17501-17510
REVENUE AND TAXATION CODE
SECTION 17501-17510
17501. (a) Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to deferred compensation, shall apply, except as otherwise provided. (b) Notwithstanding the specified date contained in paragraph (1) of subdivision (a) of Section 17024.5, Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to pension, profitsharing, stock bonus plans, etc., and Part III of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to rules relating to minimum funding standards and benefit limitations, shall apply, except as otherwise provided, without regard to taxable year to the same extent as applicable for federal income tax purposes. (c) The maximum amount of elective deferrals (as defined in Section 402(g)(3)) for the taxable year that may be excluded from gross income under Section 402(g) of the Internal Revenue Code, as applicable for state purposes, shall not exceed the amount of elective deferrals that may be excluded from gross income under Section 402(g) of the Internal Revenue Code, as in effect on January 1, 2010, including additional elective deferrals under Section 414(v) of the Internal Revenue Code, as in effect on January 1, 2010. (d) (1) For taxable years beginning on or after January 1, 2002, the basis of any person in the plan, account, or annuity shall be increased by the amount of elective deferrals not excluded as a result of the application of subdivision (c). (2) Any basis described in paragraph (1) shall be recovered in the manner specified in Section 17085. (e) Notwithstanding the limitations provided in subdivision (c), any income attributable to elective deferrals in taxable years beginning on or after January 1, 2002, in conformance with Part I of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, as applicable for federal and state purposes, shall not be includable in the gross income of the individual for whose benefit the plan or account was established until distributed pursuant to the plan or by operation of law. 17501.5. The amendments made by Section 641 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) to the following provisions of the Internal Revenue Code or other federal law shall apply for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001), with respect to distributions after December 31, 2001, except as otherwise provided: (a) Section 72, relating to annuities and certain proceeds of endowment and life insurance contracts. (b) Section 219, relating to retirement savings. (c) Section 401, relating to qualified pension, profit-sharing, and stock bonus plans. (d) Section 402, relating to taxability of beneficiary of employees' trust. (e) Section 403, relating to taxation of employee annuities. (f) Section 408, relating to individual retirement accounts. (g) Section 415, relating to limitations on benefits and contribution under qualified plans. (h) Section 457, relating to deferred compensation plans of state and local governments and tax-exempt organizations. (i) Subsections (h)(3) and (h)(5) of Section 1122 of the Tax Reform Act of 1986. 17501.7. The amendments made by Section 647 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) to the following provisions of the Internal Revenue Code shall apply for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001), with respect to trustee-to-trustee transfers after December 31, 2001, except as otherwise provided: (a) Section 403, relating to taxation of employee annuities. (b) Section 457, relating to deferred compensation plans of state and local governments and tax-exempt organizations. 17502. (a) In addition to the application of Part II (commencing with Section 421) of Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to certain stock options, paragraphs (1), (2), and (3) of Section 421(a) of the Internal Revenue Code shall also apply to any California qualified stock option that is granted to an individual whose earned income from the corporation granting the California qualified stock option for the taxable year in which that option is exercised does not exceed forty thousand dollars ($40,000). In the event that the option does not meet the necessary qualifications, the option shall be treated as a nonqualified stock option. (b) For purposes of this section, "California qualified stock option" means a stock option that is issued and exercised pursuant to this section and that is designated by the corporation issuing the option as a California qualified stock option at the time the option is granted. (c) (1) This section shall apply only to those stock options that are issued on or after January 1, 1997, and before January 1, 2002, by a corporation to its employee and are exercised by the employee, while employed by the corporation that issued those stock options (or within three months thereof, or within one year thereof if permanently and totally disabled as defined in Section 22(e)(3) of the Internal Revenue Code), during the taxable year with respect to any class of shares, or combination thereof, issued by the corporation, to the extent that the number of shares transferable by the exercise of the options does not exceed a total of 1,000 and have a combined fair market value of less than one hundred thousand dollars ($100,000). The combined fair market value of any stock shall be determined as of the time the option with respect to that stock is granted. (2) Paragraph (1) shall be applied by taking options into account in the order in which they were granted. (d) In the case of a California qualified stock option, no amount shall be included in the gross income of the employee until the time of the disposition of the option (or the stock acquired upon exercise of the option). No deduction shall be allowed under Section 162 of the Internal Revenue Code to the employer on the grant or exercise of a California qualified stock option. (e) Subdivision (d) shall not apply to any stock option for which an election has been made under Section 83(b) of the Internal Revenue Code, relating to election to include in gross income in year of transfer. 17504. (a) The provisions of Section 402 of the Internal Revenue Code, relating to taxability of beneficiaries of employees' trusts, shall be modified as follows: (1) The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except as otherwise provided. (2) The basis of any person in an employees' trust shall include the amount of any contributions made prior to January 1, 1987, which were not allowed as a deduction under former Sections 17503 and 17513 (including predecessor Section 17524 repealed by Chapter 488 of the Statutes of 1983) relating to special limitations for self-employed individuals. (b) (1) There is hereby imposed a tax on lump-sum distributions computed in accordance with the provisions of Section 402(d) of the Internal Revenue Code using the rates and brackets prescribed in subdivision (a) of Section 17041 (without regard to Section 17045) in lieu of the rates and brackets in Section 1(c) of the Internal Revenue Code. The recipient of the lump-sum distribution shall be liable for the tax imposed by this paragraph. (2) For purposes of this part, the provisions of Section 1122(h) of Public Law 99-514, as modified by Section 1011A(b) of Public Law 100-647, shall apply, except as modified by each of the following: (A) The provisions of Section 1122(h)(3)(B) of Public Law 99-514 shall be modified to refer to Section 17041 rather than Section 1 of the Internal Revenue Code of 1986. (B) The provisions of Section 1122(h)(3)(B)(ii) of Public Law 99-514 shall be modified to provide a tax rate of 5.5 percent rather than a tax rate of 20 percent. (C) The provisions of Section 1122(h)(5) of Public Law 99-514 shall be modified to refer to Section 17041 rather than Section 1 of the Internal Revenue Code of 1954. (3) For purposes of this section, a taxpayer shall elect the same special lump-sum distribution averaging method for purposes of this part as that elected for federal purposes under Section 402(d)(4)(B) of the Internal Revenue Code. (4) The provisions of Section 1124(a) of Public Law 99-514, as amended by Section 1011A(d) of Public Law 100-647, shall apply. (5) The provisions of Section 1124(c) of Public Law 99-514, as added by Section 1011A(d) of Public Law 100-647, shall apply. 17506. The provisions of Section 403 of the Internal Revenue Code, relating to taxation of employee annuities, shall be modified to provide that the basis of any person in an employee annuity shall include the amount of any contributions made prior to January 1, 1987, which were not allowed as a deduction under former Sections 17503 and 17513 of the Revenue and Taxation Code (including predecessor Section 17524 repealed by Chapter 488 of the Statutes of 1983) relating to special limitations for self-employed individuals. 17507. The provisions of Section 408 of the Internal Revenue Code, relating to individual retirement accounts, shall be modified as follows: (a) The following provisions shall be incorporated into Section 408(e) of the Internal Revenue Code: (1) In the case of a plan in existence in taxable year 1975 where contributions were made pursuant to, and in conformance with, Section 408 or 409 of the Internal Revenue Code of 1954, as amended by the Employee Retirement Income Security Act of 1974 (Public Law 93-406), any net income attributable to the 1975 contribution shall not be includable in the gross income, for taxable year 1977 or succeeding taxable years, of the individual for whose benefit the plan was established until distributed pursuant to the provisions of the plan or by operation of law. (2) In the case of a simplified employee pension, where contributions are also made pursuant to, and in conformance with, the provisions of Section 408(k) of the Internal Revenue Code of 1954, the net income attributable to the nondeductible portion of those contributions shall not be includable in the gross income of the individual for whose benefit the plan was established for the taxable year or for succeeding taxable years until distributed pursuant to the provisions of the plan or by operation of law. (3) Notwithstanding the limitations provided in former Section 17272 (as amended by Chapter 1461 of the Statutes of 1985) with respect to the amount of deductible contributions and individuals eligible for the deduction, any income attributable to contributions made to a plan in existence in taxable years beginning on or after January 1, 1982, in conformance with Sections 219, 220, 408, and 409 of the Internal Revenue Code of 1954, shall not be includable in the gross income of the individual for whose benefit the plan was established until distributed pursuant to the provisions of the plan or by operation of law. (b) The provisions of Section 408(d) of the Internal Revenue Code, relating to the tax treatment of distributions, are modified as follows: (1) For taxable years beginning on or after January 1, 1982, and before January 1, 1987, the basis of any person in the account or annuity is the amount of contributions not allowed as a deduction under former subdivision (a), (e), or (g) of Section 17272 (as amended by Chapter 1461 of the Statutes of 1985) on account of the purchase of the account or annuity. (2) For purposes of paragraph (1), the rules for recovery of basis shall be governed by Section 17085. (c) A copy of the report, which is required to be filed with the Secretary of the Treasury under Section 408(i) or 408(l) of the Internal Revenue Code, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in those sections. 17507.6. Section 408A of the Internal Revenue Code, relating to Roth IRAs, is modified to additionally provide all of the following: (a) Section 408A(c)(3) of the Internal Revenue Code is modified as follows: (1) By substituting the phrase "shall not exceed an amount equal to the amount determined under paragraph (2)(A) for such taxable year, reduced" in lieu of the phrase "shall be reduced" in Section 408A(c)(3)(A) of the Internal Revenue Code. (2) By substituting the phrase "in the case of a joint return or a married individual filing a separate return" in lieu of the phrase "in the case of a joint return" in Section 408A(c)(3)(A)(ii) of the Internal Revenue Code. (3) By substituting the phrase "taxable year if, for the taxable year of the distribution to which such contribution relates" in lieu of the phrase "taxable year if" in Section 408A(c)(3)(B) of the Internal Revenue Code. (4) By substituting the phrase "adjusted gross income exceeds" in lieu of the phrase "adjusted gross income for such taxable year exceeds" in Section 408A(c)(3)(B)(i) of the Internal Revenue Code. (5) By substituting the phrase "any amount included in gross income under subsection (d)(3) shall not be taken into account" in lieu of the phrase "any amount included in gross income under subsection (d)(3) shall not be taken into account and the deduction under Section 219 shall be taken into account" in Section 408A(c)(3) (C)(i) of the Internal Revenue Code. (b) (1) Section 408A(d)(1) of the Internal Revenue Code shall not apply and in lieu thereof any qualified distribution from a Roth IRA shall not be includable in gross income. (2) Section 408A(d)(2)(B) of the Internal Revenue Code shall not apply and in lieu thereof: (A) A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under Section 408A(d)(2)(A) of the Internal Revenue Code if the payment or distribution is made within the five-taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA (or the individual's spouse made a contribution to a Roth IRA) established for that individual. (B) The term "qualified distribution" shall not include any distribution of any contribution described in subdivision (g) and any net income allocable to the contribution. (c) (1) If a taxpayer has made an election for federal purposes under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as amended by Public Law 105-206, to not have Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as amended by Public Law 105-206, apply to any distributions during the 1998 taxable year, that election shall be treated as an election to include in gross income for purposes of this part all amounts required to be included in gross income for the taxable year by reason of Section 408A(d)(3) of the Internal Revenue Code. A separate election for state purposes may not be made under paragraph (3) of subdivision (e) of Section 17024.5 and the federal election shall be binding for purposes of this part. (2) If a taxpayer fails to make an election for federal purposes under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as amended by Public Law 105-206, to not have Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as amended by Public Law 105-206, apply to any distributions during a taxable year, Section 408A(d)(3) (A)(iii) of the Internal Revenue Code shall apply to those distributions for state purposes, no election under Section 408A(d) (3)(A)(iii) of the Internal Revenue Code, as amended by Public Law 105-206, shall be allowed for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5. (d) In the case of a qualified rollover contribution to a Roth IRA of a distribution to which Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as amended by Public Law 105-206, applied, the following rules shall apply: (1) (A) The amount required to be included in gross income for each of the first three taxable years in the four-year period under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code shall be increased by the aggregate distributions from Roth IRAs for the taxable year which are allocable under Section 408A(d)(4) of the Internal Revenue Code to the portion of the qualified rollover contribution required to be included in gross income under Section 408A(d)(3)(A)(i) of the Internal Revenue Code. (B) The amount required to be included in gross income for any taxable year under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code shall not exceed the aggregate amount required to be included in gross income under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code for all taxable years in the four-year period (without regard to subparagraph (A)) reduced by amounts included for all preceding taxable years. (2) (A) If the individual required to include amounts in gross income under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code dies before all the amounts are included, all remaining amounts shall be included in gross income for the taxable year which includes the date of death. (B) (i) If the spouse of the individual described in subparagraph (A) acquires the individual's entire interest in any Roth IRA to which the qualified rollover contribution is properly allocable and makes an election for federal purposes under Section 408A(d)(3)(E) of the Internal Revenue Code, as amended by Public Law 105-206, to treat the remaining amounts described in subparagraph (A) as includable in the spouse's gross income in the taxable years of the spouse ending with or within the taxable years of the individual in which the amounts would otherwise have been includable, subparagraph (A) shall not apply for state purposes, a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, the federal election shall be binding for purposes of this part and that election shall be treated as an election to treat the remaining amounts described in subparagraph (A) as includable in the spouse's gross income for state purposes in the taxable years of the spouse ending with or within the taxable years of the individual in which the amounts would otherwise have been includable. (ii) If the spouse of the individual described in subparagraph (A) acquires the individual's entire interest in any Roth IRA to which the qualified rollover contribution is properly allocable and fails to make an election for federal purposes under Section 408A(d)(3)(E) of the Internal Revenue Code, as amended by Public Law 105-206, or revokes an election previously made for federal purposes under Section 408A(d)(3)(E) of the Internal Revenue Code, as amended by Public Law 105-206, to treat the remaining amounts described in subparagraph (A) as includable in the spouse's gross income in the taxable years of the spouse ending with or within the taxable years of the individual in which the amounts would otherwise have been includable, no election under this paragraph shall be allowed for state purposes, subparagraph (A) shall apply for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5. (e) (1) If any portion of a distribution from a Roth IRA is properly allocable to a qualified rollover contribution described in Section 408A(d)(3) of the Internal Revenue Code, and the distribution is made within the five-taxable year period beginning with the taxable year in which the contributions were made, then Section 72(t) of the Internal Revenue Code shall be applied as if that portion were includable in gross income. (2) Paragraph (1) shall apply only to the extent of the amount of the qualified rollover contribution includable in gross income under Section 408A(d)(3)(A)(i) of the Internal Revenue Code. (f) Section 408A(d)(3)(D) of the Internal Revenue Code shall not apply. (g) Section 408A(d)(4) of the Internal Revenue Code shall not apply and in lieu thereof: (1) (A) Section 408(d)(2) of the Internal Revenue Code shall be applied separately with respect to Roth IRAs and other individual retirement plans. (B) For purposes of applying Section 408A of the Internal Revenue Code, as amended by Public Law 105-206, this section and Section 72 of the Internal Revenue Code to any distribution from a Roth IRA, the distribution shall be treated as made-- (i) From contributions to the extent that the amount of the distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate contributions to the Roth IRA, and (ii) From the contributions in the following order: (I) Contributions other than qualified rollover contributions to which Section 408A(d)(3) of the Internal Revenue Code, as amended by Public Law 105-206, applies. (II) Qualified rollover contributions to which Section 408A(d)(3) of the Internal Revenue Code, as amended by Public Law 105-206, applies on a first-in, first-out basis. Any distribution allocated to a qualified rollover contribution under this clause shall be allocated first to the portion of the contribution required to be included in gross income. (h) (1) Except as provided by the Secretary of the Treasury (unless the Franchise Tax Board provides otherwise), if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during the taxable year from that plan to any other individual retirement plan, then, for purposes of this part, the contribution shall be treated as having been made to the transferee plan (and not the transferor plan). (2) (A) Paragraph (1) shall not apply to the transfer of any contribution unless the transfer is accompanied by any net income allocable to that contribution. (B) Paragraph (1) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan. (i) For purposes of Section 408A(d) of the Internal Revenue Code, the due date for any taxable year is the date prescribed by law (including extensions of time) for filing the taxpayer's return for that taxable year. (j) For purposes of Section 408A of the Internal Revenue Code-- (1) A simplified employee pension or a simple retirement account may not be designated as a Roth IRA, and (2) Contributions to that pension or account shall not be taken into account for purposes of Section 408A(c)(2)(B) of the Internal Revenue Code. 17508. The provisions of Section 408(o) of the Internal Revenue Code, relating to definitions and rules relating to nondeductible contributions to individual retirement plans, shall be applicable and the information required to be reported shall be reported on the return filed pursuant to Chapter 2 (commencing with Section 18501) of Part 10.2 at the time and in the manner as specified in that section. 17509. Sections 413(b)(6) and 413(c)(5) of the Internal Revenue Code, relating to liability for funding tax, do not apply. 17510. Section 7701(j) of the Internal Revenue Code, relating to Federal Thrift Savings Funds, applies, except as otherwise provided.