Bill Text: CA AB2498 | 2009-2010 | Regular Session | Amended
Bill Title: Income taxation: abusive tax avoidance transactions:
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2010-06-30 - In committee: Set, first hearing. Hearing canceled at the request of author. [AB2498 Detail]
Download: California-2009-AB2498-Amended.html
BILL NUMBER: AB 2498 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 15, 2010
AMENDED IN ASSEMBLY APRIL 5, 2010
INTRODUCED BY Assembly Member Skinner
FEBRUARY 19, 2010
An act to amend Section 2840.2 of the Public Utilities
Code, relating to energy. An act to amend Sections
5100 and 22250 of, and to add Section 6106.3 to, the Business and
Professions Code, and to amend Sections 19116, 19164, 19164.5, 19178,
19504, and 19777 of, to add Sections 18407.5 and 19775 to, and to
repeal and amend Sections 19751, 19752, 19753, 19754, 19755, and
19778 of, the Revenue and Taxation Code, relating to income taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 2498, as amended, Skinner. Combined heat and power
systems. Income taxation: abusive tax avoidance
transactions: voluntary compliance initiative.
(1) Existing law requires the Franchise Tax Board to suspend the
imposition of any interest, penalty, addition to the tax, or
additional amounts for an individual who files a tax return on or
before the due date, including extensions, if the board has not
provided notice, with certain exceptions.
This bill, on or after January 1, 2011, would add interest,
penalty, addition to tax, or additional amount relating to any
abusive tax avoidance transaction, as defined, to the list of
exceptions for which additional interest, penalties, and amounts may
be charged.
(2) Existing law imposes various taxes and fees and certain
penalties for underpayments, including an accuracy-related penalty
and a reportable transaction accuracy-related penalty. Existing law
establishes a reasonable cause exception for underpayments. Existing
law also imposes penalties on a person who aids or assists, procures,
or advises with respect to the preparation or presentation of any
portion of a tax return and who knows or has reason to believe that
the portion will be used in a material matter and that the portion,
if so used, will result in an underpayment. Existing law sets the
penalty in the amount of $1,000 generally and $10,000 in the case of
corporate tax liability.
This bill would remove the reasonable cause exception for avoiding
the underpayment penalties if the underpayment is a result of an
abusive tax avoidance transaction for specified taxpayers. The bill
would extend the penalty for aiding and abetting to a person who
should have known that the portion would be used in connection with a
material matter and who should have known that the portion prepared
by them would result in an underpayment of tax liability unless the
person fulfills specified requirements. The bill would also increase
the penalties to $10,000 and $100,000, respectively.
(3) Under existing law, the Franchise Tax Board was required to
develop and administer a voluntary compliance initiative, as
specified, to be operative during the period of January 1, 2004, to
April 15, 2004, for taxpayers to avoid specified penalties and tax
liabilities for the use of abusive tax avoidance transactions if the
taxpayer files an amended return and pays the tax due for
transactions that occurred in taxable years beginning before January
1, 2003.
This bill would require a similar voluntary compliance initiative,
to be operative during the period of January 1, 2011, and April 15,
2011, and relating to transactions that occurred in taxable years
beginning before January 1, 2011.
(4) Under existing law, if a taxpayer has been contacted by the
Franchise Tax Board regarding a specified reportable transaction, n
amount equal to 100% of the interest payable is added to the tax
amount.
This bill would make this provision, instead, applicable to
abusive tax avoidance transactions, as defined, where the taxpayer
has a deficiency. The bill would also reduce the amount of additional
tax added for taxpayers who take specified actions.
(5) Existing law defines "reportable transaction" for purposes of
income tax.
This bill would include in that definition a transaction of
interest, as defined by the Franchise Tax Board.
(6) Under existing law various state agencies license and regulate
professions, including accountants, attorneys, and tax preparers.
This bill would make a penalty imposed by the Franchise Tax Board
for promoting abusive tax shelters and aiding and abetting an
understatement of tax liability grounds for revocation, suspension,
or refusal to renew a license of a registered public accounting firm,
any person associated with a public accounting firm, or a holder of
a permit, certificate, or license to practice in the state.
This bill would make a penalty imposed by the Franchise Tax Board
for promoting abusive tax shelters and aiding and abetting
understatement of tax liability grounds for disbarment or suspension
of an attorney.
The bill would prohibit a tax preparer upon whom a penalty is
imposed by the Franchise Tax Board for promoting abusive tax shelters
and aiding and abetting understatement of tax liability from
conducting business for 5 years from the date the penalty is
finalized.
The existing Waste Heat and Carbon Emissions Reduction Act
authorizes the Public Utilities Commission to require an electrical
corporation to purchase excess electricity, as defined, from an
eligible customer, as defined, of the electrical corporation that is
delivered by a combined heat and power system, as defined, that
complies with the sizing, energy efficiency, and air pollution
control requirements of the act.
This bill would redefine combined heat and power system and
greenhouse gas or greenhouse gases for purposes of the act.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 5100 of the Business
and Professions Code is amended to read:
5100. After notice and hearing the board may revoke, suspend, or
refuse to renew any a permit or
certificate granted under Article 4 (commencing with Section 5070)
and Article 5 (commencing with Section 5080), or may censure the
holder of that permit or certificate for unprofessional conduct that
includes, but is not limited to, one or any combination of the
following causes:
(a) Conviction of any a crime
substantially related to the qualifications, functions ,
and duties of a certified public accountant or a public accountant.
(b) A violation of Section 478, 498, or 499 dealing with false
statements or omissions in the application for a license, in
obtaining a certificate as a certified public accountant, in
obtaining registration under this chapter, or in obtaining a permit
to practice public accountancy under this chapter.
(c) Dishonesty, fraud, gross negligence, or repeated negligent
acts committed in the same or different engagements, for the same or
different clients, or any a combination
of engagements or clients, each resulting in a violation of
applicable professional standards that indicate a lack of competency
in the practice of public accountancy or in the performance of the
bookkeeping operations described in Section 5052.
(d) Cancellation, revocation, or suspension of a certificate or
other authority to practice as a certified public accountant or a
public accountant, refusal to renew the certificate or other
authority to practice as a certified public accountant or a public
accountant, or any other discipline by any other state or foreign
country.
(e) Violation of Section 5097.
(f) Violation of Section 5120.
(g) Willful violation of this chapter or any rule or regulation
promulgated by the board under the authority granted under this
chapter.
(h) Suspension or revocation of the right to practice before any
governmental body or agency.
(i) Fiscal dishonesty or breach of fiduciary responsibility of any
kind.
(j) Knowing preparation, publication, or dissemination of false,
fraudulent, or materially misleading financial statements, reports,
or information.
(k) Embezzlement, theft, misappropriation of funds or property, or
obtaining money, property, or other valuable consideration by
fraudulent means or false pretenses.
( l ) The imposition of any discipline, penalty, or
sanction on a registered public accounting firm or any associated
person of such firm, or both, or on any other holder of a permit,
certificate, license, or other authority to practice in this state,
by the Public Company Accounting Oversight Board or the United States
Securities and Exchange Commission, or their designees under the
Sarbanes-Oxley Act of 2002 or other federal legislation.
(m) Unlawfully engaging in the practice of public accountancy in
another state.
(n) The imposition, by the Franchise Tax Board, of the penalty
pursuant to Section 19177 or 19178 of the Revenue and Taxation Code
that has been assessed and finalized in accordance with subdivision
(c) of Section 19180 of the Revenue and Taxation Code on a registered
public accounting firm, or any other holder of a permit,
certificate, license, or other authority to practice in this state.
SEC. 2. Section 6106.3 is added to the
Business and Professions Code , to read:
6106.3. It shall constitute cause for disbarment or suspension
for an attorney to engage in conduct that results in the imposition
of the penalty pursuant to Section 19177 or 19178 of the Revenue and
Taxation Code, when that penalty has been assessed and finalized in
accordance with subdivision (c) of Section 19180 of the Revenue and
Taxation Code.
SEC. 3. Section 22250 of the Business
and Professions Code is amended to read:
22250. (a) A tax preparer shall maintain a bond issued by a
surety company admitted to do business in this state for each
individual preparing tax returns for another person. The principal
sum of the bond shall be five thousand dollars ($5,000). A tax
preparer subject to this section shall provide to the surety company
proof that the individual is at least 18 years of age before a surety
bond may be issued.
(b) The bond required by this section shall be in favor of, and
payable to, the people of the State of California and shall be for
the benefit of any person or persons damaged by any fraud,
dishonesty, misstatement, misrepresentation, deceit, or any unlawful
acts or omissions by the tax preparer, or the tax preparers employed
or associated with it to provide tax preparation services.
(c) The tax preparer filing the bond shall identify all tax
preparers employed or associated with the tax preparer and shall
provide for each employee or associate the evidence required by
subdivision (a) to the surety company. A tax preparer employed or
associated with a tax preparer shall be covered by the bond of the
tax preparer with which he or she is employed or associated. However,
in no event shall the total bond required for any
a single tax preparer and the tax preparers employed or
associated with it be required to exceed one hundred twenty-five
thousand dollars ($125,000). The aggregate liability of the surety to
any and all persons regardless of the number of
claims against the bond or the number of years the bond remains in
force shall not exceed five thousand dollars ($5,000) for any one tax
preparer. Any revision Revision of the
bond amount shall not be cumulative. The liability of the surety on
the bond shall not include payment of any civil
penalties, fines, attorneys' fees, or any other cost provided by
statute or regulation.
(d) The tax preparer shall file an amendment to the bond within 30
days of a change in information contained in the bond, including a
change in the tax preparers employed or associated with the tax
preparer.
(e) (1) A tax preparer may not conduct business without having a
current surety bond in the amount prescribed by this section.
(2) Thirty days prior to the cancellation or termination of
any a surety bond required by this
section, the surety shall send a written notice of that cancellation
or termination to the tax preparer and the California Tax Education
Council, identifying the bond and the date of cancellation or
termination.
(3) If a tax preparer fails to obtain a new bond by the effective
date of the cancellation or termination of the former bond, the tax
preparer shall cease to conduct business until that time as a new
surety bond is obtained.
(f) Notwithstanding Section 995.710 of the Code of Civil
Procedure, a tax preparer may not make a deposit in lieu of bond.
(g) A tax preparer shall furnish evidence of the bond required by
this section upon the request of any state, federal agency or any law
enforcement agency or the California Tax Education Council.
(h) A tax preparer for which the penalty pursuant to Section 19177
or 19178 of the Revenue and Taxation Code has been assessed and
finalized pursuant to subdivision (c) of Section 19180 of the Revenue
and Taxation Code is prohibited from conducting the business subject
to regulation pursuant to this chapter for five years from the date
the penalty is finalized.
SEC. 4. Section 18407.5 is added to the
Revenue and Taxation Code , to read:
18407.5. (a) The term "reportable transaction," as defined in
paragraph (3) of subdivision (a) of Section 18407, shall also include
a transaction of a type that the Secretary of the Treasury under
Section 6011 of the Internal Revenue Code for federal income tax
purposes or the Franchise Tax Board under this section for California
income or franchise tax purposes determines is a transaction of
interest, and shall be reported on the return or statement required
to be made.
(b) A transaction of interest is a transaction that is the same or
substantially similar to one of the types of transactions that the
Franchise Tax Board has identified by notice or regulation as a
transaction of interest. Transactions of interest identified and
published to the preceding sentence shall also be published on the
Franchise Tax Board's Internet Web site.
(c) This section shall apply to transactions of interest published
on or after the effective date of the act adding this section and
only with respect to taxable years beginning on or after that date.
SEC. 5. Section 19116 of the Revenue
and Taxation Code , as amended by Section 43 of Chapter 14
of the Statutes of 2010, is amended to read:
19116. (a) In the case of an individual who files a return of tax
imposed under Part 10 (commencing with Section 17001) for a taxable
year on or before the due date for the return, including extensions,
if the Franchise Tax Board does not provide a notice to the taxpayer
specifically stating the taxpayer's liability and the basis of the
liability before the close of the notification period, the Franchise
Tax Board shall suspend the imposition of any interest, penalty,
addition to tax, or additional amount with respect to any failure
relating to the return which is computed by reference to the period
of time the failure continues to exist and which is properly
allocable to the suspension period.
(b) For purposes of this section:
(1) Except as provided in subdivision (e), "notification period"
means the 36-month period beginning on the later of either of the
following:
(A) The date on which the return is filed.
(B) The due date of the return without regard to extensions.
(2) "Suspension period" means the period beginning on the day
after the close of the notification period and ending on the date
which is 15 days after the date on which notice described in
subdivision (a) is provided by the Franchise Tax Board.
(3) If, after the return for a taxable year is filed, the taxpayer
provides to the Franchise Tax Board one or more signed written
documents showing that the taxpayer owes an additional amount of tax
for the taxable year, paragraph (1) shall be applied by substituting
the date the last of the documents was provided for the date on which
the return was filed.
(c) This section shall be applied separately with respect to each
item or adjustment.
(d) This section shall not apply to any of the following:
(1) Any penalty imposed by Section 19131.
(2) Any penalty imposed by Section 19132.
(3) Any interest, penalty, addition to tax, or additional amount
involving fraud.
(4) Any interest, penalty, addition to tax, or additional amount
with respect to any tax liability shown on the return.
(5) Any criminal penalty.
(6) Any interest, penalty, addition to tax, or additional amount
with respect to any gross misstatement.
(7) Any interest, penalty, addition to tax, or additional amount
relating to any reportable transaction with respect to which the
requirements of Section 6664(d)(2)(A) of the Internal Revenue Code
are not met, and any listed transaction, as defined in Section 6707A
(c) of the Internal Revenue Code.
(8) Any interest, penalty, addition to tax, or additional amount
relating to an abusive tax avoidance transaction, as defined in
Section 19777, as amended by the act adding this paragraph.
(e) For taxpayers required by subdivision (a) of Section 18622 to
report a change or correction by the Commissioner of Internal Revenue
or other officer of the United States or other competent authority
the following rules shall apply:
(1) The notification period under subdivision (a) shall be either
of the following:
(A) One year from the date the notice required by Section 18622 is
filed with the Franchise Tax Board by the taxpayer or the Internal
Revenue Service, if the taxpayer or the Internal Revenue Service
reports that change or correction within six months after the final
federal determination.
(B) Two years from the date when the notice required by Section
18622 is filed with the Franchise Tax Board by the taxpayer or the
Internal Revenue Service, if after the six-month period required in
Section 18622, a taxpayer or the Internal Revenue Service reports a
change or correction.
(2) The suspension period under subdivision (a) shall mean the
period beginning on the day after the close of the notification
period under paragraph (1) and ending on the date which is 15 days
after the date on which notice described in subdivision (a) is
provided by the Franchise Tax Board.
(f) For notices sent after January 1, 2004, this section does not
apply to taxpayers with taxable income greater than two hundred
thousand dollars ($200,000) that have been contacted by the Franchise
Tax Board regarding the use of a potentially abusive tax shelter
(within the meaning of Section 19777) ,
as defined by Section 19777, as added by Chapter 656 of the
Statutes of 2003 and amended by Section 331 of Chapter 183 of the
Statutes of 2004 .
(g) This section shall apply to taxable years ending after October
10, 1999.
(h) The amendments made to this section by Chapter 691 of the
Statutes of 2005 shall apply to notices sent after January 1, 2005.
(i) (1) The amendments made to paragraph (1) of subdivision (b) by
the act adding this subdivision Chapter 14
of the Statutes of 2010 shall apply to notices provided after
January 1, 2011.
(2) Paragraph (3) of subdivision (b), as added by the act
adding this subdivision Chapter 14 of the Statutes of
2010 , shall apply to documents provided on or after January
1, 2011.
(3) Paragraph (8) of subdivision (d), as added by the act adding
this paragraph, shall apply to notices provided, or amended returns
filed, on or after January 1, 2011.
SEC. 6. Section 19164 of the Revenue
and Taxation Code , as amended by Section 46 of Chapter 14
of the Statutes of 2010, is amended to read:
19164. (a) (1) (A) An accuracy-related penalty shall be imposed
under this part and shall be determined in accordance with Section
6662 of the Internal Revenue Code, relating to imposition of
accuracy-related penalty on underpayments, as amended by Section
1409(b) of the Health Care and Education Reconciliation Act of 2010
(Public Law 111-152), except as otherwise provided.
(B) (i) Except for understatements relating to reportable
transactions to which Section 19164.5 applies, in the case of any
proposed deficiency assessment issued after the last date of the
amnesty period specified in Chapter 9.1 (commencing with Section
19730) for any taxable year beginning prior to January 1, 2003, the
penalty specified in Section 6662(a) of the Internal Revenue Code
shall be computed by substituting "40 percent" for "20 percent."
(ii) Clause (i) shall not apply to any taxable year of a taxpayer
beginning prior to January 1, 2003, if, as of the start date of the
amnesty program period specified in Section 19731, the taxpayer is
then under audit by the Franchise Tax Board, or the taxpayer has
filed a protest under Section 19041, or the taxpayer has filed an
appeal under Section 19045, or the taxpayer is engaged in settlement
negotiations under Section 19442, or the taxpayer has a pending
judicial proceeding in any court of this state or in any federal
court relating to the tax liability of the taxpayer for that taxable
year.
(2) With respect to corporations, this subdivision shall apply to
all of the following:
(A) All taxable years beginning on or after January 1, 1990.
(B) Any other taxable year for which an assessment is made after
July 16, 1991.
(C) For purposes of this section, references in Section 6662(e) of
the Internal Revenue Code and the regulations thereunder, relating
to treatment of an affiliated group that files a consolidated federal
return, are modified to apply to those entities required to be
included in a combined report under Section 25101 or 25110. For these
purposes, entities included in a combined report pursuant to
paragraph (4) or (6) of subdivision (a) of Section 25110 shall be
considered only to the extent required to be included in the combined
report.
(3) Section 6662(d)(1)(B) of the Internal Revenue Code is modified
to provide that in the case of a corporation, other than an "S"
corporation, there is a substantial understatement of tax for any
taxable year if the amount of the understatement for the taxable year
exceeds the lesser of:
(A) Ten percent of the tax required to be shown on the return for
the taxable year (or, if greater, two thousand five hundred dollars
($2,500)).
(B) Five million dollars ($5,000,000).
(4) Section 6662(d)(2)(A) of the Internal Revenue Code is modified
to additionally provide that the excess determined under Section
6662(d)(2)(A) of the Internal Revenue Code shall be determined
without regard to items to which Section 19164.5 applies and without
regard to items with respect to which a penalty is imposed by Section
19774.
(5) The provisions of Sections 6662(e)(1) and 6662(h)(2) of the
Internal Revenue Code shall apply to returns filed on or after
January 1, 2010.
(b) For purposes of Section 6662(d) of the Internal Revenue Code,
Section 6664 of the Internal Revenue Code, Section 6694(a)(1) of the
Internal Revenue Code, and this part, the Franchise Tax Board may
prescribe a list of positions for which the Franchise Tax Board
believes there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the proper tax
treatment. That list (and any revisions thereof) shall be published
through the use of Franchise Tax Board Notices or other published
positions. In addition, the "listed transactions" identified and
published pursuant to the preceding sentence shall be published on
the Web site of the Franchise Tax Board.
(c) A fraud penalty shall be imposed under this part and shall be
determined in accordance with Section 6663 of the Internal Revenue
Code, relating to imposition of fraud penalty, except as otherwise
provided.
(d) (1) Section 6664 of the Internal Revenue Code, relating to
definitions and special rules, shall apply, except as otherwise
provided.
(2) Section 6664(c) of the Internal Revenue Code, relating to
reasonable cause exception for underpayments, does not apply to an
underpayment attributable to an abusive tax avoidance transaction, as
defined in Section 19777, as amended by the act adding this
paragraph, in one or more of the following situations:
(A) The taxpayer was eligible to participate in the voluntary
compliance initiative as described in Chapter 9.5 (commencing with
Section 19751) of Part 10.2, as amended by the act adding this
paragraph.
(B) The taxpayer failed to provide, upon notice and demand, a
true, accurate, and complete copy of an opinion letter, legal
memorandum, or other document provided to the taxpayer that was
related to the transactions resulting in the understatement.
(C) The taxpayer failed to meet the requirements of Section 18622
with respect to the abusive tax avoidance transaction.
(2)
(3) Section 6664(c)(2) of the Internal Revenue Code
shall apply to returns filed on or after January 1, 2010.
(3)
(4) Section 6664(c)(3) of the Internal Revenue Code
shall apply to appraisals prepared with respect to returns or
submissions filed on or after January 1, 2010.
(e) Section 6665 of the Internal Revenue Code, relating to
applicable rules, shall apply, except as otherwise provided.
SEC. 7. Section 19164.5 of the Revenue
and Taxation Code is amended to read:
19164.5. (a) A reportable transaction accuracy-related penalty
shall be imposed under this part and shall be determined in
accordance with Section 6662A of the Internal Revenue Code, relating
to the imposition of an accuracy-related penalty on understatements
with respect to reportable transactions, except as otherwise
provided.
(b) (1) The reportable transaction understatement, as determined
under Section 6662A(b) of the Internal Revenue Code, is modified to
not include amounts to which the penalty of Section 19774 is imposed.
(2)
(b) (1) Section 6662A(b)(1)(A)
(ii) of the Internal Revenue Code is modified to substitute the
phrase "Sections 17041, 23151, 23181, or 23501" for "section 1
(section 11 in the case of a taxpayer which is a corporation)."
(3)
(2) Section 6662A(b)(1)(B) of the Internal Revenue Code
is modified to substitute the phrase "Part 10 (commencing with
Section 17001) or Part 11 (commencing with Section 23001)" for
"subtitle A."
(4)
(3) Section 6662A(b)(2)(B) of the Internal Revenue Code
is modified to substitute the phrase "income or franchise tax" for
"Federal income tax."
(5)
(4) Section 6662A(e)(1) of the Internal Revenue Code is
modified to additionally provide that the amount of the
understatement is increased by noneconomic transaction
understatements, as defined in Section 19774.
(c) Section 6662A(e)(2) of the Internal Revenue Code is modified
to additionally provide that Section 6662A of the Internal Revenue
Code does not apply to amounts to which a penalty is imposed under
Section 19774.
(c) Section 6664(d) of the Internal Revenue Code, relating to
reasonable cause exception for reportable transactions
understatements, does not apply to any reportable transaction
understatement in the following situations:
(1) The taxpayer was eligible to participate in the voluntary
compliance initiative as described in Chapter 9.5 (commencing with
Section 19751) of Part 10.2, as amended by the act adding this
paragraph.
(2) The taxpayer failed to provide, upon notice and demand, a
true, accurate, and complete copy of an opinion letter, legal
memorandum, or other document provided to the taxpayer that was
related to the transactions resulting in the understatement.
(3) The taxpayer failed to meet the requirements of Section 18622
with respect to the abusive tax avoidance transaction.
(d) The provisions of subdivision (f) of Section 19772, relating
to the rescission of the penalty by the Chief Counsel, shall apply to
any penalty imposed by this section.
SEC. 8. Section 19178 of the Revenue
and Taxation Code is amended to read:
19178. (a) A penalty shall be imposed for
aiding and abetting understatement of tax liability. The penalty
shall be determined in accordance with Section 6701 of the Internal
Revenue Code , unless otherwise provided .
(b) For purposes of this section:
(1) The phrase "or should have known" shall be substituted for the
phrase "or has reason to believe" in Section 6701(a)(2) of the
Internal Revenue Code.
(2) The phrase "should have known" shall be substituted for the
word "knows" in Section 6701(a)(3) of the Internal Revenue Code.
(3) Section 6701(b)(1) of the Internal Revenue Code shall be
modified by substituting "$10,000" for "$1,000."
(4) Section 6701(b)(2) of the Internal Revenue Code shall be
modified by substituting "$100,000" for "$10,000."
(c) Sections 6701(f)(2)and 6701(f)(3) of the Internal Revenue
Code, relating to coordination of penalties, shall not apply.
(d) This section does not apply to understatements of any taxpayer
who properly fulfills the requirements of Section 18648 no later
than April 15, 2011.
(e) The amendments made by the act adding this subdivision apply
to conduct occurring on or after the effective date of that act.
SEC. 9. Section 19504 of the Revenue
and Taxation Code is amended to read:
19504. (a) The Franchise Tax Board, for the purpose of
administering its duties under this part, including ascertaining the
correctness of any return; making a return where none has been made;
determining or collecting the liability of any person in respect of
any liability imposed by Part 10 (commencing with Section 17001),
Part 11 (commencing with Section 23001), or this part (or the
liability at law or in equity of any transferee in respect of that
liability); shall have the power to require by demand, that an entity
of any kind including, but not limited to, employers, persons, or
financial institutions provide information or make available for
examination or copying at a specified time and place, or both, any
book, papers, or other data which may be relevant to that purpose.
Any demand to a financial institution shall comply with the
California Right to Financial Privacy Act set forth in Chapter 20
(commencing with Section 7460) of Division 7 of Title 1 of the
Government Code. Information that may be required upon demand
includes, but is not limited to, any of the following:
(1) Addresses and telephone numbers of persons designated by the
Franchise Tax Board.
(2) Information contained on Federal Form W-2 (Wage and Tax
Statement), Federal Form W-4 (Employee's Withholding Allowance
Certificate), or State Form DE-4 (Employee's Withholding Allowance
Certificate).
(b) The Franchise Tax Board may require the attendance of the
taxpayer or of any other person having knowledge in the premises and
may take testimony and require material proof for its information and
administer oaths to carry out this part.
(c) (1) The Franchise Tax Board may issue subpoenas or subpoenas
duces tecum, which subpoenas must be signed by any member of the
Franchise Tax Board, and may be served on any person for any purpose.
(2) For taxpayers that have been contacted by the Franchise Tax
Board regarding the use of a potentially abusive tax shelter
(within the meaning of Section 19777) an abusive tax
avoidance transaction, as defined in Section 19777 , the
subpoena may be signed by any member of the Franchise
Tax Board, the Executive Officer
of the Franchise Tax Board, or any designee.
(d) Obedience to subpoenas or subpoenas duces tecum issued in
accordance with this section may be enforced by application to the
superior court as set forth in Article 2 (commencing with Section
11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the
Government Code.
(e) When examining a return, the Franchise Tax Board shall not use
financial status or economic reality examination techniques to
determine the existence of unreported income of any taxpayer unless
the Franchise Tax Board has a reasonable indication that there is a
likelihood of unreported income. This subdivision applies to any
examination beginning on or after October 10, 1999.
(f) The amendments made to this section by the act adding this
subdivision shall apply to subpoenas issued on or after the effective
date of the act adding this subdivision.
SEC. 10. Section 19751 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 654
of the Statutes of 2003, is repealed.
19751. (a) The Franchise Tax Board shall develop and administer a
voluntary compliance initiative for taxpayers subject to Part 10
(commencing with Section 17001) and Part 11 (commencing with Section
23001), as provided in this chapter.
(b) The voluntary compliance initiative shall be conducted during
the period from January 1, 2004, to April 15, 2004, inclusive,
pursuant to Section 19754. This initiative shall apply to tax
liabilities attributable to the use of abusive tax avoidance
transactions for taxable years beginning before January 1, 2003.
(c) The Franchise Tax Board shall issue forms and instructions and
may take any other actions necessary, including the use of closing
agreements, to implement this chapter.
(d) The Franchise Tax Board shall publicize the voluntary
compliance initiative so as to maximize public awareness of and
participation in the initiative. The Franchise Tax Board shall
coordinate to the highest degree possible its publicity efforts and
other actions taken in implementing this chapter.
(e) Any correspondence mailed by the Franchise Tax Board to a
taxpayer at the taxpayer's last known address outlining the voluntary
compliance initiative under this chapter constitutes "contact"
within the meaning of Treasury Regulation Section 1.6664-2(c)(3),
relating to qualified amended returns, and paragraph (3) of
subdivision (e) of Section 19773 and Section 19777, regarding
increased interest rate.
SEC. 11. Section 19751 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 656
of the Statutes of 2003, is amended to read:
19751. (a) The Franchise Tax Board shall develop and administer a
voluntary compliance initiative for taxpayers subject to Part 10
(commencing with Section 17001) and Part 11 (commencing with Section
23001), as provided in this chapter.
(b) The voluntary compliance initiative shall be conducted during
the period from January 1, 2004 2011 ,
to April 15, 2004 2011 , inclusive,
pursuant to Section 19754. This initiative shall apply to tax
liabilities attributable to the use of abusive tax avoidance
transactions for taxable years beginning before January 1,
2003 2011 .
(c) The Franchise Tax Board shall issue forms and instructions and
may take any other actions necessary, including the use of closing
agreements, to implement this chapter.
(d) The Franchise Tax Board shall publicize the voluntary
compliance initiative so as to maximize public awareness of and
participation in the initiative. The Franchise Tax Board shall
coordinate to the highest degree possible its publicity efforts and
other actions taken in implementing this chapter.
(e) Any correspondence mailed by the Franchise Tax Board to a
taxpayer at the taxpayer's last known address outlining the voluntary
compliance initiative under this chapter constitutes "contact"
within the meaning of Treasury Regulation Section 1.6664-2(c)(3),
relating to qualified amended returns, and paragraph (3) of
subdivision (e) of Section 19773 and Section 19777, regarding
increased interest rate (2) of subdivision (c) of
Section 19504, and Sections 19164.5 and 19777 .
SEC. 12. Section 19752 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 654
of the Statutes of 2003, is repealed.
19752. Any taxpayer who meets the requirements of Section 19754
may elect the application of either, but not both, of the following:
(a) Voluntary compliance without appeal. If this option is
elected, then each of the following shall apply:
(1) The Franchise Tax Board shall waive or abate all penalties
imposed by this part, for all taxable years where the taxpayer elects
to participate in the initiative, as a result of the underreporting
of tax liabilities attributable to the use of abusive tax avoidance
transactions.
(2) Except as provided in Section 19753, no criminal action shall
be brought against the taxpayer for the taxable years with respect to
issues for which the taxpayer voluntarily complies under this
chapter.
(3) No penalty may be waived or abated under this chapter if the
penalty imposed is attributable to an assessment of taxes that became
final prior to December 31, 2003.
(4) Notwithstanding Chapter 6 (commencing with Section 19301) of
this part, the taxpayer may not file a claim for refund for the
amounts paid in connection with abusive tax avoidance transactions
under this chapter.
(b) Voluntary compliance with appeal. If this option is elected,
then each of the following shall apply:
(1) The Franchise Tax Board shall waive or abate all penalties,
except the accuracy-related penalty under Section 19164 (as in effect
immediately before enactment of the act adding this section),
imposed by this part, for each of the taxable years for which the
taxpayer elects to participate in the initiative, that are owed as a
result of the underreporting of tax liabilities attributable to the
use of abusive tax avoidance transactions.
(2) Except as provided in Section 19753, no criminal action may be
brought against the taxpayer for each of the taxable years for which
the taxpayer voluntarily complies under this section.
(3) No penalty may be waived under this chapter if the penalty
imposed is attributable to an assessment of taxes that became due and
payable prior to December 31, 2003.
(4) The taxpayer may file a claim for refund under Chapter 6
(commencing with Section 19301) of this part. Notwithstanding Section
19331, the taxpayer may not file an appeal to the board until after
either of the following:
(A) The date the Franchise Tax Board takes action on the claim for
refund for the tax year to which this chapter applies.
(B) The later of either of the following dates:
(i) The date that is 180 days after the date of a final
determination by the Internal Revenue Service with respect to the
transaction or transactions to which this chapter applies.
(ii) The date that is four years after the date the claim for
refund was filed or one year after full payment of all tax, including
penalty and interest was made, whichever date is later.
(5) The taxpayer shall be subject to the accuracy-related penalty
under Section 19164.
(A) The penalty may be assessed:
(i) When the Franchise Tax Board takes action on the claim for
refund.
(ii) When a federal determination becomes final for the same
issue, in which case the penalty shall be assessed (and may not be
abated) if the penalty was assessed at the federal level.
(B) In determining the amount of the underpayment of tax, Treasury
Regulation Section 1.6664-2(c)(2), as promulgated under Section 6664
of the Internal Revenue Code, relating to qualified amended returns,
shall not apply. The amount of the underpayment is the difference
between the amount of tax shown on the original return and the
correct amount of tax for the taxable year. The underpayment amount
shall not be less than the amount of the claim for refund filed by
the taxpayer under paragraph (4) that was denied.
(C) The penalty is due and payable upon notice and demand pursuant
to Section 19049. Only after the taxpayer has paid all amounts due,
including the penalty, and the claim is denied in whole or in part,
may the taxpayer file an appeal under Chapter 6 (commencing with
Section 19301), of this part in conjunction with the appeal filed
under paragraph (4).
(c) A taxpayer's election under this section shall be made for all
taxable years of the taxpayer governed by this chapter. A separate
election for each taxable year governed by this chapter is not
allowed.
SEC. 13. Section 19752 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 656
of the Statutes of 2003, is amended to read:
19752. (a) Any taxpayer who meets the
requirements of Section 19754 may elect the application of
either, but not both, of the following: participate in
the voluntary compliance initiative.
(a) Voluntary compliance without appeal. If this option is
elected, then each of the following shall apply:
(b) For taxpayers participating in the voluntary compliance
initiative, all of the following shall apply:
(1) The Franchise Tax Board shall waive or abate all penalties
imposed by this part, for all taxable years where the taxpayer elects
to participate in the initiative, as a result of the underreporting
of tax liabilities attributable to the use of abusive tax avoidance
transactions.
(2) Except as provided in Section 19753, no criminal action shall
be brought against the taxpayer for the taxable years with respect to
issues for which the taxpayer voluntarily complies under this
chapter.
(3) No penalty may be waived or abated under this chapter if the
penalty imposed is attributable to an assessment of taxes that became
final prior to December 31, 2003 2010
.
(4) Notwithstanding Chapter 6 (commencing with Section 19301) of
this part, the taxpayer may not file a claim for refund for the
amounts paid in connection with abusive tax avoidance transactions
under this chapter.
(b) Voluntary compliance with appeal. If this option is elected,
then each of the following shall apply:
(1) The Franchise Tax Board shall waive or abate all penalties,
except the accuracy related penalty under Section 19164 (as in effect
immediately before enactment of the act adding this section),
imposed by this part, for each of the taxable years for which the
taxpayer elects to participate in the initiative, that are owed as a
result of the underreporting of tax liabilities attributable to the
use of abusive tax avoidance transactions.
(2) Except as provided in Section 19753, no criminal action may be
brought against the taxpayer for each of the taxable years for which
the taxpayer voluntarily complies under this section.
(3) No penalty may be waived under this chapter if the penalty
imposed is attributable to an assessment of taxes that became due and
payable prior to December 31, 2003.
(4) The taxpayer may file a claim for refund under Chapter 6
(commencing with Section 19301) of this part. Notwithstanding Section
19331, the taxpayer may not file an appeal to the board until after
either of the following:
(A) The date the Franchise Tax Board takes action on the claim for
refund for the tax year to which this chapter applies.
(B) The later of either of the following dates:
(i) The date that is 180 days after the date of a final
determination by the Internal Revenue Service with respect to the
transaction or transactions to which this chapter applies.
(ii) The date that is four years after the date the claim for
refund was filed or one year after full payment of all tax, including
penalty and interest was made, whichever date is later.
(5) The taxpayer shall be subject to the accuracy related penalty
under Section 19164.
(A) The penalty may be assessed:
(i) When the Franchise Tax Board takes action on the claim for
refund.
(ii) When a federal determination becomes final for the same
issue, in which case the penalty shall be assessed (and may not be
abated) if the penalty was assessed at the federal level.
(B) In determining the amount of the underpayment of tax, Treasury
Regulation Section 1.6664-2(c)(2), as promulgated under Section 6664
of the Internal Revenue Code, relating to qualified amended returns,
shall not apply. The amount of the underpayment is the difference
between the amount of tax shown on the original return and the
correct amount of tax for the taxable year. The underpayment amount
shall not be less than the amount of the claim for refund filed by
the taxpayer under paragraph (4) that was denied.
(C) The penalty is due and payable upon notice and demand pursuant
to Section 19049. Only after the taxpayer has paid all amounts due,
including the penalty, and the claim is denied in whole or in part,
may the taxpayer file an appeal under Chapter 6 (commencing with
Section 19301), of this part in conjunction with the appeal filed
under paragraph (4).
(c) A taxpayer's election under this section shall be made for all
taxable years of the taxpayer governed by this chapter. A separate
election for each taxable year governed by this chapter is not
allowed.
SEC. 14. Section 19753 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 654
of the Statutes of 2003, is repealed.
19753. (a) This chapter does not apply to violations of this part
for which, as of December 31, 2003, any of the following applies:
(1) A criminal complaint was filed against the taxpayer in
connection with an abusive tax avoidance transaction or transactions.
(2) The taxpayer is the subject of a criminal investigation in
connection with an abusive tax avoidance transaction or transactions.
(b) No refund or credit shall be granted with respect to any
penalty paid prior to the time the taxpayer participates in the
voluntary compliance initiative authorized by this chapter.
(c) For purposes of this chapter, an "abusive tax avoidance
transaction" means a plan or arrangement devised for the principal
purpose of avoiding tax. Abusive tax avoidance transactions include,
but are not limited to, "listed transactions" as described in
subdivision (a) of Section 18407.
SEC. 15. Section 19753 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 656
of the Statutes of 2003, is amended to read:
19753. (a) This chapter does not apply to violations of this part
for which, as of December 31, 2003, any of the following applies:
(1) A criminal complaint was filed against the taxpayer in
connection with an abusive tax avoidance transaction or transactions.
(2) The taxpayer is the subject of a criminal investigation in
connection with an abusive tax avoidance transaction or transactions.
(b) No refund or credit shall be granted with respect to any
penalty paid prior to the time the taxpayer participates in the
voluntary compliance initiative authorized by this chapter.
(c) For purposes of this chapter, an "abusive tax avoidance
transaction" means a plan or arrangement devised for the
principal purpose of avoiding tax. Abusive tax avoidance transactions
include, but are not limited to, "listed transactions" as described
in subdivision (a) of Section 18407 has the same
meaning as in Section 19777, as amended by the act amending this
subdivision .
SEC. 16. Section 19754 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 654
of the Statutes of 2003, is repealed.
19754. (a) The voluntary compliance initiative described in this
chapter applies to any taxpayer who was not eligible to participate
in the Internal Revenue Service's Offshore Voluntary Compliance
Initiative described in Revenue Procedure 2003-11, and during the
period from January 1, 2004, to April 15, 2004, does both of the
following:
(1) Files an amended tax return under this part for each taxable
year for which the taxpayer has previously filed a tax return using
an abusive tax avoidance transaction to underreport the taxpayer's
tax liability for that taxable year. Each amended return shall report
all income from all sources, without regard to the abusive tax
avoidance transaction.
(2) Except as provided in subdivision (b), pays in full all taxes
and interest due.
(b) The Franchise Tax Board may enter into an installment payment
agreement in lieu of the full payment required under paragraph (2) of
subdivision (a). Any installment payment agreement authorized by
this subdivision shall include interest on the unpaid amount at the
rate prescribed in Section 19521. Failure by the taxpayer to fully
comply with the terms of the installment payment agreement shall
render the waiver of penalties null and void, and the total amount of
tax, interest, and all penalties shall be immediately due and
payable.
(c) After April 15, 2004, the Franchise Tax Board may issue a
deficiency assessment upon an amended return filed pursuant to
subdivision (a), impose penalties, 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 granted under Section 19752.
(d) In addition to any other authority to examine returns, for the
purpose of improving state tax administration, the Franchise Tax
Board may inquire into the facts and circumstances related to the use
of abusive tax avoidance transactions to underreport the tax
liabilities for which a taxpayer has participated in the voluntary
compliance initiative under this chapter. Taxpayers shall cooperate
fully with inquiries described in this subdivision. Failure by a
taxpayer to fully cooperate in an inquiry described in this
subdivision shall render the waiver of penalties under this chapter
null and void and the taxpayer may be assessed any penalties that may
apply.
SEC. 17. Section 19754 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 656
of the Statutes of 2003, is amended to read:
19754. (a) The voluntary compliance initiative described in this
chapter applies to any taxpayer who was not eligible to
participate in the Internal Revenue Service's Offshore Voluntary
Compliance Initiative described in Revenue Procedure 2003-11, and
, during the period from January 1,
2004 2011 , to April 15, 2004
2011 , does both of the following:
(1) Files an amended tax return under this part for each taxable
year for which the taxpayer has previously filed a tax return using
an abusive tax avoidance transaction to underreport the taxpayer's
tax liability for that taxable year. Each amended return shall report
all income from all sources, without regard to the abusive tax
avoidance transaction.
(2) Except as provided in subdivision (b), pays in full all taxes
and interest due.
(b) The Franchise Tax Board may enter into an installment payment
agreement in lieu of the full payment required under paragraph (2) of
subdivision (a). Any installment payment agreement authorized by
this subdivision shall include interest on the unpaid amount at the
rate prescribed in Section 19521. Failure by the taxpayer to fully
comply with the terms of the installment payment agreement shall
render the waiver of penalties null and void, and the total amount of
tax, interest, and all penalties shall be immediately due and
payable.
(c) After April 15, 2004 2011 , the
Franchise Tax Board may issue a deficiency assessment upon an amended
return filed pursuant to subdivision (a), impose penalties, 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 granted
under Section 19752.
(d) In addition to any other authority to examine returns, for the
purpose of improving state tax administration, the Franchise Tax
Board may inquire into the facts and circumstances related to the use
of abusive tax avoidance transactions to underreport the tax
liabilities for which a taxpayer has participated in the voluntary
compliance initiative under this chapter. Taxpayers shall cooperate
fully with inquiries described in this subdivision. Failure by a
taxpayer to fully cooperate in an inquiry described in this
subdivision shall render the waiver of penalties under this chapter
null and void and the taxpayer may be assessed any penalties that may
apply.
SEC. 18. Section 19755 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 654
of the Statutes of 2003, is repealed.
19755. (a) Notwithstanding Section 19057, with respect to
proposed deficiency assessments related to an abusive tax avoidance
transaction, as defined in subdivision (c) of Section 19753, a notice
of a proposed deficiency assessment may be mailed to the taxpayer
within eight years after the return was filed, or within the period
otherwise provided in Article 3 (commencing with Section 19031) of
Chapter 4 of this part, whichever expires later.
(b) This section shall apply to any return filed under this part
on or after January 1, 2000.
SEC. 19. Section 19755 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 656
of the Statutes of 2003, is amended to read:
19755. (a) Notwithstanding Section 19057, with respect to
proposed deficiency assessments related to an abusive tax avoidance
transaction , as defined in subdivision (c) of Section 19753
, a notice of a proposed deficiency assessment may be
mailed to the taxpayer within eight 12
years after the return was filed, or within the period otherwise
provided in Article 3 (commencing with Section 19031) of Chapter 4 of
this part, whichever expires later.
(b) This section shall apply to any return filed under this part
on or after January 1, 2000.
SEC. 20. Section 19775 is added to the
Revenue and Taxation Code , to read:
19775. Section 7701(o) of the Internal Revenue Code, relating to
clarification of economic substance, as added by Section 1409(a) of
the Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), shall apply to returns filed on or after the effective date
of the act adding this section.
SEC. 21. Section 19777 of the Revenue
and Taxation Code is amended to read:
19777. (a) If a taxpayer has been contacted by the Franchise Tax
Board regarding a reportable transaction, as defined in
Section 6707A(c)(1) of the Internal Revenue Code with respect to
which the requirements of Section 6664(d)(2)(A) of the Internal
Revenue Code are not met, any listed transaction, as defined in
Section 6707A(c)(2) of the Internal Revenue Code, or a gross
misstatement within the meaning of Section 6404(g)(2)(D) of the
Internal Revenue Code, and has a deficiency an abusive
tax avoidance transaction and has a deficiency attributable to an
abusive tax avoidance transaction , there shall be added to the
tax an amount equal to 100 percent of the interest payable under
Section 19101 for the period beginning on the last date prescribed by
law for the payment of that tax (determined without regard to
extensions) and ending on the date the notice of proposed assessment
is mailed.
(b) For purposes of this section, "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) A gross misstatement within the meaning of
Section 6404(g)(2)(D) of the Internal Revenue Code.
(5) Any transaction to which Section 19774 applies.
(6) Any transaction involving financial arrangements that in any
manner rely on the use of offshore payment cards (including credit,
debit, or charge cards) issued by banks in foreign jurisdictions or
offshore financial arrangements, including arrangements with foreign
banks, financial institutions, corporations, partnerships, trusts, or
other entities.
(b)
(c) The penalty imposed by this section is in addition
to any other penalty imposed under Part 10 (commencing with Section
17001), Part 11 (commencing with Section 23001), or this part.
(d) (1) If a taxpayer files an amended return reporting an abusive
tax avoidance transaction, described in subdivision (b), after the
taxpayer is contacted by the Franchise Tax Board regarding that
abusive tax avoidance transaction but before a notice of proposed
assessment is issued under Section 19033, then the amount of the
penalty under this section shall be 50 percent of the interest
payable under Section 19101 with respect to the amount of any
additional tax reflected in the amended return attributable to that
abusive tax avoidance transaction.
(2) If a notice of proposed assessment under Section 19033, with
respect to an abusive tax avoidance transaction as described in
subdivision (a), is issued after the amended return described in
paragraph (1) is filed, the penalty imposed pursuant to subdivision
(a) shall be applicable to the additional tax reflected in the notice
of proposed assessment attributable to that abusive tax avoidance
transaction.
(e) The amendments made to this section by the act adding this
subdivision shall apply to notices mailed on or after the effective
date of that act and to amended returns filed more than 180 days
after that effective date with respect to taxable years beginning on
or after the effective date of that act.
SEC. 22. Section 19778 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 654
of the Statutes of 2003, is repeal ed.
19778. For any amended return filed after April 15, 2004, and
before the taxpayer is contacted by the Internal Revenue Service or
the Franchise Tax Board regarding a potentially abusive tax shelter,
then, for taxable years beginning after December 31, 1998, with
respect to any understatement of tax related to using reportable
transactions as defined in Section 18407, as added by the act adding
this section, the taxpayer is subject to interest as provided under
Section 19101 but at a rate of 150 percent of the adjusted annual
rate established under Section 19521.
SEC. 23. Section 19778 of the Revenue
and Taxation Code , as added by Section 13 of Chapter 656
of the Statutes of 2003, is amended to read:
19778. For any If an amended return
filed after April 15, 2004, and before the taxpayer is
contacted by the Internal Revenue Service or the Franchise Tax Board
regarding a potentially abusive tax shelter, then, for taxable years
beginning after December 31, 1998, with respect to any understatement
of tax related to using reportable transactions as defined in
Section 18407, as added by the act adding this section, the taxpayer
is subject to interest as provided under Section 19101 but at a rate
of 150 percent of the adjusted annual rate established under Section
19521 January 1, 2011, has an underpayment resulting
from an abusive tax avoidance transaction, that underpayment shall be
subject to interest as provided under Section 19101, but that
interest shall be computed using a rate of 200 percent of the
adjusted ann ual rate established under Section 19521 and
shall not be otherwise subject to interest under this part .
SECTION 1. Section 2840.2 of the Public
Utilities Code is amended to read:
2840.2. For purposes of this article, the following terms have
the following meanings:
(a) "Combined heat and power system" means a system that produces
both electricity and thermal energy for heating or cooling from a
single fuel input that meets all of the following:
(1) Is interconnected to, and operates in parallel with, the
electric transmission and distribution grid.
(2) Is sized to meet the eligible customer-generator's onsite
thermal demand.
(3) Meets the efficiency standards of subdivisions (a) and (d) of
Section 2843, the greenhouse gases emissions performance standard of
subdivision (f) of Section 2843, and any applicable greenhouse gas
emission reduction measure adopted by the State Air Resources Board
pursuant to Division 25.5 (commencing with Section 38500)of the
Health and Safety Code.
(b) "Eligible customer-generator" means a customer of an
electrical corporation that meets both of the following requirements:
(1) Uses a combined heat and power system with a generating
capacity of not more than 20 megawatts, that first commences
operation on or after January 1, 2008.
(2) Uses a time-of-use meter capable of registering the flow of
electricity in two directions. If the existing electrical meter of an
eligible customer-generator is not capable of measuring the flow of
electricity in two directions, the eligible customer-generator shall
be responsible for all expenses involved in purchasing and installing
a meter that is able to measure electricity flow in two directions.
If an additional meter or meters are installed, the electricity flow
calculations shall yield a result identical to that of a time-of-use
meter.
(c) "Electrical corporation" has the same meaning as defined in
Section 218.
(d) "Energy Commission" means the State Energy Resources
Conservation and Development Commission.
(e) "Excess electricity" means the net electricity exported to the
electrical grid, generated by a combined heat and power system that
is in compliance with Section 2843.
(f) "Greenhouse gas" or "greenhouse gases" shall have the same
meanings as defined in Section 38505 of the Health and Safety Code.
