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.