19131-19187
REVENUE AND TAXATION CODE
SECTION 19131-19187
19131. (a) If any taxpayer fails to make and file a return required
by this part on or before the due date of the return or the due date
as extended by the Franchise Tax Board, then, unless it is shown
that the failure is due to reasonable cause and not due to willful
neglect, 5 percent of the tax shall be added to the tax for each
month or fraction thereof elapsing between the due date of the return
(determined without regard to any extension of time for filing) and
the date on which filed, but the total penalty may not exceed 25
percent of the tax. In the case of a commencing corporation, the
penalty shall apply to all tax accruable on the due date of the
return. The penalty so added to the tax shall be due and payable upon
notice and demand from the Franchise Tax Board.
(b) In the case of an individual or fiduciary who fails to file a
return of tax required by this part within 60 days of the date
prescribed for filing of that return (determined with regard to any
extension of time for filing), unless it is shown that the failure is
due to reasonable cause and not due to willful neglect, this penalty
may not be less than the lesser of one hundred thirty-five dollars
($135) or 100 percent of the amount of tax required to be shown on
the return.
(c) For purposes of this section, the amount of tax required to be
shown on the return shall be reduced by the amount of any part of
the tax which is paid on or before the date prescribed for payment of
the tax and by the amount of any credit against the tax which may be
claimed upon the return.
(d) If any failure to file any return is fraudulent, subdivision
(a) shall be applied by:
(1) Substituting "15 percent" for "5 percent," and
(2) Substituting "75 percent" for "25 percent."
(e) This section does not apply to any failure to pay any
estimated tax required by Section 19025 or 19136.
(f) (1) The penalty described in this section is presumed not to
apply if, with respect to the same taxable year, all of the following
conditions are met:
(A) A taxpayer fails to make and file a return required by this
part on or before the due date of the return, determined with regard
to any extension of time for filing, and fails to make and file a
return required by Section 6012 of the Internal Revenue Code on or
before the due date of the return, determined with regard to any
extension of time for filing.
(B) The Franchise Tax Board proposes a deficiency assessment that
is based upon a final federal determination.
(C) The Commissioner of Internal Revenue or other officer of the
United States determines that the penalty described in Section 6651
(a)(1) of the Internal Revenue Code does not apply because the
failure to file the federal return on or before the date prescribed
for its filing was due to reasonable cause and not due to willful
neglect.
(2) The Franchise Tax Board may rebut the presumption described in
paragraph (1) by establishing, by a preponderance of the evidence,
that the taxpayer's failure to make and file a return required by
this part was not due to reasonable cause or was due to willful
neglect.
19132. (a) (1) Unless it is shown that the failure is due to
reasonable cause and not due to willful neglect, a penalty computed
in accordance with paragraph (2) is hereby imposed in the case of
failure to pay any of the following:
(A) The amount shown as tax on any return on or before the date
prescribed for payment of that tax determined with regard to any
extension of time for payment.
(B) Any amount in respect of any tax required to be shown on a
return which is not so shown including an assessment made pursuant to
Section 19051 within 15 days of the date of the notice and demand
therefor.
(C) The amount required to be paid by Section 19021, if
applicable, that is not paid.
(D) The amount required to be paid by Section 17941 or 23091, if
applicable, that is not paid.
(E) The amount required to be paid by Section 17948 or 23097, if
applicable, that is not paid.
(2) The penalty imposed under paragraph (1) shall consist of both
of the following:
(A) Five percent of the total tax unpaid as defined in subdivision
(c).
(B) An amount computed at the rate of 0.5 percent per month of the
"remaining tax" as defined in subdivision (d) for each additional
month or fraction thereof not to exceed 40 months during which the
"remaining tax" is greater than zero.
(3) The aggregate amount of penalty imposed by this subdivision
shall not exceed 25 percent of the total unpaid tax and shall be due
and payable upon notice and demand by the Franchise Tax Board. The
tender of a check or money order does not constitute payment of the
tax for purposes of this section unless the check or money order is
paid on presentment.
(b) The penalty prescribed by subdivision (a) shall not be
assessed if, for the same taxable year, the sum of any penalties
imposed under Section 19131 relating to failure to file return and
Section 19133 relating to failure to file return after demand is
equal to or greater than the subdivision (a) penalty. In the event
the penalty imposed under subdivision (a) is greater than the sum of
any penalties imposed under Sections 19131 and 19133, the penalty
imposed under subdivision (a) shall be the amount which exceeds the
sum of any penalties imposed under Sections 19131 and 19133.
(c) For purposes of this section, total tax unpaid means the
amount of tax shown on the return reduced by both of the following:
(1) The amount of any part of the tax which is paid on or before
the date prescribed for payment of the tax.
(2) The amount of any credit against the tax which may be claimed
upon the return.
(d) For purposes of this section, "remaining tax" means total tax
unpaid reduced by the amount of any payment of the tax.
(e) If the amount required to be shown as a tax on a return is
less than the amount shown as tax on that return, subdivisions (a),
(c), and (d) shall be applied by substituting that lower amount.
(f) No interest shall accrue on the portion of the penalty
prescribed in subparagraph (B) of paragraph (2) of subdivision (a).
(g) The amendments made by the act adding this subdivision are
operative for notices issued on or after January 1, 1998.
19132.5. (a) In the case of a qualified taxpayer, no penalty shall
be assessed under Section 19132 if the return is filed timely (not
later than the extended due date granted under Section 18567 or
18604) and the tax required to be paid on or before the due date of
the return, without regard to extension, is paid within the following
time:
(1) In the case of an individual, partnership, or fiduciary,
within six months of the original due date of the return.
(2) In the case of a corporation, within seven months of the
original due date of the return.
(b) Any penalty imposed under Section 19132 shall be assessed from
the original due date of the return if the taxpayer fails to pay the
tax within the time specified in this section.
(c) This section shall apply to payment of the amount shown as tax
on the original returns required to be filed during calendar year
1994.
(d) For purposes of this section, "qualified taxpayer" means any
corporation, fiduciary, partnership, or individual taxpayer to whom
one of the following applies as a result of the Northridge earthquake
of January 1994, any related aftershock, or any related casualty:
(1) The qualified taxpayer sustained any significant property
loss.
(2) The qualified taxpayer suffered a loss of employment due to
property damage suffered by his or her employer.
(3) The qualified taxpayer realized significant loss of business
income from a business located within the Northridge earthquake area.
19133. If any taxpayer fails or refuses to furnish any information
requested in writing by the Franchise Tax Board or fails or refuses
to make and file a return required by this part upon notice and
demand by the Franchise Tax Board, then, unless the failure is due to
reasonable cause and not willful neglect, the Franchise Tax Board
may add a penalty of 25 percent of the amount of tax determined
pursuant to Section 19087 or of any deficiency tax assessed by the
Franchise Tax Board concerning the assessment of which the
information or return was required.
19133.5. (a) In the case of a failure to make a report required
under Section 18152.5 that contains the information required by that
section on the date prescribed therefor (determined with regard to
any extension of time for filing), there shall be paid (on notice and
demand by the Franchise Tax Board and in the same manner as tax) by
the person failing to make the report, an amount equal to fifty
dollars ($50) for each report with respect to which there was such a
failure. In the case of any failure due to negligence or intentional
disregard, the preceding sentence shall be applied by substituting
one hundred dollars ($100) for fifty dollars ($50). In the case of a
report covering periods in two or more years, the penalty determined
under preceding provisions of this section shall be multiplied by the
number of those years.
(b) This section shall become operative on January 1, 1994.
(c) No penalty shall be imposed under this section for any failure
that is shown to be due to reasonable cause and not willful neglect.
(d) The amendments made by the act adding this subdivision shall
become operative on January 1, 1998.
19134. (a) The provisions of Section 6657 of the Internal Revenue
Code, relating to bad checks, shall apply except as otherwise
provided.
(b) Section 6657 of the Internal Revenue Code, relating to bad
checks, is modified to apply to payments made by credit card
remittance or electronic funds transfer (as provided by Section
19011) in addition to payments made by check or money order.
(c) For payments received prior to January 1, 1993, this section
shall be applied only to payments pertaining to taxable years
beginning on or after January 1, 1990.
(d) For payments received on or after January 1, 1993, this
section shall be applied to all payments, without regard to taxable
year.
(e) The amendments made to Section 6657 of the Internal Revenue
Code by Public Law 110-28 that are incorporated by reference under
this section shall apply to all payments received after the effective
date of the act adding this subdivision, without regard to taxable
year.
19135. Whenever any foreign corporation which fails to qualify to
do business in this state or whose powers, rights, and privileges
have been forfeited, or any domestic corporation which has been
suspended, and which is doing business in this state, within the
meaning of Section 23101, fails to make and file a return as required
by this part, the Franchise Tax Board shall impose a penalty of two
thousand dollars ($2,000) per taxable year, unless the failure to
file is due to reasonable cause and not willful neglect. The penalty
shall be in addition to any other penalty which may be due under this
part. The penalty shall be imposed if the return is not filed within
60 days after the Franchise Tax Board sends the taxpayer a notice
and demand to file the required tax return.
19136. (a) Section 6654 of the Internal Revenue Code, relating to
failure by an individual to pay estimated income tax, shall apply,
except as otherwise provided.
(b) Section 6654(a)(1) of the Internal Revenue Code is modified to
refer to the rate determined under Section 19521 in lieu of Section
6621 of the Internal Revenue Code.
(c) (1) Section 6654(e)(1) of the Internal Revenue Code, relating
to exceptions where the tax is a small amount, does not apply.
(2) No addition to the tax shall be imposed under this section if
the tax imposed under Section 17041 or 17048 and the tax imposed
under Section 17062 for the preceding taxable year, minus the sum of
any credits against the tax provided by Part 10 (commencing with
Section 17001) or this part, or the tax computed under Section 17041
or 17048 upon the estimated income for the taxable year, minus the
sum of any credits against the tax provided by Part 10 (commencing
with Section 17001) or this part, is less than five hundred dollars
($500), except in the case of a separate return filed by a married
person the amount shall be less than two hundred fifty dollars
($250).
(d) Section 6654(f) of the Internal Revenue Code does not apply
and for purposes of this section the term "tax" means the tax imposed
under Section 17041 or 17048 and the tax imposed under Section 17062
less any credits against the tax provided by Part 10 (commencing
with Section 17001) or this part, other than the credit provided by
subdivision (a) of Section 19002.
(e) (1) The credit for tax withheld on wages, as specified in
Section 6654(g) of the Internal Revenue Code, shall be the credit
allowed under subdivision (a) of Section 19002.
(2) (A) Section 6654(g)(1) of the Internal Revenue Code is
modified by substituting the phrase "the applicable percentage" for
the phrase "an equal part."
(B) For purposes of this paragraph, "applicable percentage" means
the percentage amount prescribed under Section 6654(d)(1)(A) of the
Internal Revenue Code, as modified by subdivision (a) of Section
19136.1.
(f) This section shall apply to a nonresident individual.
(g) (1) No addition to tax shall be imposed under this section to
the extent that the underpayment was created or increased by any
provision of law that is chaptered during and operative for the
taxable year of the underpayment.
(2) Notwithstanding Section 18415, this section applies to
penalties imposed under this section on and after January 1, 2005.
(h) The amendments made to this section by Section 5 of Chapter
305 of the Statutes of 2008 shall apply to taxable years beginning on
or after January 1, 2009.
(i) The amendments made to this section by the act adding this
subdivision shall apply to amounts withheld on wages beginning or
after January 1, 2009.
19136.1. (a) Section 6654(d)(1)(A) of the Internal Revenue Code is
modified to provide that in lieu of the required installments
specified in that section, the amount of required installments shall
instead be as follows:
(1) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2010, the amount of required installments shall
be:
(A) For the 1st and 2nd required installments, 30 percent of the
required annual payment.
(B) For the 3rd and 4th required installments, 20 percent of the
required annual payment.
(2) For each taxable year beginning on or after January 1, 2010,
the amount of required installments shall be:
(A) For the 1st required installment, 30 percent of the required
annual payment.
(B) For the 2nd required installment, 40 percent of the required
annual payment.
(C) The amount of the 3rd required installment shall be zero.
(D) For the 4th required installment, 30 percent of the required
annual payment.
(b) Section 6654(d)(2)(C)(ii) of the Internal Revenue Code,
relating to applicable percentage, is modified as follows:
(1) For each taxable year beginning on or after January 1, 2009,
and before January 1, 2010, by substituting "27" for "22.5," "54" for
"45," and "72" for "67.5."
(2) For each taxable year beginning on or after January 1, 2010,
by substituting "27" for "22.5," "63" for "45," and "63" for "67.5."
19136.12. (a) No addition to tax shall be made pursuant to Section
19136 for any period before the date prescribed under Section 18566
for the filing of the return for the 2005 taxable year, with respect
to any underpayment of an installment for the 2005 taxable year, to
the extent that the underpayment was created or increased by any
provision of the act adding this section.
(b) No addition to tax shall be made pursuant to Section 18601 for
the filing of the return for the 2005 taxable year, with respect to
any underpayment of an installment for the 2005 taxable year, to the
extent that the underpayment was created or increased by any
provision of the act adding this section.
(c) The Franchise Tax Board shall implement this section in a
reasonable manner.
19136.13. No addition to tax shall be made pursuant to Section
19136 for any period before the date prescribed under Section 18566
for the filing of the return for the 2007 taxable year, with respect
to any underpayment of an installment for the 2007 taxable year, to
the extent that the underpayment was created or increased by any
provision of the act adding this section or Chapter 802 of the
Statutes of 2006.
19136.2. For taxable years beginning on or after January 1, 1998,
and before January 1, 1999, Section 6654(d)(1)(C)(i) of the Internal
Revenue Code, relating to limitation on use of preceding year's tax,
shall not apply.
19136.3. (a) Section 6654(d)(1)(B) of the Internal Revenue Code is
modified to additionally provide that clause (ii) shall not apply if
the adjusted gross income shown on the return of the individual for
the taxable year is equal to or greater than $1 million ($500,000 in
the case of a married individual filing a separate return).
(b) This section shall apply to taxable years beginning on or
after January 1, 2009.
19136.5. No addition to tax shall be made under Section 19136 for
any installment of tax due on or after January 1, 1993, to the extent
that the underpayment is attributable solely to changes made to the
laws of other states applicable to the determination of credits that
make Section 18001 inapplicable, by its terms, to a resident of this
state.
19136.7. (a) No additions to tax shall be made under Section 19136
or 19142 with respect to any underpayment of an installment for a
taxable year, to the extent that the underpayment was created or
increased as the direct result of an erroneous levy, erroneous
processing action, or erroneous collection action by the Franchise
Tax Board.
(b) The Franchise Tax Board shall implement this section in a
reasonable manner.
19136.8. (a) No addition to tax shall be made under Section 19136
with respect to any underpayment of an installment to the extent that
the underpayment was created or increased by the disallowance of a
credit under subdivision (g) of Section 17053.80.
(b) No addition to tax shall be made under Section 19142 with
respect to any underpayment of an installment to the extent that the
underpayment was created or increased by the disallowance of a credit
under subdivision (g) of Section 23623.
(c) The Franchise Tax Board shall adopt procedures, forms, and
instructions necessary to implement this section in a reasonable
manner.
19138. (a) (1) A taxpayer subject to the tax imposed under Part 11
(commencing with Section 23001) with an understatement of tax for any
taxable year shall be subject to the penalty imposed under this
section if that understatement exceeds the greater of the following:
(A) One million dollars ($1,000,000).
(B) Twenty percent of the tax shown on an original return or shown
on an amended return filed on or before the original or extended due
date of the return for the taxable year.
(2) 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 threshold amount prescribed in
subparagraph (A) or subparagraph (B) of paragraph (1) shall apply to
the aggregate amount of tax liability under Part 11 (commencing with
Section 23001) for all taxpayers that are required to be or
authorized to be included in a combined report.
(b) The penalty under this section shall be an amount equal to 20
percent of any understatement of tax. For purposes of this section,
"understatement of tax" means the amount by which the tax imposed by
Part 11 (commencing with Section 23001) exceeds the amount of tax
shown on an original return or shown on an amended return filed on or
before the original or extended due date of the return for the
taxable year. For any taxable year beginning before January 1, 2008,
the amount of tax paid on or before May 31, 2009, and shown on an
amended return filed on or before May 31, 2009, shall be treated as
the amount of tax shown on an original return for purposes of this
section.
(c) The penalty imposed by this section shall be in addition to
any other penalty imposed under Part 11 (commencing with Section
23001) or this part.
(d) Article 3 (commencing with Section 19031), relating to
deficiency assessments, shall not apply with respect to the
assessment or collection of any penalty imposed by subdivision (a).
(e) A refund or credit for any amounts paid to satisfy a penalty
imposed under this section may be allowed only on the grounds that
the amount of the penalty was not properly computed by the Franchise
Tax Board.
(f) (1) No penalty shall be imposed under this section on any
understatement to the extent that the understatement is attributable
to a change in law that is enacted, promulgated, issued, or becomes
final after the earlier of either of the following dates:
(A) The date the taxpayer files the return for the taxable year
for which the change is operative.
(B) The extended due date for the return of the taxpayer for the
taxable year for which the change is operative.
(2) For purposes of this subdivision, a "change of law" means a
statutory change or an interpretation of law or rule of law by
regulation, legal ruling of counsel, within the meaning of
subdivision (b) of Section 11340.9 of the Government Code, or a
published federal or California court decision.
(3) The Franchise Tax Board shall implement this subdivision in a
reasonable manner.
(g) No penalty shall be imposed under this section to the extent
that a taxpayer's understatement is attributable to the taxpayer's
reasonable reliance on written advice of the Franchise Tax Board, but
only if the written advice was a legal ruling by the Chief Counsel,
within the meaning of paragraph (1) of subdivision (a) of Section
21012.
(h) (1) This section shall apply to each taxable year beginning on
or after January 1, 2003, for which the statute of limitations on
assessment has not expired.
(2) The amendments made to this section by the act adding this
paragraph shall apply to each taxable year beginning on or after
January 1, 2010.
19141. Upon certification by the Secretary of State pursuant to
subdivision (a) of Section 2204 or subdivision (a) of Section 17563
of the Corporations Code, the Franchise Tax Board shall assess a
penalty of two hundred fifty dollars ($250). Upon certification by
the Secretary of State pursuant to subdivision (a) of Section 6810 or
subdivision (a) of Section 8810 of the Corporations Code, the
Franchise Tax Board shall assess a penalty of fifty dollars ($50).
Any penalty assessed under this section shall be a final assessment
due and payable at the time of assessment but no interest shall
accrue thereon. The assessment shall be collected as other taxes,
interest, and penalties are collected by the Franchise Tax Board
unless the Secretary of State decertifies the name of the corporation
as provided in subdivision (e) or (f) of Section 2204, subdivision
(e) of Section 6810, or subdivision (e) of Section 8810 of the
Corporations Code.
19141.2. (a) Section 6038 of the Internal Revenue Code, relating to
information with respect to certain foreign corporations, shall
apply, except as otherwise provided.
(b) Section 6038(a) is modified as follows:
(1) The information required to be filed with the Franchise Tax
Board under this section shall be a copy of the information required
to be filed with the Internal Revenue Service.
(2) The term "United States person," as defined in Section 7701(a)
(30) of the Internal Revenue Code, shall be limited to a domestic
corporation, as defined in Section 7701(a) of the Internal Revenue
Code, or a bank, as defined in Section 23039, that is subject to the
tax imposed under Chapter 2 (commencing with Section 23101), Chapter
2.5 (commencing with Section 23400), or Chapter 3 (commencing with
Section 23501), of Part 11.
(c) (1) Unless it is shown that the failure is due to reasonable
cause and not due to willful neglect, a penalty shall be imposed
under this part for failure to furnish information and that penalty
shall be determined in accordance with Section 6038 of the Internal
Revenue Code, except as otherwise provided.
(A) Section 6038(b) of the Internal Revenue Code shall be modified
by substituting "$1,000" for "$10,000" in each place it appears.
(B) Section 6038(b)(2) of the Internal Revenue Code shall be
modified by substituting "$24,000" for "$50,000."
(2) No penalty shall be imposed under paragraph (1) if the copy of
the information required to be filed with the Internal Revenue
Service was not attached to the taxpayer's return as originally filed
but the taxpayer does both of the following:
(A) Furnishes the copy of the information required to be filed
with the Internal Revenue Service either upon its own initiative or
within 90 days of notification by the Franchise Tax Board of the
requirements of this section.
(B) Agrees to attach a copy of the information required to be
filed with the Internal Revenue Service to the taxpayer's original
return filed for subsequent taxable years.
(3) All or any portion of the penalty imposed under paragraph (1)
may be waived by the Franchise Tax Board when the taxpayer has
entered into a voluntary disclosure agreement under Article 8
(commencing with Section 19191) of Chapter 4.
(4) The penalty imposed under this subdivision shall not apply to
returns required to be filed for taxable years beginning before
January 1, 1998.
(d) This section shall apply to returns required to be filed for
taxable years beginning on or after January 1, 1997.
19141.5. (a) (1) Section 6038A of the Internal Revenue Code,
relating to information with respect to certain foreign-owned
corporations, shall apply.
(2) A penalty shall be imposed under this part for failure to
furnish information or maintain records and that penalty shall be
determined in accordance with Section 6038A of the Internal Revenue
Code.
(3) Section 11314 of Public Law 101-508, relating to application
of amendments made by Section 7403 of the Revenue Reconciliation Act
of 1989 to taxable years beginning on or before July 10, 1989, shall
apply.
(4) Section 6038A(e) of the Internal Revenue Code, relating to
enforcement of requests for certain records, is modified as follows:
(A) Each reference to Section 7602, 7603, or 7604 of the Internal
Revenue Code shall instead refer to Section 19504.
(B) Each reference to "summons" shall instead refer to "subpoena
duces tecum."
(C) Section 6038A(e)(4)(C) of the Internal Revenue Code shall
refer to "superior courts of the State of California for the Counties
of Los Angeles, Sacramento, and San Diego, and for the City and
County of San Francisco," instead of "United States district court
for the district in which the person (to whom the summons is issued)
resides or is found."
(b) In the case of a corporation, each of the following shall
apply:
(1) Section 6038B of the Internal Revenue Code, relating to notice
of certain transfers to foreign persons, shall apply, except as
otherwise provided.
(2) The information required to be filed with the Franchise Tax
Board under this subdivision shall be a copy of the information
required to be filed with the Internal Revenue Service.
(3) (A) A penalty shall be imposed under this part for failure to
furnish information and that penalty shall be determined in
accordance with Section 6038B of the Internal Revenue Code, except as
otherwise provided.
(B) Subparagraph (A) shall not apply to any transfer described in
Section 6038B(a)(1)(B) of the Internal Revenue Code.
(c) (1) Section 6038C of the Internal Revenue Code, relating to
information with respect to foreign corporations engaged in United
States business, shall apply.
(2) A penalty shall be imposed under this part for failure to
furnish information or maintain records and that penalty shall be
determined in accordance with Section 6038C of the Internal Revenue
Code.
(3) Section 6038C(d) of the Internal Revenue Code, relating to
enforcement of requests for certain records, is modified as follows:
(A) Each reference to Section 7602, 7603, or 7604 of the Internal
Revenue Code shall instead refer to Section 19504.
(B) Each reference to "summons" shall instead refer to "subpoena
duces tecum."
(d) For purposes of this part, the information required to be
filed with the Franchise Tax Board pursuant to this section shall be
a copy of the information filed with the Internal Revenue Service.
(e) For purposes of this section, each of the following shall
apply:
(1) Section 7701(a)(4) of the Internal Revenue Code, relating to
the term "domestic," shall apply.
(2) Section 7701(a)(5) of the Internal Revenue Code, relating to
the term "foreign," shall apply.
(3) Section 7701(a)(30) of the Internal Revenue Code, relating to
the term "United States person," shall apply. However, the term
"United States person" shall not include any corporation that is not
subject to the tax imposed under Chapter 2 (commencing with Section
23101), Chapter 2.5 (commencing with Section 23400), or Chapter 3
(commencing with Section 23501), of Part 11.
19141.6. (a) Each taxpayer determining its income subject to tax
pursuant to Section 25101 or electing to file pursuant to Section
25110 shall, for taxable years beginning on or after January 1, 1994,
maintain (in the location, in the manner, and to the extent
prescribed in regulations promulgated by the Franchise Tax Board on
or before December 31, 1995) and make available upon request all of
the following:
(1) Any records as may be appropriate to determine the correct
treatment of the components that are a part of one or more unitary
businesses for purposes of determining the income derived from or
attributable to this state pursuant to Section 25101 or 25110.
(2) Any records as may be appropriate to determine the correct
treatment of amounts that are attributable to the classification of
an item as business or nonbusiness income for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(3) Any records as may be appropriate to determine the correct
treatment of the apportionment factors for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(4) Documents and information, including any questionnaires
completed and submitted to the Internal Revenue Service, that are
necessary to audit issues involving attribution of income to the
United States or foreign jurisdictions under Section 882 of, or
Subpart F of Part III of Subchapter N of, or similar provisions of,
the Internal Revenue Code.
(b) For purposes of this section:
(1) Information for any year shall be retained for that period of
time in which the taxpayers' income or franchise tax liability to
this state may be subject to adjustment, including all periods in
which additional income or franchise taxes may be assessed, not to
exceed eight years from the due date or extended due date of the
return, or during which a protest is pending before the Franchise Tax
Board, or an appeal is pending before the State Board of
Equalization, or a lawsuit is pending in the courts of this state or
the United States with respect to California franchise or income tax.
(2) "Related party" means corporations that are related because
one owns or controls, directly or indirectly, more than 50 percent of
the stock of the other or because more than 50 percent of the voting
stock of each is owned or controlled, directly or indirectly, by the
same interests.
(3) "Records" includes any books, papers, or other data.
(c) (1) If a corporation subject to this section fails to maintain
or fails to cause another to maintain records as required by
subdivision (a), that corporation shall pay a penalty of ten thousand
dollars ($10,000) for each taxable year with respect to which the
failure occurs.
(2) If any failure described in paragraph (1) continues for more
than 90 days after the day on which the Franchise Tax Board mails
notice of the failure to the corporation, that corporation shall pay
a penalty (in addition to the amount required under paragraph (1)) of
ten thousand dollars ($10,000) for each 30-day period (or fraction
thereof) during which the failure continues after the expiration of
the 90-day period. The additional penalty imposed by this subdivision
shall not exceed a maximum of fifty thousand dollars ($50,000) if
the failure to maintain or the failure to cause another to maintain
is not willful. This maximum shall apply with respect to taxable
years beginning on or after January 1, 1994, and before the earlier
of the first day of the month following the month in which
regulations are adopted pursuant to this section or December 31,
1995.
(3) For purposes of this section, the time prescribed by
regulations to maintain records (and the beginning of the 90-day
period after notice by the Franchise Tax Board) shall be treated as
not earlier than the last day on which (as shown to the satisfaction
of the Franchise Tax Board) reasonable cause existed for failure to
maintain the records.
(d) (1) The Franchise Tax Board may apply the rules of paragraph
(2) whether or not the board begins a proceeding to enforce a
subpoena, or subpoena duces tecum, if subparagraphs (A), (B), and (C)
apply:
(A) For purposes of determining the correct treatment under Part
11 (commencing with Section 23001) of the items described in
subdivision (a), the Franchise Tax Board issues a subpoena or
subpoena duces tecum to a corporation to produce (either directly or
as agent for the related party) any records or testimony.
(B) The subpoena or subpoena duces tecum is not quashed in a
proceeding begun under paragraph (3) and is not determined to be
invalid in a proceeding begun under Section 19504 to enforce the
subpoena or subpoena duces tecum.
(C) The corporation does not substantially comply in a timely
manner with the subpoena or subpoena duces tecum and the Franchise
Tax Board has sent by certified or registered mail a notice to that
corporation that it has not substantially complied.
(D) If the corporation fails to maintain or fails to cause another
to maintain records as required by subdivision (a), and by reason of
that failure, the subpoena, or subpoena duces tecum, is quashed in a
proceeding described in subparagraph (B) or the corporation is not
able to provide the records requested in the subpoena or subpoena
duces tecum, the Franchise Tax Board may apply the rules of paragraph
(2) to any of the items described in subdivision (a) to which the
records relate.
(2) (A) All of the following shall be determined by the Franchise
Tax Board in the Franchise Tax Board's sole discretion from the
Franchise Tax Board's own knowledge or from information the Franchise
Tax Board may obtain through testimony or otherwise:
(i) The components that are a part of one or more unitary
businesses for purposes of determining the income derived from or
attributable to this state pursuant to Section 25101 or 25110.
(ii) Amounts that are attributable to the classification of an
item as business or nonbusiness income for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(iii) The apportionment factors for purposes of Article 2
(commencing with Section 25120) of Chapter 17 of Part 11.
(iv) The correct amount of income under Section 882 of, or Subpart
F of Part III of Subchapter N of, or similar provisions of, the
Internal Revenue Code.
(B) This paragraph shall apply to determine the correct treatment
of the items described in subdivision (a) unless the corporation is
authorized by its related parties (in the manner and at the time as
the Franchise Tax Board shall prescribe) to act as the related
parties' limited agent solely for purposes of applying Section 19504
with respect to any request by the Franchise Tax Board to examine
records or produce testimony related to any item described in
subdivision (a) or with respect to any subpoena or subpoena duces
tecum for the records or testimony. The appearance of persons or the
production of records by reason of the corporation being an agent
shall not subject those persons or records to legal process for any
purpose other than determining the correct treatment under Part 11 of
the items described in subdivision (a).
(C) Determinations made in the sole discretion of the Franchise
Tax Board pursuant to this paragraph may be appealed to the State
Board of Equalization, in the manner and at the time prescribed by
Section 19045 or 19324, or may be the subject of an action to recover
tax, in the manner and at a time prescribed by Section 19382. The
review of determinations by the board or the court shall be limited
to whether the determinations were arbitrary or capricious, or are
not supported by substantial evidence.
(3) (A) Notwithstanding any other law or rule of law, any
reporting corporation to which the Franchise Tax Board issues a
subpoena or subpoena duces tecum referred to in subparagraph (A) of
paragraph (1) shall have the right to begin a proceeding to quash the
subpoena or subpoena duces tecum not later than the 90th day after
the subpoena or subpoena duces tecum was issued. In that proceeding,
the Franchise Tax Board may seek to compel compliance with the
subpoena or subpoena duces tecum.
(B) Notwithstanding any other law or rule of law, any reporting
corporation that has been notified by the Franchise Tax Board that it
has determined that the corporation has not substantially complied
with a subpoena or subpoena duces tecum referred to in paragraph (1)
shall have the right to begin a proceeding to review the
determination not later than the 90th day after the day on which the
notice referred to in subparagraph (C) of paragraph (1) was mailed.
If the proceeding is not begun on or before the 90th day, the
determination by the Franchise Tax Board shall be binding and shall
not be reviewed by any court.
(C) The superior courts of the State of California for the
Counties of Los Angeles, Sacramento, and San Diego, and for the City
and County of San Francisco, shall have jurisdiction to hear any
proceeding brought under subparagraphs (A) and (B). Any order or
other determination in the proceeding shall be treated as a final
order that may be appealed.
(D) If any corporation takes any action as provided in
subparagraphs (A) and (B), the running of any period of limitations
under Sections 19057 to 19064, inclusive (relating to the assessment
and collection of tax), or under Section 19704 (relating to criminal
prosecutions) with respect to that corporation shall be suspended for
the period during which the proceedings, and appeals therein, are
pending. In no event shall any period expire before the 90th day
after the day on which there is a final determination in the
proceeding.
19142. (a) Except as provided in Sections 19147 and 19148 and
subdivision (b), in the case of any underpayment of tax imposed under
Part 11 (commencing with Section 23001) there shall be added to the
tax for the taxable year an amount determined at the rate established
under Section 19521 on the amount of the underpayment for the period
of the underpayment.
(b) (1) No addition to tax shall be imposed under this section to
the extent that the underpayment was created or increased by any
provision of law that is chaptered during and operative for the
taxable year of the underpayment.
(2) Notwithstanding Section 18415, this subdivision applies to
penalties imposed on and after January 1, 2005.
19144. For the purposes of Section 19142 the amount of the
underpayment shall be the excess of--
(a) (1) The amount of the installment which would be required to
be paid if the estimated tax were equal to the applicable percentage
of the tax shown on the return for the taxable year, or (2) in the
case of the tax imposed by Article 3 (commencing with Section 23181)
of Chapter 2 of Part 11 an amount equal to the applicable percentage
of the lesser of the tax computed at the rate provided by Section
19024 (but otherwise on the basis of the facts shown on the return
and the law applicable to the taxable year), or the tax shown on the
return for the taxable year as prescribed by Section 19021, or (3) if
no return was filed, the applicable percentage of the tax for that
year, over
(b) The amount, if any, of the installment paid on or before the
last date prescribed for payment.
(c) For purposes of this section, the "applicable percentage"
shall be as follows:
(1) For taxable years beginning before January 1, 1998, 95
percent.
(2) For taxable years beginning on or after January 1, 1998, 100
percent.
19145. For purposes of Section 19142, the period of the
underpayment shall run from the date the installment was required to
be made to whichever of the following dates is the earlier:
(a) The 15th day of the third month following the close of the
taxable year, except in the case of an organization described in
Section 23731 subject to the tax imposed under Section 23731, in
which case "fifth" shall be substituted for "third."
(b) With respect to any portion of the underpayment, the date on
which that portion is paid. For purposes of this subdivision, a
payment of estimated tax on any installment date shall be considered
a payment of any previous underpayment only to the extent the payment
exceeds the amount of the installment determined under subdivision
(a) of Section 19144 for the installment date.
19147. (a) Notwithstanding Sections 19142 to 19145, inclusive, the
addition to the tax with respect to any underpayment of any
installment shall not be imposed if the total amount of all payments
of estimated tax paid on or before the last date prescribed for the
payment of the installment equals or exceeds the amount which would
have been required to be paid on or before that date if the estimated
tax were whichever of the following is the lesser:
(1) (A) The tax shown on the return of the taxpayer for the
preceding taxable year if a return showing a liability for tax was
filed by the taxpayer for the preceding year and that preceding year
was a year of 12 months. The tax shown on the return, in the case of
the tax imposed by Article 3 (commencing with Section 23181) of
Chapter 2 of Part 11, means the amount of tax shown on the return for
the taxable year as prescribed in Section 19021.
(B) In the case of a large corporation, subparagraph (A) shall not
apply, except as provided in clauses (i) and (ii).
(i) Subparagraph (A) shall apply for purposes of determining the
amount of the first required installment for any taxable year.
(ii) Any reduction in the first required installment by reason of
clause (i) shall be recaptured by increasing the amount of the next
required installment by the amount of that reduction.
(2) (A) An amount equal to the applicable percentage specified in
Section 19144 of the tax for the taxable year computed by placing on
an annualized basis the taxable income:
(i) For the first three months of the taxable year, in the case of
the installment required to be paid in the fourth month.
(ii) For the first three months of the taxable year, in the case
of the installment required to be paid in the sixth month.
(iii) For the first six months of the taxable year, in the case of
the installment required to be paid in the ninth month.
(iv) For the first nine months of the taxable year, in the case of
the installment required to be paid in the 12th month of the taxable
year.
(B) (i) If the taxpayer makes an election under this clause, each
of the following shall apply:
(I) Clause (i) of subparagraph (A) shall be applied by
substituting "two months" for "three months."
(II) Clause (ii) of subparagraph (A) shall be applied by
substituting "four months" for "three months."
(III) Clause (iii) of subparagraph (A) shall be applied by
substituting "seven months" for "six months."
(IV) Clause (iv) of subparagraph (A) shall be applied by
substituting "ten months" for "nine months."
(ii) If the taxpayer makes an election under this clause, each of
the following shall apply:
(I) Clause (ii) of subparagraph (A) shall be applied by
substituting "five months" for "three months."
(II) Clause (iii) of subparagraph (A) shall be applied by
substituting "eight months" for "six months."
(III) Clause (iv) of subparagraph (A) shall be applied by
substituting "eleven months" for "nine months."
(iii) An election under clause (i) or (ii) shall apply to the
taxable year for which the election is made and shall be effective
only if the election is made on or before the date required for the
payment of the first required installment for that taxable year.
(iv) This subparagraph shall apply to taxable years beginning on
or after January 1, 1997.
(C) For purposes of this paragraph, the taxable income shall be
placed on an annualized basis in the following manner:
(i) Multiply by 12 the taxable income referred to in subparagraph
(A).
(ii) Divide the resulting amount by the number of months in the
taxable year referred to in subparagraph (A).
"Taxable income" as used in this paragraph means "net income"
includable in the measure of tax or "alternative minimum taxable
income" (as defined by Section 23455).
(D) In the case of any corporation which is subject to the tax
imposed under Section 23731, any reference to taxable income shall be
treated as including a reference to unrelated business taxable
income and, except in the case of an election under subparagraph (B),
each of the following shall apply:
(i) Clause (i) of subparagraph (A) shall be applied by
substituting "two months" for "three months."
(ii) Clause (ii) of subparagraph (A) shall be applied by
substituting "four months" for "three months."
(iii) Clause (iii) of subparagraph (A) shall be applied by
substituting "seven months" for "six months."
(iv) Clause (iv) of subparagraph (A) shall be applied by
substituting "ten months" for "nine months."
(3) The applicable percentage specified in Section 19144 or more
of the tax for the taxable year was paid by withholding of tax
pursuant to Section 18662.
(4) The applicable percentage specified in Section 19144 or more
of the net income for the taxable year consists of items from which
an amount was withheld pursuant to Section 18662, the amount of the
first installment under Section 19025 equals at least the minimum
franchise tax specified in Section 23153, and the amount of any
installment under Section 19025 includes an amount equal to the
applicable tax under Section 23800.5.
(b) (1) For purposes of this section, "large corporation" means
any corporation if that corporation (or any predecessor corporation)
had taxable income (computed without regard to net operating loss
deductions) of one million dollars ($1,000,000) or more for any
taxable year during the testing period.
(2) For purposes of this subdivision, "testing period" means the
three taxable years immediately preceding the taxable year involved.
(c) (1) Any dividend received from a closely held real estate
investment trust by any person that owns (after application of
Sections 856(d)(5) and 856(l)(3)(B) of the Internal Revenue Code) 10
percent or more (by vote or value) of the stock or beneficial
interests in the trust shall be taken into account in computing
annualized income installments under paragraph (2) of subdivision (a)
in a manner similar to the manner under which partnership income
inclusions are taken into account.
(2) For purposes of paragraph (1), the term "closely held real
estate investment trust" means a real estate investment trust with
respect to which five or fewer persons own (after application of
Sections 856(d)(5) and 856(l)(3)(B) of the Internal Revenue Code) 50
percent or more (by vote or value) of the stock or beneficial
interests in the trust.
(3) The amendments made to this section by the act adding this
subdivision shall apply to estimated tax payments due on or after
January 1, 2001.
19148. (a) Notwithstanding Sections 19142 to 19147, inclusive, the
addition to the tax with respect to any underpayment of any
installment shall not be imposed if the total amount of all payments
of estimated tax made on or before the last date prescribed for the
payment of that installment equals or exceeds the applicable
percentage specified in Section 19144 of the amount determined under
subdivision (b).
(b) The amount determined under this subdivision for any
installment shall be determined in the following manner:
(1) Take the net income for all months during the taxable year
preceding the filing month.
(2) Divide that amount by the base period percentage for all
months during the taxable year preceding the filing month.
(3) Determine the tax on the amount determined under paragraph
(2).
(4) Multiply the tax computed under paragraph (3) by the base
period percentage for the filing months and all months during the
taxable year preceding the filing month.
(c) For purposes of this subdivision:
(1) The base period percentage for any period of months shall be
the average percent which the net income for the corresponding months
in each of the three preceding taxable years bears to the net income
for the three preceding taxable years.
(2) "Filing month" means the month in which the installment is
required to be paid.
(3) This subdivision shall only apply if the base period
percentage for any six consecutive months of the taxable year equals
or exceeds 70 percent.
(4) The Franchise Tax Board may by regulations provide for the
determination of the base period percentage in the case of
reorganizations, new corporations, and other similar circumstances.
19149. (a) Notwithstanding any other provision of Sections 19142 to
19151, inclusive, if the amount of estimated tax due and payable
under Section 19025 is only the minimum franchise tax imposed by
Section 23153 and, if applicable, the tax of a wholly owned
subsidiary under Section 23800.5, then the addition to the tax with
respect to any underpayment of any installment imposed by Section
19142 shall be calculated only on the basis of the amount of the
minimum franchise tax and the amount of the tax of each wholly owned
subsidiary.
(b) This section shall not apply to a large corporation as defined
in subdivision (b) of Section 19147.
19150. The application of Sections 19142 to 19151, inclusive, to
taxable years of less than 12 months shall be in accordance with
regulations prescribed by the Franchise Tax Board.
19151. Notwithstanding Sections 19142 to 19150, inclusive, the
addition to the tax with respect to underpayment of any installment
shall not be imposed on an exempt organization described in Section
23731 whose exemption is retroactively revoked unless the
organization described in Section 23731 has notice that the estimated
tax should have been paid. The denial of the organization's
exemption application or the revocation of its exemption by the
Internal Revenue Service normally satisfies the notice requirement.
19161. (a) No addition to the tax shall be made under Section
19132, 19136, or 19142 for failure to make timely payment of tax with
respect to a period during which a case is pending under Title 11 of
the United States Code in either of the following situations:
(1) If that tax was incurred by the estate and the failure
occurred pursuant to an order of the court finding probable
insufficiency of funds of the estate to pay administrative expenses.
(2) If:
(A) That tax was incurred by the debtor before the earlier of the
order for relief or (in the involuntary case) the appointment of a
trustee, and
(B) (i) The petition was filed before the due date prescribed by
law (including extensions) for filing a return of that tax, or
(ii) The date for making the addition to the tax occurs on or
after the day on which the petition was filed.
(b) Subdivision (a) shall not apply to any liability for an
addition to the tax which arises from the failure to pay or deposit a
tax withheld or collected from others and required to be paid to the
State of California.
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, 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)(2) of the Internal Revenue Code shall apply to
returns filed on or after January 1, 2010.
(3) 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.
19164.1. (a) Any understatement determined pursuant to subdivision
(a) of Section 19164 (relating to the accuracy-related penalty) may
not include amounts that are attributable to the credit allowed under
Section 17052.2 (relating to the teacher retention tax credit).
(b) This section applies only to tax credits claimed under Section
17052.2 for taxable years beginning on or after January 1, 2000, and
before January 1, 2001.
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) 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) 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) 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) 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.
(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.
19166. (a) A penalty shall be imposed for understatement of any
taxpayer's liability by a tax return preparer and shall be determined
in accordance with Section 6694 of the Internal Revenue Code,
relating to understatement of taxpayer's liability by tax return
preparer, except as otherwise provided.
(b) (1) Except as provided in paragraph (2), Section 6694(a)(1) of
the Internal Revenue Code is modified to substitute "$250" for
"$1,000."
(2) For taxpayers that have 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, paragraph (1) shall not apply.
(c) Section 6694(c) of the Internal Revenue Code shall not apply
and, in lieu thereof, the following shall apply:
(1) If, within 30 days after the day on which notice and demand of
any penalty under Section 6694(a) or 6694(b) of the Internal Revenue
Code is made against any person who is an income tax return
preparer, that person pays an amount which is not less than 15
percent of the amount of that penalty and files a claim for refund of
the amount so paid, no levy or proceeding in court for the
collection of the remainder of that penalty shall be made, begun, or
prosecuted until the final resolution of a proceeding begun as
provided in paragraph (2). Notwithstanding Section 19381, the
beginning of that proceeding or levy during the time that prohibition
is in force may be enjoined in a proceeding in the superior court.
Nothing in this paragraph shall be construed to prohibit any
counterclaim for the remainder of that penalty in a proceeding begun
as provided in paragraph (2).
(2) If, within 30 days after the day on which a claim for refund
of any partial payment of any penalty under Section 6694(a) or 6694
(b) of the Internal Revenue Code is denied (or, if earlier, within 30
days after the expiration of six months after the day on which the
claim for refund has been filed), the income tax return preparer
fails to begin a proceeding in the superior court for the
determination of his or her liability for that penalty, paragraph (1)
shall cease to apply with respect to that penalty, effective on the
day following the close of the applicable 30-day period referred to
in this paragraph.
(3) The running of the period of limitations provided in Section
19371 on the collection by levy or by a proceeding in court in
respect of any penalty described in paragraph (1) shall be suspended
for the period during which the Franchise Tax Board is prohibited
from collecting by levy or a proceeding in court.
(d) The amendments made to this section by the act adding this
subdivision shall apply to returns prepared after the effective date
of the act adding this subdivision.
19167. A penalty shall be imposed under this section for any of the
following:
(a) In accordance with Section 6695(a) of the Internal Revenue
Code, for failure to furnish a copy of the return to the taxpayer, as
required by Section 18625.
(b) In accordance with Section 6695(c) of the Internal Revenue
Code, for failure to furnish an identifying number, as required by
Section 18624.
(c) In accordance with Section 6695(d) of the Internal Revenue
Code, for failure to retain a copy or list, as required by Section
18625 or for failure to retain an electronic filing declaration, as
required by Section 18621.5.
(d) Failure to register as a tax preparer with the California Tax
Education Council, as required by Section 22253 of the Business and
Professions Code, unless it is shown that the failure was due to
reasonable cause and not due to willful neglect.
(1) The amount of the penalty under this subdivision for the first
failure to register is two thousand five hundred dollars ($2,500).
This penalty shall be waived if proof of registration is provided to
the Franchise Tax Board within 90 days from the date notice of the
penalty is mailed to the tax preparer.
(2) The amount of the penalty under this subdivision for a failure
to register, other than the first failure to register, is five
thousand dollars ($5,000).
(e) The Franchise Tax Board shall not impose the penalties
authorized by subdivision (d) until either one of the following has
occurred:
(1) Commencing January 1, 2006, and continuing each year
thereafter, there is an appropriation in the Franchise Tax Board's
annual budget to fund the costs associated with the penalty
authorized by subdivision (d).
(2) (A) An agreement has been executed between the California Tax
Education Council and the Franchise Tax Board that provides that an
amount equal to all first year costs associated with the penalty
authorized by subdivision (d) shall be received by the Franchise Tax
Board. For purposes of this subparagraph, first year costs include,
but are not limited to, costs associated with the development of
processes or systems changes, if necessary, and labor.
(B) An agreement has been executed between the California Tax
Education Council and the Franchise Tax Board that provides that the
annual costs incurred by the Franchise Tax Board associated with the
penalty authorized by subdivision (d) shall be reimbursed by the
California Tax Education Council to the Franchise Tax Board.
(C) Pursuant to the agreement described in subparagraph (A), the
Franchise Tax Board has received an amount equal to the first year
costs described in that subparagraph.
19168. The following rules shall apply to any penalty imposed under
Section 19166 or 19167:
(a) The penalties shall be in addition to any other penalties
provided by law.
(b) Articl