Bill Text: CA AB1765 | 2023-2024 | Regular Session | Introduced

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Income tax administration: installment agreements, suspension, forfeiture, and revivor.

Spectrum: Committee Bill

Status: (Passed) 2023-09-22 - Chaptered by Secretary of State - Chapter 209, Statutes of 2023. [AB1765 Detail]

Download: California-2023-AB1765-Introduced.html

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CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill

No. 1765

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Introduced by Committee on Revenue and Taxation

March 16, 2023

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An act to amend Sections 19008, 23301, 23301.5, 23301.6, 23302, 23303, 23305.1, 23305a, 23305b, 23305c, and 23305e of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL'S DIGEST

AB 1765, as introduced, Committee on Revenue and Taxation. Income tax administration: installment agreements, suspension, forfeiture, and revivor.

(1) Existing law requires the Franchise Tax Board to administer the levy and collection of taxes pursuant to the Personal Income Tax Law and the Corporation Tax Law, and establishes procedures for the collection of those taxes. Existing law authorizes the Franchise Tax Board, in cases of financial hardship, to allow a taxpayer to enter into an installment payment agreement with the Franchise Tax Board for the full or partial payment of the amount of the taxpayer’s tax liability, as specified. Under existing law, failure by a taxpayer to comply fully with the terms of an installment payment agreement renders the agreement null and void, except as specified, and makes the total amount of tax, interest, and penalties immediately due and payable.

This bill would expand the authority of the Franchise Tax Board to enter into these installment payment agreements to include all liabilities imposed pursuant to the specified tax laws that the board administers. Under the bill, the application of the existing noncompliance provisions would be limited to installment payment agreements entered into before January 1, 2024. The bill, for installment payment agreements entered into on or after January 1, 2024, would add revised noncompliance provisions that, among other things, authorize the Franchise Tax Board, under certain conditions, to alter or modify an agreement to add a liability that the taxpayer has failed to pay while the agreement is in effect.

In the case of a liability for tax of an individual under the Personal Income Tax Law or the laws related to the administration of franchise and income tax laws, existing law requires the Franchise Tax Board to enter into an installment payment agreement if, among other conditions, the taxpayer’s liability does not exceed $10,000, as specified, and full repayment of liability is required within 3 years. Those conditions also exclude an agreement if, in the preceding 5 taxable years, the taxpayer has failed to pay a tax or has entered into a similar installment agreement, as specified.

This bill would raise the cap on the taxpayer’s liability to $25,000, and would extend the maximum time for full repayment to 5 years. The bill would also revise the conditions related to the taxpayer’s most recent 5 taxable year history by removing the exclusion of a taxpayer who has failed to pay a tax and, instead, excluding an agreement with a taxpayer who has failed to satisfy the terms of a similar installment agreement.

Existing law requires the Franchise Tax Board every 2 years to review an installment agreement that is for the partial payment of a liability.

This bill would revise that biennial duty to be, instead, a review of a representative sample of existing installment agreements, as specified.

The bill would authorize the Franchise Tax Board to prescribe regulations as necessary to implement the installment payment agreement provisions. The bill would make conforming and nonsubstantive changes.

(2) Existing law authorizes the suspension or forfeiture of certain corporate powers, rights, and privileges of a taxpayer for failure to file a tax return or pay delinquent taxes, penalties, or interest. Existing law authorizes the Franchise Tax Board to issue a certificate of revivor for a taxpayer that has suffered the suspension or forfeiture if the taxpayer, among other requirements, pays certain taxes, penalties, and interest. Existing law also authorizes the Franchise Tax Board to revive a corporation to good standing without full payment if it will improve the prospects for collection, as prescribed.

Existing law generally defines “taxpayer,” for purposes of these and other suspension, forfeiture, and revivor provisions, as either a corporation subject to the franchise tax or a limited liability company, as specified.

This bill would apply the above-described provisions relating to suspension, forfeiture, and revivor to taxpayers, as defined above to include limited liability companies, as well as corporations. The bill would make conforming changes to other related provisions.

Digest Key

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 Section 19008 of the Revenue and Taxation Code is amended to read:

19008.

 (a) The Franchise Tax Board may, in cases of financial hardship, as determined by the Franchise Tax Board, allow a taxpayer to enter into installment payment agreements with the Franchise Tax Board to make full or partial payment of taxes due, plus applicable interest and penalties over the life of the installment period. Failure by a taxpayer to comply fully with the terms of the installment payment agreement shall render the agreement null and void, unless the Franchise Tax Board determines that the failure was due to a reasonable cause, and the total amount of tax, interest, and all penalties shall be immediately due and payable. any taxpayer under which that taxpayer is allowed to make payment of any liability imposed or collected under Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part, including any additions to tax, interest, penalties, fees, and any other amounts relating to the imposed liability, in installment payments, pursuant to the agreement, if the Franchise Tax Board determines that the agreement will facilitate full or partial collection of the liability.

(b) In the case of a liability for tax of an individual under Part 10 (commencing with Section 17001) or this part, the Franchise Tax Board shall enter into an agreement to accept the full payment of the tax liability in installments if, as of the date the individual offers to enter into the agreement, all of the following apply:

(1) The aggregate amount of the liability (determined without regard to interest, penalties, additions to the tax tax, and additional amounts) does not exceed ten twenty-five thousand dollars ($10,000). ($25,000).

(2) The taxpayer (and, if the liability relates to a joint return, the taxpayer’s spouse) has not during any of the preceding five taxable years done any of the following:

(A) Failed to file any return of tax liability imposed under Part 10 (commencing with Section 17001) or this part.

(B)Failed to pay any tax required to be shown on the return.

(C)Entered into

(B) Failed to satisfy any term of an installment agreement under this section for payment of any tax liability imposed by Part 10 (commencing with Section 17001) or this part.

(3) The Franchise Tax Board determines that the taxpayer is financially unable to pay the liability in full when due, and the taxpayer submits any information as the Franchise Tax Board may require to make this determination.

(4) The agreement requires full payment of the liability within three five years.

(5) The taxpayer agrees to comply with the provisions of this part and Part 10 (commencing with Section 17001) for the period the agreement is in effect.

(c) (1) (A) Failure by a taxpayer to comply fully with the terms of the installment payment agreement shall render the agreement null and void, unless the Franchise Tax Board determines that the failure was due to a reasonable cause, and the total amount of tax, interest, and all penalties shall be immediately due and payable. Except in any case where the Franchise Tax Board finds collection of the tax to which an installment payment agreement relates to be in jeopardy, or there is a mutual consent to terminate, alter, or modify the agreement, the agreement shall not be considered null and void, or otherwise terminated, unless both of the following occur:

(1)

(i) A notice of termination is provided to the taxpayer not later than 30 days before the date of termination.

(2)

(ii) The notice includes an explanation of why the Franchise Tax Board intends to terminate the agreement.

(B) This paragraph shall apply only to agreements entered into before January 1, 2024.

(2) (A) (i) The Franchise Tax Board may alter, modify, or terminate an agreement entered into under this section if any of the following apply:

(I) Information that the taxpayer provided to the Franchise Tax Board before the date the agreement was entered into was inaccurate or incomplete.

(II) The Franchise Tax Board determines that the collection of any liability to which an agreement under this section relates is in jeopardy.

(III) The Franchise Tax Board determines that the financial condition of a taxpayer with whom the Franchise Tax Board has entered into an agreement has significantly changed.

(IV) The taxpayer fails to make an installment payment at the time the installment payment is due under the agreement.

(V) The taxpayer fails to file a required tax return under this part or pay any other liability at the time that the liability is due.

(VI) The taxpayer fails to provide a financial condition update upon the Franchise Tax Board’s request.

(ii) The Franchise Tax Board may modify or alter an agreement under this section to add a liability that the taxpayer fails to pay at the time that the liability is due.

(iii) If a taxpayer is currently in an installment agreement under subdivision (a) or (b), the Franchise Tax Board may require financial hardship to alter or modify the installment agreement.

(iv) (I) Except as provided in subclause (II), the Franchise Tax Board shall not alter, modify, or terminate any agreement under this paragraph unless both of the following occur:

(ia) A notice of the alteration, modification, or termination is provided to the taxpayer not later than 30 days before the date of that action.

(ib) The notice includes an explanation of the rationale of the Franchise Tax Board for altering, modifying, or terminating the agreement.

(II) In any case where the Franchise Tax Board finds collection of the liability to which an installment payment agreement relates to be in jeopardy, the Franchise Tax Board may terminate the installment agreement and issue demand for immediate payment of the liability or the deficiency declared to be in jeopardy.

(B) This paragraph shall apply only to agreements entered into on or after January 1, 2024.

(d) No levy may be issued on the property or rights to property of any person with respect to any unpaid tax: liability:

(1) During the period that an offer by the taxpayer for an installment agreement under this section for payment of the unpaid tax liability is pending with the Franchise Tax Board.

(2) If the offer is rejected by the Franchise Tax Board, during the 30 days thereafter and, if a request for review of the rejection is filed within the 30 days, during the period that the review is pending.

(3) During the period that the installment agreement for payment of the unpaid tax liability is in effect.

(4) If the agreement is terminated by the Franchise Tax Board, during the 30 days thereafter (and, if a request for review of the termination is filed within the 30 days, during the period that the review is pending).

(5) This subdivision shall not apply with respect to any of the following:

(A) Any unpaid tax liability if either of the following occurs:

(i) The taxpayer files a written notice with the Franchise Tax Board that waives the restriction imposed by this subdivision on levy with respect to the tax. liability.

(ii) The Franchise Tax Board finds that the collection of that tax liability is in jeopardy.

(B) Any levy that was first issued before the date that the applicable proceeding under this subdivision commenced.

(C) At the discretion of the Franchise Tax Board, any unpaid tax liability for which the taxpayer makes an offer of an installment agreement subsequent to a rejection of an offer of an installment agreement with respect to that unpaid tax liability (or to any review thereof).

(D) The period of limitation under Section 19371 shall be suspended for the period during which the Franchise Tax Board is prohibited under this subdivision from making a levy.

(e) The Taxpayers’ Rights Advocate shall establish procedures for an independent departmental administrative review for the rejection of the offer of an installment payment and for installment payment agreements that are rendered null and void, or otherwise terminated under this section, for taxpayers that request that review. This administrative review shall not be subject to Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of the Government Code. Unless review is requested by the taxpayer within 30 days of the date of rejection of the offer of an installment agreement or termination of the installment agreement, this administrative review shall not stay collection of the tax liability to which the installment payment agreement relates.

(f) In the case of an agreement entered into by the Franchise Tax Board under subdivision (a) for partial payment of a tax liability, the The Franchise Tax Board shall review the agreement a representative sample of existing installment agreements entered into under this section at least once every two years. years to ensure taxpayers are in compliance with the terms of the agreement.

(g)(1)In the case of any taxpayer that is making payments to the Franchise Tax Board under an informal payment arrangement that was in existence prior to the effective date of the act adding this subdivision, that informal payment arrangement, for purposes of this section, shall be treated as an installment payment agreement that was entered into on the later of the following:

(A)January 1, 2005.

(B)The date on which the arrangement was established by the Franchise Tax Board.

(2)In any case where the date determined under the rules of paragraph (1) is a date prior to February 1, 2005, the amount due under the informal payment arrangement as of February 1, 2005, shall be treated as an installment payment agreement amount as of the start of the amnesty program within the meaning of Section 19738.

(3)Section 19591 does not apply to either of the following:

(A)Informal payment arrangements treated as installment payment agreements under paragraph (1).

(B)Installment payment agreements authorized by the amendments made by the act adding this subdivision that were entered into prior to July 1, 2005, or the effective date of the act adding this subdivision, whichever occurs later.

(g) (1) The Franchise Tax Board may prescribe regulations as necessary or appropriate to carry out the purposes of this section.

(2) The Administrative Procedure Act (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, guideline, or any other guidance established or issued by the Franchise Tax Board pursuant to this section.

SEC. 2.

 Section 23301 of the Revenue and Taxation Code is amended to read:

23301.

 Except for the purposes of filing an application for exempt status or amending the articles of incorporation or organization as necessary either to perfect that application or to set forth a new name, the corporate powers, rights and privileges of a domestic taxpayer may be suspended, and the exercise of the corporate powers, rights and privileges of a foreign taxpayer in this state may be forfeited, if any of the following conditions occur:

(a) If any tax, penalty, or interest, or any portion thereof, that is due and payable under Chapter 4 (commencing with Section 19001) of Part 10.2, or under this part, either at the time the return is required to be filed or on or before the 15th day of the ninth month following the close of the taxable year, is not paid on or before 6 p.m. on the last day of the 12th month after the close of the taxable year.

(b) If any tax, penalty, or interest, or any portion thereof, due and payable under Chapter 4 (commencing with Section 19001) of Part 10.2, or under this part, upon notice and demand from the Franchise Tax Board, is not paid on or before 6 p.m. on the last day of the 11th month following the due date of the tax.

(c) If any liability, or any portion thereof, which is due and payable under Article 7 (commencing with Section 19131) of Chapter 4 of Part 10.2, is not paid on or before 6 p.m. on the last day of the 11th month following the date that the tax liability is due and payable.

SEC. 3.

 Section 23301.5 of the Revenue and Taxation Code is amended to read:

23301.5.

 Except for the purposes of filing an application for exempt status or amending the articles of incorporation or organization as necessary either to perfect that application or to set forth a new name, the corporate powers, rights, and privileges of a domestic taxpayer may be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state may be forfeited, if a taxpayer fails to file a tax return required by this part.

SEC. 4.

 Section 23301.6 of the Revenue and Taxation Code is amended to read:

23301.6.

 Sections 23301, 23301.5, and 23775 shall apply to a foreign taxpayer only if the taxpayer is qualified or registered to do business in California. A taxpayer that is required under Section 2105 or 17708.02 of the Corporations Code to qualify or register to do business shall not be deemed to have qualified or registered to do business for purposes of this article unless the taxpayer has in fact qualified or registered with the Secretary of State.

SEC. 5.

 Section 23302 of the Revenue and Taxation Code is amended to read:

23302.

 (a) Forfeiture or suspension of a taxpayer’s powers, rights, and privileges pursuant to Section 23301, 23301.5, or 23775 shall occur and become effective only as expressly provided in this section in conjunction with Section 21020, which requires notice prior to the suspension of a taxpayer’s corporate powers, rights, and privileges.

(b) The notice requirements of Section 21020 shall also apply to any forfeiture of a taxpayer’s corporate powers, rights, and privileges pursuant to Section 23301, 23301.5, or 23775 and to any voidability pursuant to subdivision (d) of Section 23304.1.

(c) The Franchise Tax Board shall transmit the names of taxpayers to the Secretary of State as to which the suspension or forfeiture provisions of Section 23301, 23301.5, or 23775 are or become applicable, and the suspension or forfeiture therein provided for shall thereupon become effective. The certificate of the Secretary of State shall be prima facie evidence of the suspension or forfeiture.

(d) If a taxpayer’s powers, rights, and privileges are forfeited or suspended pursuant to Section 23301, 23301.5, or 23775, without limiting any other consequences of such forfeiture or suspension, the taxpayer shall not be entitled to sell, transfer, or exchange real property in California during the period of forfeiture or suspension.

SEC. 6.

 Section 23303 of the Revenue and Taxation Code is amended to read:

23303.

 Notwithstanding the provisions of Section 23301 or 23301.5, any corporation taxpayer that transacts business or receives income within the period of its suspension or forfeiture shall be subject to tax under the provisions of this chapter.

SEC. 7.

 Section 23305.1 of the Revenue and Taxation Code is amended to read:

23305.1.

 (a) A taxpayer may make application to the Franchise Tax Board for relief from the voidability provisions of Section 23304.1. To be relieved from voidability, the taxpayer shall do all of the following:

(1) Provide the Franchise Tax Board with an application for relief from contract voidability in a form and manner prescribed by the Franchise Tax Board.

(2) Include on the application the period for which relief is requested in accordance with subdivision (b).

(3) File any tax returns required to be filed under this part with the Franchise Tax Board, including returns for the period for which relief is requested.

(4) Pay any tax, additions to tax, penalties, interest, and any other amounts owing to the Franchise Tax Board, including any liability attributable to the period for which relief is requested.

(5) Pay any penalty imposed under subdivision (b) for the period for which relief is requested.

(6) In the case of a taxpayer that applies for and enters into an approved voluntary disclosure agreement in accordance with Article 8 (commencing with Section 19191) of Chapter 4 of Part 10.2, for purposes of this section, the taxpayer shall be considered to have met the requirements of paragraphs (3), (4), and (5) if the taxpayer fulfills to the satisfaction of the Franchise Tax Board all the specifications of the voluntary disclosure agreement within the meaning of paragraph (2) of subdivision (d) of Section 19191 and if the Franchise Tax Board has not found that any of the circumstances described in Section 19194 has rendered the voluntary disclosure agreement null and void.

(b) (1) Except as provided in paragraph (2), both of the following shall apply:

(A) The period for which relief is requested shall begin on the date that one of the taxpayer’s taxable years begins and ends on the date that relief is granted.

(B) The Franchise Tax Board shall assess a daily penalty equal to one hundred dollars ($100) for each day of the period for which relief from voidability is granted, but not to exceed a total penalty equal to the amount of the tax for the period for which relief is requested.

(2) If an application for relief from voidability is filed for a period in which an application for revivor has been filed and the certificate of revivor has been issued, all of the following shall apply:

(A) The period for which relief is requested shall begin on the date the taxpayer’s powers, rights, and privileges had been suspended or forfeited and ends on the date relief is granted.

(B) The Franchise Tax Board shall assess a daily penalty equal to one hundred dollars ($100) for each day of the period for which relief from voidability is granted, but not to exceed a total penalty equal to that amount of the tax that would be imposed under Sections 17941 and 17942 or Section 23151 and, except as provided in subparagraph (C), that penalty shall be equal to no less than the amount of the minimum tax provided under Section 17941 or 23153 for the period for which relief is requested.

(C) In the case of an exempt organization or trust subject to Article 2 (commencing with Section 23731) of Chapter 4 (the tax on unrelated business taxable income), the daily penalty provided in subparagraph (B) shall not exceed a total penalty equal to the amount of tax imposed upon its unrelated business taxable income for the period for which relief is requested.

(3) Any penalty imposed under this subdivision shall, subject to Section 23305.2, be due and payable on demand by the Franchise Tax Board.

(c) (1) Upon satisfaction of the conditions specified in subdivision (a), including through the application of Section 23305.2, the following shall apply:

(A) All contracts entered into during the period for which relief is granted that have not been rescinded by a final court order pursuant to Section 23304.5 may be enforced in the same manner and to the same extent, with regard to both the parties to the contract and any third parties, as if the contract had never been voidable.

(B) Any sale, transfer, or exchange of real property in California during the period for which relief is granted and which the taxpayer at that time was not entitled to sell, transfer, or exchange by reason of subdivision (d) of Section 23302 and which has not been rescinded by a final court order pursuant to Section 23304.5, shall be as valid as if the taxpayer had not been subject to subdivision (d) of Section 23302 at the time of the sale, transfer, or exchange.

(2) Upon being granted relief from voidability, the Franchise Tax Board shall certify that relief to the taxpayer in a form and manner as prescribed by the Franchise Tax Board. The certificate shall be issued or mailed to the taxpayer, or as directed by the taxpayer, and shall indicate the period for which relief is granted.

(d) The fact that a certificate of relief from voidability was issued pursuant to this section and the information contained on that certificate shall be subject to public disclosure. The certificate shall be prima facie evidence of the relief from voidability for contracts entered into during the period of relief stated on the certificate and the certificate may be recorded in the office of the county recorder of any county of this state.

(e) Subject to limitations set forth in Section 17 of Chapter 926 of the Statutes of 1990, a taxpayer that received a certificate of revivor between January 1, 1990, and January 1, 1991, may apply for relief from voidability under this section.

SEC. 8.

 Section 23305a of the Revenue and Taxation Code is amended to read:

23305a.

 Before the certificate of revivor is issued by the Franchise Tax Board, it shall obtain from the Secretary of State an endorsement upon the application of the fact that the name of the taxpayer then meets the requirements of subdivision (b) of Section 201 or subdivision (b) of Section 17701.08 of the Corporations Code in the case of a domestic taxpayer or of subdivision (b) of Section 2106 or Section 17708.05 of the Corporations Code in the case of a foreign taxpayer that has qualified to do business. The reference to amendment of the articles of incorporation to set forth a new name contained in Sections 23301, 23301.5, and 23775 includes in the case of a foreign taxpayer the filing of an amended statement and designation to set forth its new name or to set forth an assumed name under subdivision (b) of Section 2106 or Section 17708.05 of the Corporations Code. Upon the issuance of the certificate by the Franchise Tax Board the taxpayer therein named shall become reinstated but the reinstatement shall be without prejudice to any action, defense or right which has accrued by reason of the original suspension or forfeiture, except that contracts which were voidable pursuant to Section 23304.1, but which have not been rescinded pursuant to Section 23304.5, may have that voidability cured in accordance with Section 23305.1. The certificate of revivor shall be prima facie evidence of the reinstatement and the certificate may be recorded in the office of the county recorder of any county of this state.

SEC. 9.

 Section 23305b of the Revenue and Taxation Code is amended to read:

23305b.

 Notwithstanding Section 23305, the Franchise Tax Board may revive a corporation taxpayer to good standing without full payment of the taxes, penalties, and interest due if it determines that the revivor will improve the prospects for collection of the full amount due. This revivor may be limited as to time or may limit the functions the revived corporation taxpayer can perform, or both. The corporate taxpayer’s powers, rights, and privileges may again be suspended or forfeited if the Franchise Tax Board determines that the prospects for collection of the full amount due have not been improved by the revivor of the corporation. taxpayer.

SEC. 10.

 Section 23305c of the Revenue and Taxation Code is amended to read:

23305c.

 (a) Upon issuance of the certificate of revivor, the Franchise Tax Board shall transmit to the Secretary of State the revived taxpayer’s name and its corporate entity number.

(b) The taxpayer’s name and number, the fact that the taxpayer’s corporate powers, rights, and privileges have been revived and the effective date of the revivor shall be a matter of public record.

(c) If the Franchise Tax Board determines that a suspension or forfeiture was in error by the Franchise Tax Board, the Franchise Tax Board shall, in connection with the revivor, indicate that the taxpayer is “restored.” The status of the restored taxpayer shall be retroactive to the date of suspension or forfeiture as if there had been no suspension or forfeiture.

(d) If the Franchise Tax Board determines that the mailing of the 60-day demand notice referred to in subdivision (d) of Section 23304.1 was in error or that the Franchise Tax Board’s original determination as to compliance with the 60-day demand notice was in error, the Franchise Tax Board’s revised conclusions also shall be part of the public record referred to in that subdivision.

SEC. 11.

 Section 23305e of the Revenue and Taxation Code is amended to read:

23305e.

 (a) The Franchise Tax Board may provide letters of good standing, verifying a corporation’s taxpayer’s status for doing business in California, at a charge reflecting the reasonable costs to the department of responding to these requests.

(b) Fees received under this section shall be handled in accordance with Section 19604.