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PROPOSED BILLS

Among the measures being considered by the California Legislature are several Franchise Tax Board (FTB) sponsored bills. Some of these bills also involve conformity.

AB 547 (Maldonado)
As introduced February 21, 2001
This FTB sponsored bill would provide that a limited partnership, a limited liability company, or a registered limited liability partnership would not be assessed the minimum franchise tax and the annual tax, as applicable, in the year that a final return is filed, if the following two conditions are met:

. The entity ceases doing
  business prior to the beginning
  of the taxable year; and
. The dissolution, surrender, or
  cancellation of the entity is
  complete before the end of
  that year.

This bill also would allow certain suspended corporations to seek dissolution without requiring payment of the accrued tax liability for the years in which the corporation was inactive and not doing business. To have any outstanding tax, penalty, interest, or addition to tax cancelled, the corporation must meet certain conditions.

AB 816 (Thomson)
As introduced February 22, 2001
This bill would repeal the filing requirement triggered by the sale of a principal residence when other items of gross income do not equal or exceed the filing threshold.

FTB is sponsoring this bill to conform California State law to federal practice so that taxpayers are not required to file unnecessary tax returns.

AB 894 (Nakano)
As Introduced February 23, 2001
Under the Bank and Corporation Tax Law (B&CTL), this bill would allow capital losses to offset any other income of a corporation for taxable years beginning on or after January 1, 2000.

Allowing the deduction of the current year's capital loss would return California law to the way it was prior to the state adopting conformity to the federal capital loss limitations.

Capital loss carryover amounts from taxable years beginning before January 1, 2000, would continue under the current rules (i.e., capital losses may be deducted only to the extent of capital gains and excess capital losses may be carried forward for five years).

In addition, the bill contains the following capital loss credit that was not sponsored by FTB. A corporation would recompute its tax liability each year from 1990-1999 as though capital losses had not been limited in those years. To the extent that the recomputed tax liability for those years was less than the actual aggregate tax liabilities for those years, a taxpayer could elect to take the excess as a credit against the corporation's tax liability starting in the year 2000. Any excess credit could be carried over until exhausted. The election would be irrevocable and would be made on a timely filed original return for its first taxable year beginning on or after January 1, 2000.

AB 1115 (Assembly Committee on Revenue and Taxation)
As introduced February 23, 2001
This FTB sponsored bill would clarify the laws regarding nonresidents and part-year residents by:

. Specifying clear, definitive rules
  for calculating their loss
  carryovers, deferred
  deductions, and deferred 
  income.

. Allowing a prorated alimony
  deduction.
. Allowing the proration of
  itemized deductions in
  computing their taxable
  income.

AB 1116 (Assembly Committee on Revenue and Taxation)
As introduced February 23, 2001
This FTB sponsored bill would make the following changes to the Revenue and Taxation Code:

. Eliminate adjustment to credit
  carryforwards from inclusion
  within the meaning of
  deficiency.
. Allow the department to issue
  a notice of proposed adjusted
  carryover amount that would
  afford taxpayers the right to
  dispute the adjustment in the
  same manner available for
  notices of proposed
  assessment.
. Specify that a law effecting a
  change in income tax
  withholding will apply to
  income tax withholding in the
  calendar year the provision is
  operative but not the year it is
  chaptered.

AB 1117 (Assembly Committee on Revenue and Taxation)
As introduced February 23, 2001
This FTB sponsored bill would provide a general default rule that would allow holders of interests in pass-through entities, irrespective of the taxable year of the holder, to claim the pass-through credit. The general default rule would apply even if the pass-through entity files its returns on a fiscal year different than that of the holder of the interest and even if the operative date of the credit has expired, eliminating an inequity in law that may prohibit some holders from claiming their full tax benefits.

This bill also would eliminate conflicting statutory provisions that set forth the order in which credits are applied. This bill would require that the alternative minimum tax credit be applied before any credit that can reduce regular tax below the tentative minimum tax.

Continued on page 7

May/June 2001

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