1.65 percent, from 1.98
new single-factor formula. allow a credit in an amount equal to the percent to 2.2 percent, and from 2.48
amount of property tax paid or incurred percent to 2.75 percent.
AB 1875 (Nakano)
As amended March 7, 2002 that is attributable to any rental housing
AB 2705 (Wyland)
to accommodate members of the armed
As introduced February 22, 2002
This bill would allow certain corporations forces and their families.
to dissolve by filing articles Under the Personal Income Tax Law and
of dissolution. AB 2664 (Hollingsworth)
the Corporation Tax Law, this bill would
As introduced February 22, 2002
allow a credit equal to 50 percent of the
Credits
Under the Personal Income Tax Law and amount paid or incurred during the
AB 1862 (Wyman) the Corporation Tax Law, this bill would period from June 1, 2000, to February 7,
As introduced January 31, 2002 amend the existing teacher retention 2001, inclusive, by a small-to-medium size
SB 1776 (Poochigian) credit by allowing teachers with at least commercial customer, that represents
As introduced February 21, 2002 one year of service rather than four years excess energy costs.
of service to claim the credit. In addition,
Under the Personal Income Tax Law and SB 1273 (Haynes)
the credit amount would be increased
the Corporation Tax Law, this bill would As introduced January 15, 2002
and would vary from $750 to $2,000
allow a credit to employers equal to 100
depending on the number of years of Under the Personal Income Tax Law and
percent of the benefits paid to a qualified
service rather than $250 to $1,500. Under the Corporation Tax Law, this bill would
employee who is called to active military
the Personal Income Tax Law and the allow a credit equal to 70 percent of the
duty as a result of Operation
Corporation Tax Law, this bill also would amount of qualifying contributions to a
Enduring Freedom.
establish two new credits. First, the bill nonprofit educational assistance
AB 1885 (Liu) would allow a credit for each child of the organization, as defined. The credit
As introduced February 5, 2002 taxpayer who is enrolled in and attends a
private school located in this state and
Under the Personal Income Tax Law, this providing education for kindergarten,
bill would allow a credit equal to the grades 1 to 12, inclusive, or any part Continued on page 8
Page 8

Proposed SB 1462 (Morrow)


As introduced February 15, 2002
2006, the sunset date for our Court
Ordered Debt collection program.
Legislation This bill would express Legislative AB 2414 (Campbell, Bill)
Continued from page 7 findings and declarations that it is in the As introduced February 21, 2002
best interests of this state to provide a
would not be applicable to contributions Under the Administration of Franchise
small measure of relief in the form of a $50
designated for the benefit of a and Income Tax Law, this bill would
credit against the personal income tax
specific student. generally provide that an assessment
liability of certain surviving spouses of
would become uncollectable after 10
SB 1274 (Haynes) military retirees.
years have elapsed from the date an
As introduced January 15, 2002 SB 1786 (Karnette) assessment of tax imposed on an
This bill would allow a credit equal to the As introduced February 22, 2002 individual is due and payable. We would
fair market value of the services rendered be required to release, withdraw, or
Under the Personal Income Tax Law, this
without charge by an attorney, physician, otherwise terminate any action taken on
bill would allow a credit to a faculty
or surgeon licensed to practice in this an uncollectable assessment of tax.
member or academic employee of a
state for any nonprofit charitable community college. The credit amount AB 2680 (Cox)
organization located in this state that would vary from $500 to $1,500 As introduced February 22, 2002
provides services to the poor. depending upon years of service.
Under the Administration of Franchise
SB 1275 (Haynes) SB 1940 (Speier) and Income Tax Law, this bill would
As introduced January 15, 2002 As introduced February 22, 2002 provide that unless a taxpayer agrees to
Under the Personal Income Tax Law, this an extension of time for issuance of a
Under the Personal Income Tax Law, this
bill would allow a 100 percent credit for notice of action, we must issue a notice
bill would allow a credit, not to exceed
the amount paid or incurred for a gun of action upon a protest no later than two
$150 per individual, for qualified personal
safe or other firearm safety equipment years from the date the protest was filed
travel expenses.
that complies with standards specified in by the taxpayer.
the Penal Code. The bill would specifically exclude travel
SB 1400 (Romero)
for which the expenses would otherwise
SB 1300 (Haynes) As introduced February 13, 2002
be deductible in connection with a trade
As introduced January 18, 2002 or business activity engaged in for the This bill would allow a taxpayer to post a
This bill would enact the California New production of income. bond instead of paying the disputed
Market Venture Capital Program Act of income or franchise tax while challenging
Under the Personal Income Tax Law and
2002, requiring the Technology, Trade an assessment in court. The bond must
the Corporation Tax Law, this bill also
and Commerce Agency to establish a new guarantee the amount of tax assessed
would provide that state law does not
program by the same name. Under the and any interest and penalties that may
conform to the federal denial of
Personal Income Tax Law and the be expected to be due within the first
deductions for club dues.
Corporation Tax Law, this bill would year of the court action.
establish two credits. The first credit Debt collection
SB 1477 (Speier)
would be for qualified equity investments AB 1845 (Correa) As introduced February 19, 2002
in qualified community development As introduced January 28, 2002
entity. The second credit would equal 20 Under the Government Code, this bill
percent of the fair market value of any This bill would allow any lien that is filed would require the Student Aid
qualified contribution to a qualified to enforce either a court-ordered Commission to enter into an interagency
donee that was a nonprofit corporation restitution fine or victim’s restitution agreement with us to collect all or part of
including a land conservancy or land order to take priority over any state the commission’s outstanding accounts
trust for the principal purpose to enable tax lien. receivable. The Student Aid Commission
housing or community development would be required to develop criteria and
AB 2388 (La Suer) policy that would define when an
projects for persons who are
As introduced February 21, 2002 account is delinquent and subject to
disadvantaged, have a transitional need,
have low-income or are a member of a Under the Administration of Franchise collection by us. This policy and criteria
targeted group as defined by the Internal and Income Tax Law, this bill would also may include a minimum dollar
Revenue Code. extend from January 1, 2003, to January 1, threshold for delinquencies that would
be referred to us.
Continued on page 9

May/June 2002
Page 9

Proposed AB 1971 (Matthews)


As introduced February 14, 2002
AB 2977 (Assembly Jobs, Economic
Development, and Economy)
Legislation Under the Government Code, this bill
As introduced February 26, 2002
would authorize the Technology, Trade This bill would allow the governing body
Continued from page 8 and Commerce Agency to designate an of a city or county to apply to the
Disasters additional two enterprise zones. Thus, Technology, Trade and Commerce
the total number of enterprise zones Agency for the reconfiguration of the
SB 219 (Scott)
would increase from 42 to 44. geographic boundaries of an existing
As amended January 7, 2002
enterprise zone within its jurisdiction and
AB 2342 (Salinas)
For taxpayers affected by a presidentially would allow the Technology, Trade and
As introduced February 21, 2002
declared disaster, this Franchise Tax Commerce Agency to approve
Board sponsored bill would increase from Under the Government Code, this bill that application.
90 days to 120 days the filing extension would authorize the Technology, Trade
Exclusions
period, and extend the waiver of interest and Commerce Agency to designate two
provision to 120 days. This bill would additional enterprise zones for a total of AB 1842 (Campbell, Bill)
apply to any disaster that occurs on or 44 enterprise zones. In addition, this bill As introduced January 28, 2002
after September 11, 2001. would require Technology, Trade and
Under the Personal Income Tax Law and
Commerce Agency in designating
Electronic filing the Corporation Tax Law, this bill would
enterprise zones to also consider
provide for an exclusion from state gross
AB 2781 (Cohn) geographic location and the community
income of 50 percent of any gain from the
As introduced February 25, 2002 size of the proposed enterprise zone in
sale or exchange of a capital asset, as
order to evenly distribute enterprise
This bill would prohibit us from: defined by the Internal Revenue Code,
zones throughout the state and among
• Offering expanded online tax return held for more than one year.
communities with varying sizes.
filing, or developing or making
AB 1887 (Hollingsworth)
available electronic products or AB 2562 (Vargas)
As introduced February 5, 2002
services that would, in any way, As introduced February 21, 2002
determine or calculate a taxpayer’s Under the Personal Income Tax Law, this
Under the Personal Income Tax Law and
income tax liability. bill would exclude from California gross
the Corporation Tax Law, this bill would
• Employing the use of any system, income any social security retirement
provide that the enterprise zone sales
software or computer code, online or income and benefits and any income from
and use tax credit (on qualified property)
interactive system, or associated retirement annuities attributable to
and the enterprise zone hiring credit,
technologies that electronically federal civil service.
including any credit carryover from prior
record, capture, store, observe, or
years, may be transferred, pursuant to an AB 1897 (Zettel)
monitor any usage or preparation of
agreement to provide financing to the As introduced February 6, 2002
electronic tax forms transmitted by a
transferor, to any other taxpayer in the
taxpayer, other than the final form Under the Personal Income Tax Law and
state if the credit used by the transferee
transmitted by, or on behalf of, the the Corporation Tax Law, this bill would
does not exceed the amount of credit that
taxpayer to us. exclude from California gross income 50
would otherwise be available to the
Enterprise zones transferor. Under the Corporations Code, percent of any gain from the sale or
this bill would require the Technology, exchange of a capital asset held for more
AB 1846 (Correa) Trade and Commerce Agency to establish than one year. A capital asset would be
As introduced January 28, 2002 a disaster loan guarantee program for the defined by reference to the Internal
border development zone. TTCA would Revenue Code.
Under the Government Code, this bill
would generally extend the 20-year allocate funds to the City of Calexico for AB 1968 (Nation)
designation period to all enterprise zones the Small Business Development Center As amended March 20, 2002
that meet specified criteria by removing in this city and to the City of San Diego
the provision that limits the 20-year for the California Mexico Trade Under the Personal Income Tax Law and
designation to only those zones Assistance Center in San Ysidro. the Corporation Tax Law, this bill would
designated prior to 1990. exclude from California gross income any
amount received as a rebate, voucher, or
other financial incentive issued by the

Continued on page 10
Page 10

SB 1662 (Peace) other transfer of the assets of the Lake


Proposed As introduced February 21, 2002 Shastina Mutual Water Company to the
Legislation Under the Personal Income Tax Law, this
Lake Shastina Community Services
District, is not a transfer subject to tax if
bill would provide that any gain from the
Continued from page 9 certain requirements are met.
sale or exchange of a capital asset, as
California Energy Commission, the Public defined, that is held for more than one Marginal tax rate
Utility Commission, or a local publicly year would be subject to reduced tax
owned electric utility for any expenses SB 1255 (Burton)
rates of 2.323 percent or 4.65 percent
paid or incurred for the purchase or As introduced January 9, 2002
depending upon taxable income and
installation of any of the following filing status. Under the Personal Income Tax Law, this
devices designed to serve all or part of bill would add a 10 percent and an 11
that taxpayer’s electrical or thermal load: SB 2051 (Bowen)
percent marginal tax rate for individuals
As introduced February 22, 2002
• A thermal or solar system, as defined with taxable income over specified
by the Public Resources Code, This Franchise Tax Board sponsored bill amounts. The income tax brackets would
• A wind energy system device that would exempt tax matters related to tax be adjusted for inflation for taxable years
produces electricity, or liability from the Information Practices beginning on or after January 1, 2003.
• A fuel cell generating system that Act provisions relating to the record
produces electricity. Medical savings accounts
amendment process and the Information
AB 2168 (Bogh) Practices Act cause of action for not SB 1487 (McClintock)
As introduced February 20, 2002 complying with the amendment process. As introduced February 19, 2002

Under the Personal Income Tax Law, this Illegal activities Under the Personal Income Tax Law, for
bill would exclude from California gross taxable years beginning on or after
AB 1910 (Matthews)
income up to $10,000 of retirement January 1, 2002, this bill would provide
As introduced February 7, 2002
income or retirement benefits. The that the federal provisions relating to
exclusion would not apply to a This Franchise Tax Board sponsored bill limitation on the number of taxpayers
taxpayer filing: would allow individuals to be prosecuted having medical savings accounts and the
• As an individual who had total under the Revenue and Taxation Code for determination of whether numerical limits
income in excess of $50,000, or illegally obtaining state-issued income are exceeded, would not apply. Thus, an
• A married couple filing a joint return, tax refunds by direct deposit return or otherwise eligible individual would be
a surviving spouse, or a head of any other method. The bill also would permitted a deduction for the amount
household with total income in excess allow us to recoup related deposited in a medical savings accounts.
of $100,000. investigation costs.
Miscellaneous
AB 2358 (Bates) Information reporting
AB 2979 (Assembly Revenue and
As introduced February 21, 2002 AB 2449 (Correa) Taxation Committee)
Under the Personal Income Tax Law, this As introduced February 21, 2002 As introduced February 27, 2002
bill would exclude from California gross This bill would require establishment This Franchise Tax Board sponsored bill
income any gain from the acquisition, owners who run a beauty or barbering would:
sale, or exchange of a stock option in a business to file quarterly reports with us
qualified high technology business 1. Amend the Government Code to delete
disclosing the Bureau of Barbering and
located in this state that is received by an an obsolete reference.
Cosmetology license number of each
employee, officer, or director of, or 2. Give us statutory authority both to
booth renter or independent contractor
investor in, that business. accept e-signatures for returns and to
who is either currently working in the
prescribe procedures for e-signatures
AB 2557 (Leach) owner’s facility, or that worked in the
for returns.
As introduced February 21, 2002 facility during the quarter which is the
3. Include clerical error as a basis for an
subject of the report.
Under the Personal Income Tax Law, this income tax assessment.
bill would exclude from gross income any Lake Shastina Mutual Water Company 4. Address an administrative problem in
distribution under a Scholarshare Trust the processing of the Child and
SB 1977 (Johannessen)
agreement to a beneficiary. Dependent Care Credit.
As introduced February 22, 2002
Under the Corporation Tax Law, this bill
Continued on page 11
would provide that the contribution or

May/June 2002
Page 11

assessments are federal determinations Settlement


Proposed that must be reported to us.
SB 1445 (Alpert)
Legislation 8. Allow us to identify vexatious
requestors and limit the number of
As introduced February 15, 2002
Continued from page 10
information requests that individual This Franchise Tax Board sponsored bill
5. Make the following changes to certain could make. would make two enhancements to our
penalties assessed by us: 9. Explicitly provide that dividends paid authority to settle tax disputes:
• Require taxpayers to pay the full by a Regulated Investment Company to • Increase the small case threshold
amount of the frivolous return California corporate shareholders may (where the Executive Officer and
penalty prior to filing a claim for not obtain the benefit of the exclusion Chief Counsel may approve a
refund, and from income allowed under existing law, settlement) from $5,000 to $7,500 and
• Allow us to cross-claim for the except for dividends received from index that amount in future years to
balance of a partially paid penalty for corporations in the Regulated Investment reflect inflation, and
promoting an abusive tax shelter or Company portfolio that are unitary with • Allow a settlement agreement to
aiding and abetting an that corporation. include tax matters that would
understatement of tax liability. otherwise be included in a
Net operating losses
6. Make the following changes to the closing agreement.
SBX3 7 (Haynes)
Senior Citizens Homeowners and Renters Tax Me More Act
As introduced January 28, 2002
Property Tax Assistance Laws:
• Update statutory cross-references, SB 1288 (McClintock)
Under the Personal Income Tax Law and
• Remove outdated language, and As introduced January 17, 2002
the Corporation Tax Law, this bill would
• Change the start date for filing a increase from 65 percent to 100 percent Under the Administration of Franchise
Homeowners and Renters Property the percentage of the net operating loss and Income Tax Law, this bill would
Tax Assistance claim. that may be carried forward, and would create the Tax Me More Act, and would
increase to 20 the number of years the allow a taxpayer to pay additional taxes in
SB 1660 (Scott)
net operating loss may be carried excess of the taxes owed for the taxable
As introduced February 21, 2002
forward. Both provisions would conform year, if any.
This bill would make the following to federal law and would apply to net
changes: operating losses incurred in taxable years Theft loss
beginning on or after January 1, 2003. SB 1602 (Oller)
1. Allow the statute of limitations for
filing income tax refund claims to be Nonresident, part-year resident As introduced February 20, 2002
suspended when a taxpayer is financially Under the Personal Income Tax Law, this
AB 2980 (Assembly Revenue and
disabled. bill would allow a taxpayer the option of
Taxation Committee)
2. Eliminate obsolete transition rules claiming a theft loss in the taxable year
As introduced February 27, 2002
relating to conformity to federal law on in which:
pooled debt obligations. This Franchise Tax Board sponsored bill • The taxpayer discovers the loss; or
3. Prohibit taxpayers from amending would repeal the provision that disallows • The taxable year in which the loss
certain tax related items using the the deduction for alimony payments for was sustained provided that the thief
Information Practices Act of 1977. nonresidents and part-year residents for was convicted of committing
4. Extend the sunset date of our authority the portion of the year for which the that theft.
to collect on amounts imposed by a taxpayer was not a resident of California.
court. Tourism
5. Require a taxpayer to make his or her Pierce’s Disease
SB 1286 (Haynes)
request for abatement of interest during AB 2640 (Strickland) As amended March 6, 2002
the administrative process and prohibit a As introduced February 22, 2002
later request. For qualified taxpayers engaged in a
6. Provide that a substantial Under the Personal Income Tax Law and business in the tourism industry, this bill
understatement of tax exists if EITHER the Corporation Tax Law, this bill would would increase from 65 percent to 100
the federal threshold is met for federal tax expand the net operating loss deduction percent the percentage of the net
purposes or the existing California attributable to Pierce’s disease that is
threshold is met. currently available to taxpayers
7. Clarify that federal penalty conducting a farming business to
taxpayers engaged in a nursery business. Continued on page 12
Page 12

Proposed Legislation client’s position. You should also


Ask the Advocate
include a statement of facts.
Continued from page 11
Continued from page 3
If your client wants to have an oral
Your client’s current mailing hearing, you must state this request in
operating loss that may be deducted, and
address and your daytime phone the letter of protest. You or your client
would increase to 20 the number of years
number. should sign and date the letter. Mail
the net operating loss may be
carried forward. The amount in protest and taxable your protest to:
year involved. Protest Section
Voluntary Contributions
An explanation of why our action is Franchise Tax Board
AB 2127 (Matthews) PO Box 942867
wrong and information/
As introduced February 20, 2002 Sacramento CA 94267-5540
documentation in support of your
Under the Administration of Franchise
and Income Tax Law, this bill would
repeal the obsolete California Lung
Disease and Asthma Research Fund, and
instead create a new Asthma and Lung
Disease Research Fund. Individuals
Innocent spouse
would be allowed to designate Continued from page 3 taxpayer representatives, call Laureen
contributions to this new fund on their will enable taxpayer representatives to be Philipp, Innocent Spouse Program
income tax returns. The new fund will better equipped to support their clients Manager, at (916) 845-5838. You may also
not appear on the income tax return until claims for relief and to proactively call the preceding telephone number if
another voluntary contribution address the issue of tax liabilities during you have questions or concerns about
designation is removed, and would be divorce proceedings. To request a the program. Public input is regarded as
operative for five years after that date. presentation at a seminar or a meeting of vital to the success of the program.

Address Service Requested

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