BILL NUMBER: SB 797 AMENDED
BILL TEXT
AMENDED IN SENATE JANUARY 6, 2014
AMENDED IN SENATE APRIL 1, 2013
INTRODUCED BY Senator Anderson
( Coauthor: Senator Wyland
)
FEBRUARY 22, 2013
An act to amend Sections 17276.21 and 24416.21 of, and to add
Sections 17207.1, 19057.5, 19306.5, and 24347.1 to, the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 797, as amended, Anderson. Income taxation: net operating
losses: fraudulent investment arrangement losses.
The Personal Income Tax Law and the Corporation Tax Law, in
modified conformity with federal income tax laws, allow a deduction
for losses sustained during the taxable year and not compensated for
by insurance or otherwise. Those state laws conform to specified
revenue rulings and revenue procedures of the Internal Revenue
Service regarding treatment of losses due to investment arrangements
discovered to be criminally fraudulent, except that, among other
things, net operating loss carrybacks and carryforwards are not
allowed.
This bill would provide a safe harbor for determining the year in
which those losses attributable to criminal fraud occurred, as
described in a specified revenue procedure of the Internal Revenue
Service, and would allow a net operating loss carryover or carryback
of any resulting deduction from the losses in conformity with federal
income tax law.
This bill would make a legislative finding and declaration
relating to the public purpose served by the bill.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17207.1 is added to the Revenue and Taxation
Code, to read:
17207.1. (a) (1) For each taxable year beginning on or after
January 1, 2008, if a taxpayer that is a qualified investor, as
defined in the Internal Revenue Service's Revenue Procedure 2009-20,
follows the procedures described in Section 6 of that Revenue
Procedure for federal income tax purposes, and follows the same
procedures for purposes of this part, the Franchise Tax Board shall
not challenge the treatment described in paragraph (2) by the
qualified investor with respect to the qualified loss.
(2) The treatment described in this paragraph means all of the
following:
(A) The loss is deducted as a theft loss.
(B) The taxable year in which the theft was discovered within the
meaning of Section 165(e) of the Internal Revenue Code ,
relating to theft loss, is the discovery year described in
Section 4.04 of the Internal Revenue Service's Revenue Procedure
2009-20.
(C) The amount of the deduction is the amount specified in Section
5.02 of the Internal Revenue Service's Revenue Procedure 2009-20.
(b) To the extent a deduction resulting from the application of
this section results in a net operating loss, Section 172 of the
Internal Revenue Code, as applicable for federal income tax purposes
for a taxable year, shall be applicable for purposes of this section
for the same taxable year, without regard to Section 17276.20.
SEC. 2. Section 17276.21 of the Revenue and Taxation Code is
amended to read:
17276.21. (a) Notwithstanding Sections 17276, 17276.1, 17276.2,
17276.4, 17276.5, 17276.6, 17276.7, and 17276.20 of this code and
Section 172 of the Internal Revenue Code, no net operating loss
deduction shall be allowed for any taxable year beginning on or after
January 1, 2008, and before January 1, 2012.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2010, and before January 1, 2011.
(2) By two years, for losses incurred in taxable years beginning
on or after January 1, 2009, and before January 1, 2010.
(3) By three years, for losses incurred in taxable years beginning
on or after January 1, 2008, and before January 1, 2009.
(4) By four years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2013.
(d) The provisions of this section shall not apply to the
following taxpayers:
(1) For any taxable year beginning on or after January 1, 2008,
and before January 1, 2010, this section shall not apply to a
taxpayer with net business income of less than five hundred thousand
dollars ($500,000) for the taxable year. For purposes of this
paragraph, business income means:
(A) Income from a trade or business, whether conducted by the
taxpayer or by a passthrough entity owned directly or indirectly by
the taxpayer. For purposes of this paragraph, the term "passthrough
entity" means a partnership or an "S" corporation.
(B) Income from rental activity.
(C) Income attributable to a farming business.
(2) For any taxable year beginning on or after January 1, 2010,
and before January 1, 2012, this section shall not apply to a
taxpayer with modified adjusted gross income of less than three
hundred thousand dollars ($300,000) for the taxable year. For
purposes of this paragraph, "modified adjusted gross income" means
the amount described in paragraph (2) of subdivision (h) of Section
17024.5, determined without regard to the deduction allowed under
Section 172 of the Internal Revenue Code, relating to net operating
loss deduction.
(e) This section shall not apply to a loss resulting from the
application of Section 17207.1.
SEC. 3. Section 19057.5 is added to the Revenue and Taxation Code,
to read:
19057.5. Section 6501(h) of the Internal Revenue Code, relating
to limitations on credit or refund with respect to the
special period of limitation with respect to net operating
loss or capital loss carrybacks, shall apply to a net operating loss
resulting from the application of Section 17207.1 or Section 24347.1,
except as otherwise provided.
SEC. 4. Section 19306.5 is added to the Revenue and Taxation Code,
to read:
19306.5. Section 6511(d)(2) of the Internal Revenue Code,
relating to the limitations on credit or refund with respect
to the special period of limitation with respect to net
operating loss or capital loss carrybacks, shall apply to a net
operating loss resulting from the application of Section 17207.1 or
Section 24347.1, except as otherwise provided.
SEC. 5. Section 24347.1 is added to the Revenue and Taxation Code,
to read:
24347.1. (a) (1) For each taxable year beginning on or after
January 1, 2008, if a taxpayer that is a qualified investor, as
defined in the Internal Revenue Service's Revenue Procedure 2009-20,
follows the procedures described in Section 6 of that Revenue
Procedure for federal income tax purposes, and follows the same
procedures for purposes of this part, the Franchise Tax Board shall
not challenge the treatment described in paragraph (2) by the
qualified investor with respect to the qualified loss.
(2) The treatment described in this paragraph means all of the
following:
(A) The loss is deducted as a theft loss.
(B) The taxable year in which the theft was discovered within the
meaning of Section 165(e) of the Internal Revenue Code , relating
to theft loss, is the discovery year described in Section 4.04
of the Internal Revenue Service's Revenue Procedure 2009-20.
(C) The amount of the deduction is the amount specified in Section
5.02 of the Internal Revenue Service's Revenue Procedure 2009-20.
(b) To the extent a deduction resulting from the application of
this section results in a net operating loss, Section 172 of the
Internal Revenue Code, relating to net operating loss, as
applicable for federal income tax purposes for a taxable year, shall
be applicable for purposes of this section for the same taxable year,
without regard to Section 24416.20.
SEC. 6. Section 24416.21 of the Revenue and Taxation Code is
amended to read:
24416.21. (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, 24416.7, and 24416.20 of this code and
Section 172 of the Internal Revenue Code, no net operating loss
deduction shall be allowed for any taxable year beginning on or after
January 1, 2008, and before January 1, 2012.
(b) For any net operating loss or carryover of a net operating
loss for which a deduction is denied by subdivision (a), the
carryover period under Section 172 of the Internal Revenue Code shall
be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2010, and before January 1, 2011.
(2) By two years, for losses incurred in taxable years beginning
on or after January 1, 2009, and before January 1, 2010.
(3) By three years, for losses incurred in taxable years beginning
on or after January 1, 2008, and before January 1, 2009.
(4) By four years, for losses incurred in taxable years beginning
before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss
deduction shall be allowed for carryback of a net operating loss
attributable to a taxable year beginning on or after January 1, 2013.
(d) The disallowance of any net operating loss deduction for any
taxable year beginning on or after January 1, 2008, and before
January 1, 2010, pursuant to subdivision (a) shall not apply to a
taxpayer with income subject to tax under this part of less than five
hundred thousand dollars ($500,000) for the taxable year.
(e) (1) The disallowance of any net operating loss deduction for
any taxable year beginning on or after January 1, 2010, and before
January 1, 2012, pursuant to subdivision (a) shall not apply to a
taxpayer with preapportioned income of less than three hundred
thousand dollars ($300,000) for the taxable year.
(2) For purposes of this subdivision, "preapportioned income"
means net income after state adjustments, before the application of
the apportionment and allocation provisions of this part.
(3) For taxpayers that are required to be included in a combined
report under Section 25101 or authorized to be included in a combined
report under Section 25101.15, the amount prescribed in paragraph
(1) shall apply to the aggregate amount of preapportioned income for
all members included in a combined report.
(f) Notwithstanding subdivision (a), this section shall not apply
to a taxpayer that ceased to do business or has a final taxable year
ending prior to August 28, 2008, that sold or transferred
substantially all of its assets resulting in a gain on sale during a
taxable year ending prior to August 28, 2008, for which the gain
could be offset with existing net operating loss deductions and the
sale or transfer occurred pursuant to a plan of reorganization under
Chapter 11 of Title 11 of the United States Code. An amended tax
return claiming net operating loss deductions allowed pursuant to
this subdivision shall be treated as a timely filed original return.
(g) The Legislature finds and declares that the addition of
subdivision (f) to this section by the act adding this subdivision
fulfills a statewide public purpose by providing necessary tax relief
for a taxpayer that ceased to do business or has a final taxable
year ending prior to August 28, 2008, that sold or transferred
substantially all of its assets resulting in a gain or sale during a
taxable year prior to August 28, 2008, for which the gain could be
offset with existing net operating loss deductions and the sale or
transfer occurred pursuant to a plan of reorganization under Chapter
11 of Title 11 of the United States Code, in order to ensure that
these taxpayers are not permanently denied the net operating loss
deduction.
(h) This section shall not apply to a loss resulting from the
application of Section 24347.1.
SEC. 7. The Legislature finds and declares that this act fulfills
a statewide public purpose by providing tax relief for taxpayers who
are innocent victims of fraudulent investment schemes.
SEC. 8. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.