Visiting the Committees


Visiting the Committees

Commentary and Updates by the Committees


The Compensation and Benefits Committee provides a forum for members of the Taxation Section to learn and discuss issues relating to executive compensation, tax-qualified retirement plans, and health and welfare benefit arrangements. Membership in the Committee is open to employee benefit practitioners and Taxation Section members, and the participation of members of the Labor and Employment Law Section is encouraged. The Committee strives to include in discussions high level members of the Internal Revenue Service, U.S. Department of Labor Employee Benefit Security Administration, and California Franchise Tax Board.

Committee Activities

The Compensation and Benefits Committee schedules quarterly conference calls for all members interested in the topics that affect compensation and benefits. Members interested in participating, providing comments, or for more information regarding upcoming meetings and events should contact the Committee Chair, Alison Fay, at or Vice Chair, Michelle McCarthy, at

The Compensation and Benefits Committee held its last quarterly meeting at noon on Tuesday, December 8, 2015. The meeting was held at the offices of Fox Rothschild, 1800 Century Park East, Suite 300, Los Angeles, CA 90067-1506.

Quick Points

President Signs Bipartisan Budget Act of 2015

On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015, H.R. 1314, 114th Cong. (2015) ("The Budget Act") which, along with increasing the debt ceiling (and avoiding a government shut-down), enacts several benefits related provisions. First, it repeals the auto-enrollment requirements that were originally enacted as a part of the Affordable Care Act, but never actually implemented. Second, it makes several changes affecting Pension Benefit Guaranty Corporation ("PBGC") premiums and defined benefit pension plans.

Under the Affordable Care Act, employers with more than 200 full time employees were originally required to "auto-enroll" new full time employees into (and continue existing employees under) their health plan under what were expected to be complex rules and regulations to be promulgated by the United States Department of Labor. The Department of Labor had announced that employers would not be required to commence auto-enrollment until such guidance was provided. However, no such rules or regulations were ever issued and Congress has now made that permanent with the enactment of the Budget Act. Of course, auto-enrollment or negative consent elections may still be used (and often are used) voluntarily in the health and welfare plan context.

The Budget Act also makes several changes affecting defined benefit pension plans. First, it significantly increases PBGC premiums for single employer plans, both flat rate and variable premium rate. Increases are stepped up beginning in 2016 through 2019 and thereafter. Second, it changes the due date for PBGC premiums to the 15th day of the ninth month that begins on or after the first day of the premium payment year (September 15 for plan years ending on December 31), rather than the 15th day of the tenth month (but for the 2025 year only). Additionally, it expands the ability of very large plans to use plan-specific mortality tables, i.e., mortality tables that reflect the actual mortality of the plan’s participants, rather than of the world at large.

Finally, the Budget Act further extends the use of the "Map-21" special interest rates that are used to calculate minimum funding for pension plans under the Moving Ahead for Progress in the 21st Century Act of 2012, S. 1813, 112 Cong. (2012) through 2020 (transitioning back to more normal rates over the period from 2020-2024).

Sponsors of defined benefit plans will want to consult with their advisors regarding the effects of these changes on their plans.

– Sherrie Boutwell, Irvine, CA

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The Corporate and Pass-Through Entities Committee focuses on issues faced by corporate taxpayers and provides opportunities for practitioners and corporate tax counsel to maintain a level of expertise in the field of corporate tax law, expand their professional contacts, and serve the profession, the public and the legal system. Membership in the Committee offers practitioners information on developments with respect to corporate and business tax and a greater voice on developments in such legislation.

Committee Activities

Normally, the Committee holds quarterly meetings via teleconference. If you are interested in speaking at an event, or for more information regarding upcoming meetings and events, please contact Committee Chair, Greg Zbylut at

Quick Points

TEFRA Partnership Audit Rules Repealed by 2015 Budget Act.

The Bi-partisan Budget Act of 2015, H.R. 1314, Title XI ("2015 Budget Act"), signed into law on November 2, 2015, repealed the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") unified partnership audit rules and replaced them with simplified rules. The 2015 Budget Act changes the audit procedures of partnerships, including LLCs taxed as partnerships, for returns filed for partnership tax years after December 31, 2017. Although, subject to certain exceptions, partnerships can elect to apply the new procedures earlier.

The new rules are supposed to make it easier for the Internal Revenue Service ("IRS") to audit partnerships (especially large partnerships which are partnerships with over 100 partners) and collect deficiencies as a result of partnership adjustments. Repealing TEFRA is estimated to generate approximately $10 billion over 10 years.

Before the 2015 Budget Act, the TEFRA audit procedures may or may not have applied to a partnership, depending on the size of the partnership or the types of partners. If the IRS failed to apply the correct audit procedures, it risked not being able to collect any potential assessment.

Under the 2015 Budget Act, the partnership (not the partners) is liable to the IRS for any deficiency based on an assumed tax rate. Accordingly, the current partners in the year in which the adjustment is made (the "adjustment year") are essentially liable for the deficiency, not the persons who were partners in the year that was audited (the "reviewed year"). For example, under the new rules, a partner who acquired a partnership interest in, say, 2020 could suffer the economic cost of a 2018 tax liability imposed on the partnership.

The new rules do allow partnerships with 100 or fewer qualifying partners to opt-out of the new procedures. Partnerships that opt-out would be audited under the general audit rules applicable to individuals.

The 2015 Budget Act does not have an official legislative history so the Joint Committee on Taxation’s Blue Book summary will be essential in outlining the issues that the Treasury Department will need to address.

Practitioners need to advise clients on the consequences of these new procedures before the client enters into agreements for acquiring or disposing of a partnership interest and/or enters into a new partnership. Moreover, existing partnership agreements may need to be amended.

– Laura Buckley, Higgs, Fletcher, & Mack, San Diego, CA


The Estate and Gift Tax Committee is comprised of attorneys throughout the State of California who devote a significant portion of their practice to understanding the evolving areas of estate and gift tax planning, drafting, compliance, and controversy work. One of the primary functions of the Committee is to provide valuable, informative, high quality continuing education programs on behalf of the Taxation Section.

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If you are interested in becoming a member or submitting a topic to speak or write on, please contact the Estate and Gift Tax Committee Chair, Wayne Johnson, at

Committee Activities

The 2016 Estate and Gift Tax Conference will be held February 25-26, 2016 in San Francisco. Please note that there has been a change in both the format and location. For 2016, the Conference will be two (2) days (rather than one day as in prior years) and the location will be at the University of San Francisco School of Law (and not at the Julia Morgan Ballroom). If you have ideas for topics for the 2016 Estate and Gift Tax Conference or for future annual Estate and Gift Tax Conferences, please contact the Estate and Gift Tax Committee Chair, Wayne Johnson, at

The 2016 Washington Delegation is scheduled for May 1-3, 2016, and the Estate and Gift Tax Committee is accepting topic ideas for consideration. If you would like to submit a topic, please contact Wayne Johnson.

The Estate and Gift Tax Committee holds webinars and Committee meetings on an ongoing basis. Please contact Wayne Johnson for the most current information on the next scheduled webinar and meeting and if you have a proposal for a webinar.

If you are interested in becoming a member of the Estate and Gift Tax Committee, please contact Wayne Johnson.

Quick Points

Closing letters

The Internal Revenue Service ("IRS") announced that it will no longer routinely issue estate tax closing letters following the submission of an estate tax return. For returns filed after June 1, 2015, the IRS will only issue a closing letter if requested by the estate. It is recommended that the request be made no sooner than four months after filing. Also be aware that if a portability election is made, no closing letter is applicable as the statute remains open until after the surviving spouse’s death.

– Robin Klomparens, Mather, CA

New Basis Reporting Rules

Under the stepped-up basis rules of Internal Revenue Code (the "Code") section 1014, the basis of property acquired from a decedent generally is the property’s fair market value either at the date of death or six months later (alternate valuation date). However, beneficiaries who receive estate property have previously not been required to use the same value (and the same basis) reported by the estate. Because there has been no consistency requirement, a recipient could claim that the property’s fair market value (and basis) was higher than the estate tax value. Recent legislation imposed a consistency requirement, but left it to the Internal Revenue Service ("IRS") to prescribe reporting requirements and deadlines.

The IRS has recently issued guidance on the application of new basis reporting requirements. Under new Code section 1014(f), the basis of property acquired from a decedent may not exceed the value of that property as finally determined for federal estate tax purposes, or if not fully determined, the value of that property as reported on a statement made pursuant to new Code section 6035. Code sections 6035(a)(1) and (a)(2) require that the fiduciary of any estate or any other person required to file a federal estate tax return must provide the IRS and any individual receiving property from a decedent a statement that shows the value for each property as reported on the estate tax return and other information as the IRS may require. The statement is to be provided no later than 30 days after the due date for filing of the decedent’s federal estate tax return (including extensions, if any) or the date such return is filed. Note that the basis reporting is only applicable to estates who must file a 706.

The new requirements are applicable to property reported on an estate tax return filed after July 31, 2015. However, because the IRS expects to issue additional guidance on the subject of consistent basis reporting, the due dates for statements required to be furnished under Code sections 6035(a)(1) and (a)(2) that would have been due before February 29, 2016, are now delayed until that date. Fiduciaries and others required to furnish statements are instructed not to do so until forms or other guidance on the topic of basis reporting has been issued.

Note – the comment period has just closed on these rules.

– Robin Klomparens, Mather, CA

New 2848

The Internal Revenue Service ("IRS") has issued a new Form 2848 Power of Attorney and Declaration of Representative with a revised date of December 2015. The changes made to the previous form (July 2014) were to remove the Registered Tax Return Preparer (RTRP) designation (category i) and to update the description and representation requirements for unenrolled preparers (category h). The unenrolled preparer designation now includes individuals who passed the IRS’s competency test that was offered between November 2011 and January 2013.

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– Robin Klomparens, Mather, CA

2801 Proposed Regulations

The long awaited proposed regulations to Internal Revenue Code section 2801 were finally released in the fall. While these regulations will affect very few taxpayers, it has been a long standing project on the United States Treasury’s list that is now almost complete.

– Robin Klomparens, Mather, CA

2704 Regulations

No news is good news.

– Robin Klomparens, Mather, CA


The Income and Other Taxes Committee provides an outlet for its members to actively participate in the Taxation Section with respect to issues relating primarily to federal income taxation. The Committee’s mission is to (i) promote dialogue and maintain the expertise of its members through the annual provision of continuing education with respect to recent developments on various income (and other) tax issues; and (ii) provide a networking forum for members to expand their professional contacts.

Committee Activities

The Income and Other Taxes Committee held its quarterly meeting on November 5, 2015, at the Annual Meeting of the California Tax Bar and California Tax Policy Conference at the Hilton La Jolla Torrey Pines in San Diego, CA. The Committee met several new and prospective members and discussed the Committee’s goals for the upcoming year including planning the 2016 Annual Income Tax Seminar held in June, the Committee’s upcoming webinar, and the Washington, D.C. and Sacramento delegations.

Upcoming Meetings

Please contact the Committee Chair, Jared Werner, at for further information on joining the Committee and upcoming events.

Quick Points

Doctor Liable for Accuracy-Related Penalties after Tax Court Rejects Argument that Business Use of Motorhome should not be Based Solely on Business Miles

In Cartwright v. Commissioner, T.C. Memo 2015-212, the Tax Court decided whether, inter alia, the taxpayer was entitled to depreciation and Internal Revenue Code ("IRC") section 179 expense deductions greater than the Internal Revenue Service ("IRS") allowed for the taxpayer’s business use of his motorhome.

Jefferson Cartwright operated a medical practice in Arlington, Washington. He also worked as an on-call physician for a 24-hour period three days a month at a hospital in Mount Vernon, Washington. His Arlington home was 25 miles from the hospital.

In 2008, Cartwright purchased a motorhome. He drove it from his Arlington home to the hospital when he reported for on-call duty. He parked it in the hospital parking lot so that he could rest and sleep in the motorhome when he was not needed inside the hospital. He also reviewed patient charts on his computer and referred to his medical books.

On Schedule C, attached to his 2008 and 2009 tax returns, Cartwright claimed business expense deductions for depreciation and section 179 expenses relating to his business use percentages of his motorhome of 85% and 100%, respectively.

The IRS agreed that Cartwright used the motorhome for business purposes when he was on call performing medical services at the hospital, but contended that the allowable depreciation and section 179 expenses for the motorhome should be allocated between business use and personal use. After reviewing Cartwright’s mileage logs, odometer readings and statements, the IRS determined that the business use percentages should have been 19.42% in 2008 and 22.23% in 2009.

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Cartwright contended that the motorhome was used as a "mobile office" for 85% of the time he was performing on-call duties at the hospital for three days each month in 2008 and 100% of the time in 2009. He argued that the IRS’ method of calculating the business use percentage based entirely on his mileage logs did not accurately reflect the motorhome’s business use.

The Tax Court was not persuaded, and found the IRS’ determinations fair, reasonable and correct and sustained their business use percentages for the motorhome. The Tax Court further concluded that Cartwright failed to prove that he acted with reasonable cause and in good faith and held him liable for IRC section 6662(a) accuracy-related penalties.

– Jared P. Werner, San Diego, CA


The International Tax Committee is an integral part of California’s international tax practice, providing a unifying forum in which to address the tax considerations of individuals, trusts, and business enterprises, whose members and activities cross international borders. The purpose of the Committee is to support, inform, and educate its members and other California tax practitioners, and to provide events and forums for discussing current issues and the state of international tax law. The Committee promotes professional excellence and strives to provide members with knowledge and tools to expand and enrich their practices through quality continuing education, publishing and speaking opportunities, mentor programs, and networking opportunities. The Committee takes an active role in coordinating international tax panels and panelists for various State Bar meetings and conferences, and is a co-sponsor of the annual USD/Procopio International Tax Institute. The Committee also works with the AICPA foreign trust task force and international tax technical resource panel to liaison with the IRS for various projects, including comments for regulations projects, modifying tax forms and developing new forms, and easing administrative burden while increasing compliance.

Committee Activities

On November 5, 2015, the International Tax Committee met for breakfast during the 2015 Annual Meeting of the California Tax Bar and California Tax Policy Conference held at the Hilton La Jolla Torrey Pines. On January 7, 2016, the International Tax Committee also conducted a quarterly conference call. The items discussed at both meetings included the upcoming 2016 Washington, D.C. Delegation, upcoming quarterly call topics, and ideas for MCLE webinars which will be presented or authored by members of the International Tax Committee.

During this past quarter, there were two webinars presented on behalf of the International Tax Committee of the State Bar of California Taxation Section. The first webinar, which took place on November 10, 2015, was entitled "Taking the Big Plunge: Renouncing U.S. Citizenship. Who Wants It – Who Should Not; the Tax and Immigration Consequences of the Plunge." The speakers included Patrick W. Martin and Jan Joseph Bejar. The moderator was Eric D. Swenson. The second webinar, which took place on November 18, 2015, was entitled "International Taxation – Part II, Corporate." The speaker was William Norman. Sanford Millar moderated the program.

The International Tax Committee schedules quarterly conference calls for all members interested in topics involving international taxation. The current schedule of remaining 2016 quarterly conference calls are April 7, 2016, July 7, 2016, and October 7, 2016, all one hour in duration and beginning at 12:00 p.m. An email invitation will be sent to all International Tax Committee members before the date of the teleconference. If you do not receive an invitation, and wish to participate, please contact the International Tax Committee Chair Eric Swenson at For more information regarding participating, providing comments, or upcoming meetings and events, please contact Eric Swenson.

Quick Points

IRS Releases Proposed Regulations under Section 367(d)

On October 5, 2015, the Internal Revenue Service ("IRS") released REG-139483-13 relating to certain transfers of property by United States persons to foreign corporations. The proposed regulations affect United States persons that transfer certain property, including foreign goodwill and going concern value, to foreign corporations in nonrecognition transactions described in section 367 of the Internal Revenue Code ("IRC"). The proposed regulations are generally proposed to apply to transfers occurring on or after September 14, 2015 and to transfers occurring before September 14, 2015 resulting from entity classification elections that are filed on or after September 14, 2015.

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In releasing the proposed regulations, the Treasury Department and the IRS stated that they are aware that, in the context of outbound transfers, certain taxpayers attempt to avoid recognizing gain or income attributable to high-value intangible property by asserting that an inappropriately large share (in many cases, the majority) of the value of the property transferred is foreign goodwill or going concern value that is eligible for favorable treatment under section 367. The Treasury Department and the IRS stated that they also are aware that some taxpayers broadly interpret the meaning of foreign goodwill and going concern value for purposes of section 367.

The proposed regulations would eliminate the foreign goodwill exception and limit the scope of the active trade or business exception. Transfers of foreign goodwill and going concern value, which were generally not subject to tax previously, would thus be subject to either current gain recognition under either section 367(a)(1) or section 367(d). The proposed regulations additionally remove the existing rule under Treasury Regulation section 1.367(d)-1T(c)(3) that limits the useful life of intangible property to 20 years. Proposed Treasury Regulation section 1.367(d)-1(c)(3) provides that the useful life of intangible property is the entire period during which the exploitation of the intangible property is reasonably anticipated to occur, as of the time of transfer.

– Brandon Boyle, San Francisco, CA

On Your Marks, GO! FATCA: Automatic Exchange of Information Finally Begins!

As reported by the Internal Revenue Service ("IRS") on October 2, 2015, the United States ("U.S.") government pushed "play" on the automatic exchange of information with foreign tax administrations. The exchange of information is based on the intergovernmental agreements (IGA’s) executed by the U.S. with foreign treasuries in an effort to effectuate the Foreign Account Tax Compliance Act ("FATCA").

IRS Commissioner John Koskinen reported that "FATCA is an important tool against offshore tax evasion, and this is a significant step in the process. The IRS appreciates the assistance of our counterparts in other jurisdictions who have helped to make this possible."

As of this time, the IRS has not disclosed the countries with which they have started the automatic exchange of information. The U.S. government, however, has executed over 90 IGA’s to date.

This is a significant and "giant leap" for international tax administration.

– Raul Villarreal Garza, San Diego, CA

The Treasury Department Updates the List of "Boycott" Countries

On October 29, 2015, the United States ("U.S.") Treasury Department published in the Federal Register the current list of countries that may require U.S. persons’ participation in, or cooperation with, an international boycott under Internal Revenue Code ("IRC") Section 999 (the "Boycott List").

A U.S. person must report their operations in boycotting countries. A U.S. person deemed participating in an international boycott (which may result from entering into certain agreements as a condition of doing business in a country) may have adverse U.S. tax consequences in determining their foreign tax credit and Subpart F income, among others.

Also, pursuant to IRC section 999(a)(1)(A), if any U.S. person (or member of a controlled group) has operations in a country (or with the government, a company, or a national, of a country) which is on the Boycott List, that U.S. person shall report such operations to the Treasury Department. Willful failure to file report may be subject to penalties up to $25,000 and imprisonment for up to one year.

The Boycott List includes: (i) Iraq; (ii) Kuwait; (iii) Lebanon; (iv) Libya; (v) Qatar; (vi) Saudi Arabia; (vii) Syria; (viii) United Arab Emirates; and (ix) Yemen. The Treasury Department is required to publish the Boycott List quarterly.

– Pedro Corona de la Fuente, San Diego, CA

The IRS Announces Success with Offshore Compliance Initiatives/Programs.

On October 16, 2015, the Internal Revenue Service ("IRS") announced in IR-2015-116 (the "IRS Notice") that Offshore Compliance Programs have generated $8 Billion in revenue so far for the United States ("U.S.") government and also urged U.S. persons to take advantage of a Voluntary Disclosure Program, including the Offshore Voluntary Disclosure Program ("OVDP") or one of the Streamlined Procedures (including domestic or foreign).

The IRS Notice stated that more than 54,000 taxpayers have participated in offshore disclosure programs since 2009. The IRS Notice reminds taxpayers, among other things, that "OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution. . . ." OVDP, however, is not for everyone. The IRS noted that "[t]he streamlined procedures, initiated in 2012, were developed to accommodate a wider group of U. S. taxpayers who have unreported foreign financial accounts but whose circumstances substantially differed from those taxpayers for whom the OVDP requirements were designed. More than 30,000 taxpayers have used streamlined procedures to come back into compliance with U.S. tax laws. Two-thirds of these have used the procedures since the IRS expanded the eligibility criteria in June 2014."

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– Eric D. Swenson, San Diego, CA

Gifts and Bequests from Expatriates – Proposed Regulations Issued.

On September 10, 2015, the Internal Revenue Service ("IRS") and Treasury issued proposed regulations under Internal Revenue Code ("IRC") section 2801 relating to tax on United States ("U.S.") citizens and residents who receive gifts or bequests from certain individuals who relinquished U.S. citizenship (or ceased to be lawful permanent residents of the U.S.) on or after June 17, 2008.

Because citizens and residents of the U.S. are generally subject to estate tax on their world-wide assets at the time of death, Congress determined that it was appropriate, in the interests of tax equity, to impose a tax on U.S. citizens or residents who receive, from an expatriate, a transfer on or after June 17, 2008, that would otherwise have escaped U.S. estate or gift taxes as a consequence of expatriation on or after June 17, 2008. See, IRC Section 2801. The proposed regulations will become effective when finalized.

– Eric D. Swenson, San Diego, CA


The State and Local Tax Committee assists the Taxation Section and the State Bar of California in developing valuable, informative, and high quality continuing legal education programs. In addition, the Committee strives to become an important resource for local bar associations across California who need assistance in planning, developing, and promoting continuing legal education programs and activities related to state and local tax topics. Finally, the Committee continually seeks opportunities to work with California’s taxing agencies to address important issues affecting both taxpayers and the government.

Committee Activities

On November 4-7, 2015, the Committee held its annual meeting during the Taxation Section Meeting and California Tax Policy Conference at the Hilton La Jolla Torrey Pines Resort. This conference is the annual assembly of government and private tax practitioners who come together for the purpose of education and discussion of current topics in California taxation. (Photo on the right.)

Kenneth Gast, Mike Shaikh, Scott Ewing, Mike Lebeau, Jaclyn Zumaeta and Jenna Lewis

Quick Points

California: Proposed Amendments to Regulation 25136-2 Related to Market-Based Sourcing Rules for Sales of Other than Tangible Personal Property

The California Franchise Tax Board ("FTB") continues to move forward with the administrative rulemaking process for amending California’s regulation regarding market-based rules for sourcing sales other than sales of tangible personal property ("TPP") as applicable to most taxpayers filing a combined report in taxable years beginning on or after January 1, 2013 (i.e., California Code of Regulations ("CCR"), title 18 Section 25136-2).

Among other items, the proposed amendments provide a general definition of "marketable securities," a specific definition of "marketable securities" for registered broker-dealers, and accompanying sourcing rules for assigning sales of marketable securities to California. The proposed language also includes assignment rules for interest, dividends, and goodwill; and two examples addressing how to assign sales from asset management services provided by a taxpayer not subject to CCR Section 25137-14 (i.e., taxpayers not providing services to regulated investment companies).

The FTB released a 15 Day Notice requesting all written comments concerning its notice be submitted to the FTB no later than 5:00 p.m. on November 20, 2015. By the time you may read this, it is likely that the regulatory amendments will have gone final based on the current draft language, but nothing is certain until full Office of Administrative Law approval is finalized.

– Benjamin Elliott & E. Scott Ewing, Sacramento, CA

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Reorganization of California Franchise Tax Board Legal Division

The California Franchise Tax Board ("FTB") has created three new Deputy Chief Counsel ("DCC") positions (previously there was no such position in FTB Legal), and realigned six of its subject matter bureaus within its Legal Division, with two bureaus now to be overseen by each of the new DCCs effective October 1.

Now overseeing the Multistate and Business Entity Tax Bureaus is Norm Scott. Prior to this new appointment, he was the Assistant Chief Counsel ("ACC") over the Multistate Tax Bureau. The Settlement and Litigation Bureaus will be headed by Bill Hilson, who was the former ACC over the Litigation Bureau. Finally, Pat Bittner, who was the former ACC over the Settlement Bureau, will oversee the General Tax and Tax Administration and Procedure Bureaus.

The new DCCs will report directly to the Chief Counsel and will each focus primarily on policy, planning, and organization issues for their assigned bureaus, leaving direct management of the attorney and program staff to the ACCs. The Technical Resources Bureau ACC, Bruce Langston, continues to report directly to the Chief Counsel. As of the date of this writing, the three ACC positions, previously held by the new DCCs have not been filled.

– Lauren Knapp & Daniel Kleid, Sacramento, CA

California Franchise Tax Reviewing Interest Calculations

The California Franchise Tax Board ("FTB") announced they will review interest amounts that may have been overcharged on underpaid tax assessments for approximately 27,000 taxpayers. In the August 15, 2015, edition of its Tax News publication, the FTB stated that it will be reviewing and adjusting interest calculations in two specific circumstances, namely, the fact patterns described in IRS Revenue Ruling 99-40 and IRS Revenue Procedure 94-60.

The two fact patterns contemplate a scenario involving tax overpayments transferred or refunded from a particular tax year, followed by an additional tax assessment on that same year. The FTB also announced that it will be working on identifying a semi-automated method that would allow staff to perform the necessary interest adjustment.

Taxpayers may wish to determine in the near term whether they may have overpaid interest, as the statute of limitations to file a claim for refund on this issue may soon expire for certain tax years. (Source: FTB Tax News, August 2015)

– E. Scott Ewing and Daisy Jacinto, Sacramento, CA

A Review of 2015 California Tax Law Legislation

The California Legislature considered a number of bills during its 2015 Legislative Session that would make changes to California’s tax laws. All of these measures were acted upon prior to the Legislature’s adjournment on September 11. The Governor had until October 11 to act on any measures sent to him. The Legislature will reconvene on January 4 for the 2016 Session to consider 2-year bills and new legislation. The following measures were of interest to California’s business community:

Senate Bills

SB 35 (Wolk; D-Davis)

This bill, for taxable years beginning on or after January 1, 2014, and before January 1, 2024, extends the provisions relating to disaster losses to losses in any city, county, or city and county that is proclaimed by the Governor to be in a state of emergency and extends the time during which a taxpayer may claim the deduction. This bill additionally provides that any law that suspends, defers, reduces, or otherwise diminishes the deduction of a net operating loss, other than those variations already imposed in existing law, shall not apply to a net operating loss attributable to these specified disaster losses.

Status: Signed into law

Code Sections Affected: 17207.14 and 24347.14

SB 357 (Hall; D-Los Angeles)

This bill would require the BOE, in making an assessment, to determine the physical presence of private railroad cars in the state in the calendar year immediately preceding the fiscal year in which the tax is imposed upon the basis of mileage.

Status: Senate Appropriations Committee; 2-year bill

Code Sections Affected: 11292 and 11293

SB 500 (Hertzberg; D-Van Nuys)

This bill would provide, for purposes of computing the taxable income of a nonresident that the gross income of a nonresident from sources within this state does not include "de minimis income," defined as compensation subject to specified withholding if the nonresident has no other income from sources within this state, is present in this state to perform employment duties on behalf of an employer and any other related person for not more than 20 calendar days during the taxable year in which the compensation is received if the compensation is received on or after January 1, 2016, and before January 1, 2021, for any part of the taxable year during which the taxpayer was not a resident of this state, and the nonresident’s state of residence provides a substantially similar exclusion or does not impose an individual income tax.

Status: Assembly Revenue & Taxation Committee; 2-year bill

Code Sections Affected: 17952.7 and 18501.5

SB 540 (Hertzberg; D-Van Nuys)

This bill, on and after January 1, 2016, requires the Taxpayers’ Rights Advocate, in coordination with the Chief Counsel of the Franchise Tax Board, to abate penalties, fees, additions to tax, or interest attributable to error of or unreasonable delay caused by the Franchise Tax Board, increase the limit on the amount of relief that may be granted from $7,500 to $10,000, revise the adjustment provision relating to that amount, and specify the retention period for records of relief granted by the chief counsel. The bill requires the advocate and the board to provide relief to the taxpayer only if no significant aspect of the board’s error or delay is attributed to the taxpayer and would require the board itself to be notified whenever relief is granted.

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Status: Signed into law

Code Sections Affected: 21004

SB 591 (Pan; D-Sacramento)

This bill, beginning January 1, 2016, would impose an additional tax on the distribution of cigarettes at the rate of $0.10 for each cigarette distributed, which would be $2.00 per pack; would require a dealer and a wholesaler to file a return with the State Board of Equalization showing the number of cigarettes in its possession or under its control on that date, and impose a related floor stock tax; and would require a licensed cigarette distributor to file a return with the board and pay a cigarette indicia adjustment.

Status: Senate Floor; 2-year bill

Code Sections Affected: 30104, 30108, and 30181

SB 640 (Beall; D-San Jose)

This bill would allow a customer to file a claim for refund to receive the amount that would be refunded to the person that paid the tax provided specified conditions are met, including that the amount be $1,000 or more. This bill would require the BOE to make a payment to the customer of the balance of any excess amount collected or paid, after any amounts due and payable from the person or customer are credited against that excess amount. This bill would also require an amount subject to refund that is credited to the person that paid the tax and not refunded to the customer to be paid by that person directly to the customer.

Status: Assembly Appropriations Committee; 2-year bill

Code Sections Affected: 6901

SB 661 (Hill; D-San Mateo)

This bill would, from the lien date for the 2017-18 fiscal year and each fiscal year thereafter, require the board to assess personal property that is owned by a commercial air carrier, as defined, in a manner consistent with currently specified procedures that determine the extent that the certificated aircraft is physically present in each county within the state. This bill would require the board to notify county assessors, as specified, if a commercial air carrier’s taxable personal property includes fixtures that are to be locally assessed as real property. This bill would require that the revenues derived from the assessment of this property be allocated in the same percentage shares as revenues derived from locally assessed property among the jurisdictions in which the property is located.

Status: Senate Appropriations Committee; 2-year bill

Code Sections Affected: 755, 756, 401.17, 1152, 1153, 1155, 100.51, 721.51, 828.1, 1157, 1153.5

SB 684 (Hancock; D-Berkeley)

This bill would, for taxable years beginning on and after January 1, 2015, revise the rate for taxpayers that are publicly held corporations, as defined, and instead impose an applicable tax rate from 7% to 13%, or for financial institutions, from 9% to 15%, based on the compensation ratio, as defined, of the corporation. This bill would increase the applicable tax rate by 50% for those taxpayers that have a specified decrease in full-time employees employed in the United States as compared to an increase in contracted and foreign full-time employees, as described.

Status: Senate Governance & Finance Committee; 2-year bill

Code Sections Affected: 23151

SCA 5 (Hancock; D-Berkeley)

This measure would exempt from taxation an amount up to $500,000 of tangible personal property used for business purposes. This measure would prohibit the Legislature from lowering this exemption amount or from changing its application, but would authorize it to be increased consistent with the authority described above. This measure would provide that this provision shall become operative on January 1, 2019. This measure, for owners of commercial and industrial property subject to reassessment, who also operate a business or businesses on that property, where the increase in assessed value as a result of this measure exceeds 25% compared to the assessed value of the property prior to the operation of this measure, would exempt that portion of the assessed value that exceeds 25% as so described from taxation for a period of 5 years if specified conditions are met. This measure, commencing on the lien date for the 2018-19 fiscal year, would require the full cash value of commercial and industrial property, as defined, to be the fair market value of that property as of the lien date. This measure, for the 2018-19 fiscal year, would require only 50% of those properties that have not been reassessed at fair market value, as specified, to be assessed at fair market value, and by the 2019-20 fiscal year would require all other properties that have not been brought to fair market value to be assessed at fair market value. This measure would require owners of property subject to reassessment as so described to pay only a portion, as provided, of any increase in property tax due in the first year and second years after initial reassessment to fair market value.

Status: Senate Governance & Finance Committee; 2-year bill

Assembly Bills

AB 154 (Ting; D-San Francisco)

This bill changes the specified date of those referenced Internal Revenue Code sections to January 1, 2015, for taxable years beginning on or after January 1, 2015, and thereby makes numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2009, and that have not been, or are not being, excepted or modified. This bill makes certain other changes in federal income tax laws applicable, with specified exceptions and modifications, with respect to, among other things, tax credits, tax on specified distributions from Archer MSAs, income exclusions, reporting requirements, qualified tuition program investment direction, disclosure of information with respect to foreign financial assets, redemptions by foreign subsidiaries, listed property, extension of time for the payment of taxes, deductions for annual fees on branded prescription pharmaceutical manufacturers and importers, and penalty amounts related to understatements of tax or the failure to file specified returns or include specified information on returns.

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Status: Signed into law

Code Sections Affected: 17024.5, 17053.46, 17053.47, 17053.74, 17088, 17144, 17215, 18155, 19138, 19141.5, 19164, 19167, 19183, 19772, 23622.7, 23622.8, 23646, 23701i, 24307, 24427, 24439, 24870, 24871, and 24990.5, 17240, 17241, 17323, 19131.5,24345.5, 24454, 24459, 17131.7, 17131.12, 17131.14, 17134.1, 17201.1, 17280.1,17322.1, 24452.1, and 24871.1

AB 237 (Daly; D-Anaheim)

This bill would require, before the adoption of any new parcel tax, the legislative body of a local agency to provide notice of the vote to enact the proposed parcel tax to the owner of each parcel affected by the tax within one week of the local agency voting to place the proposed parcel tax on the ballot. This bill would require the notice to include specified information and to be provided to the property owner in a specified manner. This bill would provide that the local agency may recover the reasonable costs of the notice from the proceeds of the parcel tax.

Status: Assembly Appropriations Committee; 2-year bill

Code Sections Affected: 54930

AB 405 (Brough; R-Dana Point)

This bill would revise the definition of "modified adjusted rate per annum," which would thereby require that interest on overpayments be determined in the same manner as interest on underpayments is now determined.

Status: Assembly Appropriations Committee; 2-year bill

Code Sections Affected: 6591.5

AB 437 (Atkins; D-San Diego)

This bill would have established, beginning January 1, 2017, and ending January 1, 2024, the Research and Development-Small Business Grant Program, which would have provided qualified small businesses, as defined, grants in amounts equal to either 10% or 15% of any excess credit amount attributable to the small business for specified years under the credit described above. This bill would have specified that any grant money received by a qualified small business would be excluded from its income and would provide that any excess credit amount attributable to the qualified small business would be reduced by the amount allowed as a grant.

Status: Vetoed by the Governor

Code Sections Affected: 17052.12, 23609, 17131.8 and 24304

AB 544 (Mullin; D-South San Francisco)

This bill for taxable years beginning on or after January 1, 2016 would not apply the provisions of the Internal Revenue Code relating to the election of alternative incremental credit. This bill would for taxable years beginning on or after January 1, 2016, and before January 1, 2021 would apply the provisions of the Internal Revenue Code relating to election of alternative simplified credit in modified conformity, and for taxable years beginning on or after January 1, 2016, would apply the provisions of the Internal Revenue Code, relating to the inclusion of qualified research expenses and gross receipts of an acquired person and aggregation of expenditures.

Status: Assembly Appropriations Committee; 2-year bill

Code Sections Affected: 17052.12 and 23609

AB 867 (Wagner; R-Irvine)

This bill would, notwithstanding existing law regarding the rule of res judicata, where a tax, fee, assessment, surcharge, or other amount levied or collected by the tax agency, which this bill would define to include the board and the Franchise Tax Board, has been determined to have been illegally levied or collected in a final and nonappealable decision of a court of competent jurisdiction, authorize any person who paid that tax, fee, assessment, surcharge, or other amount to file with the tax agency a claim for refund, within one year after the date of the final and nonappealable decision and would require the tax agency to refund the amount so paid. This bill would also require the tax agency to refund these amounts without the person filing a claim for refund when information in the tax agencies’ records is sufficient to identify the person. This bill would, upon appropriation by the Legislature, allocate the amounts necessary to make these refunds to the applicable tax agency.

Status: Assembly Revenue & Taxation Committee; 2-year bill

Code Sections Affected: 42 and 5148

AB 1157 (Nazarian; D-Sherman Oaks)

This bill extends the 2015-16 fiscal year termination date to the 2016-17 fiscal year and the December 31, 2015, inoperative or repeal date to December 31, 2016, for the provisions relating to the determination of the fair market value and taxation of certificated aircraft.

Status: Signed into law

Code Sections Affected: 401.17, 441, and 1153.5

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AB 1357 (Bloom; D-Santa Monica)

This bill would impose a fee on every distributor, as defined, for the privilege of distributing in this state bottled sweetened beverages at the rate of $0.02 per fluid ounce and for the privilege of distributing concentrate in this state. The BOE would be responsible for administering and collecting the fee and registering the distributors upon whom the fee is imposed.

Status: Assembly Health Committee; 2-year bill

Code Sections Affected: 104895.50 (ofthe Health & Safety Code)

AB 1396 (Bonta; D-Oakland)

This bill would require moneys collected and deposited in the California Tobacco Tax Act of 2015 Fund from an additional tax to be imposed on the distribution of cigarettes, a related floor stock tax, and a cigarette indicia adjustment tax to be transferred from that fund to the California Children and Families Trust Fund, which is a continuously appropriated fund, thereby making an appropriation, the Cigarette and Tobacco Products Surtax Fund, the Breast Cancer Fund, and the General Fund, as necessary to offset revenue decreases to those funds directly resulting from additional taxes to be imposed.

Status: Assembly Floor; 2-year bill

Code Sections Affected: 30130.53 and 30130.55

AB 1450 (Chang; R-Diamond Bar)

This bill would authorize the Franchise Tax Board to impose a penalty of up to 10%, and would require the board, in determining the amount of penalty, to consider whether the taxpayer has made a good faith effort to comply with that information request or notice.

Status: Assembly Revenue & Taxation Committee; 2-year bill

Code Sections Affected: 19133

ACA 4 (Frazier; D-Oakley)

This measure would provide that the imposition, extension, or increase of a sales and use tax imposed pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law or a transactions and use tax imposed in accordance with the Transactions and Use Tax Law by a county, city, city and county, or special district for the purpose of providing funding for local transportation projects, as defined, requires the approval of 55% of its voters voting on the proposition. This measure would also provide that it would become effective immediately upon approval by the voters and would apply to any local measure imposing, extending, or increasing a sales and use tax or transactions and use tax for local transportation projects submitted at the same election.

Status: Assembly Appropriations Committee; 2-year bill

-Chris Micheli, Sacramento, CA

California Adopts First Omnibus Federal Tax Conformity Bill in Five Years

For the first time in five years, California adopted an omnibus federal tax conformity bill that will ease the job of taxpayers, tax preparers and the Franchise Tax Board. California’s tax laws have been out of sync with federal law since 2009 as the last comprehensive conformity measure was enacted in 2010 by SB 401 by Senator Lois Wolk.

Because of substantial differences between state and federal tax laws, the Franchise Tax Board’s administration and enforcement work is unnecessarily complicated and costly, and has made the lives of taxpayers and those who prepare their returns much more difficult. With this in mind, the Legislature unanimously adopted Assembly Bill 154, by Assembly Member Phil Ting (D-San Francisco) during the last week of the 2015 Session.

By way of background, the two most recent omnibus federal tax conformity bills in California have been enacted in five-year increments. SB 401 (Wolk, Chapter 14, Statutes of 2010) changed California’s specified date of conformity to federal income tax law from January 1, 2005, to January 1, 2009, for taxable years beginning on and after January 1, 2010. Prior to the enactment of SB 401 five years earlier, AB 115 (Klehs, Chapter 691, Statutes of 2005) changed California’s specified date of conformity to federal income tax law from January 1, 2001, to January 1, 2005, for taxable years beginning on and after January 1, 2005. Governor Brown signed AB 154 on September 30, 2015 as Chapter 359.

Among the provisions of AB 154 are those dealing with certain tax credits, the tax on specified distributions from Archer MSAs, income exclusions, reporting requirements, qualified tuition program investment direction, disclosure of information with respect to foreign financial assets, redemptions by foreign subsidiaries, listed property, extension of time for the payment of taxes, deductions for annual fees on branded prescription pharmaceutical manufacturers and importers, and penalty amounts related to understatements of tax or the failure to file specified returns or include specified information on returns.

AB 154 also specifies various dates on which certain provisions of federal tax laws apply and repeals certain obsolete provisions contained in state laws. Because AB 154 contains an urgency clause, it took effect upon the date the bill was chaptered, which is September 30, 2015.

The federal tax laws to which California has partially or fully conformed due to the enactment of AB 154 include:

  • American Recovery and Reinvestment Act of 2009 (ARRA) (Public Law 111-5)
  • Worker, Homeowner, and Business Assistance Act of 2009 (WHBAA) (Public Law 111-92)
  • Hiring Incentives to Restore Employment (HIRE) Act (Public Law 111-147)
  • Patient Protection and Affordable Care Act (Public Law 111-148)
  • Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203)
  • State Fiscal Relief and Other Provisions; Revenue Offsets (Public Law 111-226)
  • Small Business Jobs Act of 2010 (Public Law 111-240)
  • FAA Modernization and Reform Act of 2012 (Public Law 112-95, Title XI)
  • Moving Ahead for Progress in the 21st Century Act (MAP-21) (Public Law 112-141)
  • American Taxpayer Relief Act of 2012 (ATRA) (Public Law 112-240)
  • Tribal General Welfare Act of 2014 (Public Law 113-168)
  • Tax Increase Prevention Act of 2014 (Title I of Division A of Public Law 113-295)
  • Tax Technical Corrections Act of 2014 (Title II of Division A of Public Law 113-295)
  • The Achieving a Better Life Experience Act of 2014 (Division B of Public Law 113-295)

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According to the legislative committee analyses, among the major provisions contained in AB 154 are:

  • The exclusion from gross income for the qualified military base realignment and closure fringe benefit enacted by the Worker, Homeowner, and Business Assistance Act of 2009;
  • The disclosure of information with respect to foreign financial assets in the Hiring Incentives to Restore Employment Act;
  • Not treating certain swaps as Section 1256 contracts under the Dodd-Frank Wall Street Reform and Consumer Protection Act;
  • The special rule with respect to certain redemptions by foreign subsidiaries in the State Fiscal Relief and Other Provisions Revenue Offsets;
  • The modification of the definition of "control" for purposes of Section 249 in the FAA Modernization and Reform Act of 2012;
  • Treatment for transfers of excess pension assets in the Moving Ahead for Progress in the 21st Century Act;
  • Modifications to acquisitions, dispositions, and aggregation of expenditures in the research and development credit in the American Taxpayer Relief Act of 2012;
  • Treatment of Indian general welfare benefits in the Tribal General Welfare Act of 2014,
  • Various technical changes in the Tax Technical Corrections Act of 2014;
  • The Investment Direction Rule for 529 Education Savings accounts in the Achieving a Better Life Experience Act;
  • In the Small Business Jobs Act of 2010, the limitation on penalty for failure to disclose reportable transactions based on resulting tax benefits, removal of cell phones and similar technology from listed property, increase in information return penalties, and special rules for annuities received from only a portion of a contract;
  • A lower state excise tax of 12.5% on nonqualified Archer Medical Savings Account distribution, instead of 20% at federal; and
  • Disconnection of inflation adjustments to penalty amounts.

The first major provision of AB 154 changed California’s "specified date" of conformity to federal income tax laws from January 1, 2009, to January 1, 2015, for taxable years beginning on and after January 1, 2015. As a result, AB 154 generally conforms to the numerous changes that were made to federal income tax laws during the previous six-year period, except as otherwise provided in AB 154.

The second major provision of AB 154 generally conforms to the federal net operating loss (NOL) rules that allow corporations expecting an NOL carryback to extend the time for payment of taxes for the preceding taxable year. Federal law allows a corporation that anticipates a current-year NOL to postpone the payment of all or some of its income tax due from the immediately preceding year.

The third major provision of AB 154 makes changes to the large corporate understatement penalty ("LCUP") by adding several exceptions to the LCUP. Any amount of increased tax reflecting a proper election under Internal Revenue Code Section 338 as reported on the first amended return does not count towards the understatement amount for purposes of the LCUP.

In addition, AB 154 provides that the LCUP does not apply when the FTB imposes an alternative apportionment formula or allocation method under Revenue and Taxation Code Section 25137, or as a result of a change in the taxpayer’s federal accounting method where the due date of the return is before the Secretary of the Treasury’s determination to change the accounting method.

The fourth major provision of AB 154 makes certain legislative findings and declarations stating that SB 401 (Wolk, Chapter 14, Statutes of 2010) is valid. There has been lingering concerns that some of the provisions of SB 401 may not survive a legal challenge due to the potential retroactive application of Prop. 26 that was enacted by the voters in November 2010, months after the enactment of SB 401.

Because of this ambiguity, the FTB opined that there is no basis to believe that SB 401 is not a valid law, at least for the 12-month period following the adoption of Proposition 26. It has been noted that California Constitution Article III, Section 3.5 requires the FTB to enforce SB 401 until an appellate court has made a determination that some portion or all of SB 401 is "void" pursuant to Proposition 26 and, therefore, unenforceable. [FTB Legal Division Guidance 2011-01-01 "Impact of Proposition 26 on SB 401 (Wolk)"]

As a result, in Section 42 ofAB 154, there is the following statement: "It is the intent of the Legislature to confirm the validity and ongoing effect of Senate Bill No. 401 of the 2009-10 Regular Session." This should provide adequate assurances that SB 401 stands on firm legal ground and can be relied upon by taxpayers and the government alike.

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As a result of the enactment of AB 154, the following sections of the California Revenue & Taxation Code have been amended: 17024.5, 17053.46, 17053.47, 17053.74, 17088, 17144, 17215, 18155, 19138, 19141.5, 19164, 19167, 19183, 19772, 23622.7, 23622.8, 23646, 23701i, 24307, 24427, 24439, 24870, 24871, and 24990.5. The following sections have been added to the Revenue & Taxation Code: 17240, 17241, 17323, 19131.5, 24345.5, 24454, and 24459. The following Revenue & Taxation Code sections have been repealed: 17131.7, 17131.12, 17131.14, 17134.1, 17201.1, 17280.1, 17322.1, 24452.1, and 24871.1.

With the enactment of AB 154, California taxpayers and the FTB can breathe easier with updated state tax laws that will help reduce the chances of errors on returns and reduce compliance burdens due to differing tax laws. Perhaps California will once again return to adopting omnibus federal tax conformity legislation on a regular basis.

-Chris Micheli, Sacramento, CA


The Tax Exempt Organizations Committee is an information exchange and support network for practitioners that advise tax exempt organizations. This important segment of the national economy is heavily regulated by multiple federal and state agencies, including the Internal Revenue Service, the State Board of Equalization, the Franchise Tax Board, and the California Attorney General. In addition to formal rules and regulations, each of these agencies makes extensive use of informal interpretation and private ruling processes, producing a large body of non-binding but highly informative authority. This regulatory environment makes information exchange vital for practitioners. Equally important, the Committee facilitates dialogue between the federal and state governmental agencies and the practitioner community by meeting regularly with representatives of the state agencies and commenting on legislative and regulatory pronouncements. Finally, the Committee assists the State Bar’s Taxation Section by developing high quality continuing legal education programs.

Committee Activities

The Tax Exempt Organizations Committee held a meeting during the Western Conference on Tax Exempt Organizations conference on November 20, 2015 in Los Angeles. For more information about upcoming meetings and events, please contact either of the Committee Co-Chairs, Matt Clausen ( or Jorge Lopez (

Quick Points

IRS Releases Final Regulations Regarding Private Foundation Use of Foreign Public Charity Equivalence Procedures.

Private foundations wishing to make grants to non-U.S. charities generally have to exercise expenditure responsibility over their grants, or use equivalency determination. Revenue Procedures 92-94 details how equivalency determination works, requiring a good faith determination, based on a grantee-completed affidavit or opinion of counsel, that the foreign charity met the basic requirements of a Section 501(c)(3) public charity, but for the fact that the Internal Revenue Service ("IRS") had not recognized the foreign charity as such. The 2012 proposed regulations expanded the class of tax practitioners on whose opinion the private foundation could rely, from counsel only to include Certified Public Accountants and enrolled agents, collectively known as "qualified tax practitioners." Final regulations, 80 FR 57709, adopt the definition of qualified tax practitioners and add substantial new provisions.

Now, a grantor may only rely on a grantee affidavit as the sole basis for making a good faith determination where it is "reasonable and appropriate under the facts and circumstances." Foreign counsel may assist in gathering information relevant to the equivalency determination and provide advice to a qualified tax practitioner. However, the grantor may not rely directly upon the foreign counsel’s opinion unless such foreign counsel is also a qualified tax practitioner. In addition, the regulations clarify that sponsoring organizations of donor advised funds may use these regulations as guidance for grantmaking to foreign charities. The regulations also clarify that grantees meeting the public support test can be treated as publicly-supported for two years immediately following the end of the five-year support test period. Despite calls from grantors to make the process more economical and efficient by allowing them to share advice with one another, the IRS did not go that far; a grantor must receive the advice directly from the qualified tax practitioner (which includes qualified equivalency determination repositories), and not from another grantor.

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The final regulations provide for a 90-day transition period (through December 24, 2015), during which foundations may distribute grants in accordance with the former regulations, including written commitments on before September 25, 2015 if distributed before September 25, 2020. The Treasury intends to update Revenue Procedures 92-94 outlining the affidavit process.

– Shirley McLaughlin, San Francisco, CA

IRS Issues Proposed Regulations and Calls for Comments on Substantiation Requirement for Certain Contributions.

Under IRC Section 170(f)(8)(A), a donor claiming a charitable deduction for a contribution of $250 or more must obtain a contemporaneous written acknowledgement from the donee organization. Proposed regulations REG-138344-13 were issued on October 13, 2015 in response to the suggestion that a failure to comply with the requirement could be remedied through donee reporting. Under the proposal, the IRS will develop a form for donees to complete as an informational return, to be filed each February, disclosing the amount of cash or other property received, whether any goods and services were provided in consideration for the donation, a description of the goods and services, and a good-faith estimate of the value. More importantly and controversially, the donee would also need to disclose the donor’s name, address and taxpayer identification number ("TIN").

Due to the sensitive nature of the TINs, the proposal asks for comments on whether more guidance would be needed to mitigate the risk of identity theft and what might be done to relieve the burden of some donees in the process. The deadline for comments on the proposed regulations was December 16, 2015.

– Shirley McLaughlin, San Francisco, CA


The Tax Policy, Practice and Legislation ("TPPL") Committee provides opportunities for practitioners to collectively voice their opinions, concerns, and suggestions on legislative and administrative developments in the area of tax. The Committee is composed of individual practitioners and academics who participate in recommending positions with respect to proposed, pending and enacted California legislation in the name of the Taxation Section of the State Bar. The Committee also recommends positions with respect to Federal legislation of interest to California taxpayers. In addition, the Committee provides educational seminars on timely topics at the Annual Meeting of the California Tax Bar, the California State Bar’s Section Education Institute ("SEI"), and other California Bar forums, including webinars.

Committee Activities

Committee members interact monthly via conference call to discuss current tax policy issues and activities (federal and state), Taxation Section business, and project ideas. These conference calls are held at noon on the first Friday of each month. Current tax reform and policy matters are discussed along with possible projects for the Taxation Section’s DC and Sacramento delegations. The committee also co-sponsors an annual tax policy conference in spring in the Bay Area. The TPPL Committee has been working to help members comment on pending Federal and state legislation and regulations. For more information or to participate, please contact Committee Chair, Ciro Immordino at The Committee welcomes new members and encourages interaction with other committees to share ideas and projects on matters of tax policy, practice and legislation.

Quick Points

Expansion of Mortgage Debt Relief Vetoed

On October 10, 2015, Governor Brown vetoed AB 99, a bill which would have extended California’s conformity to federal law excluding income from the discharge of qualified principal residence indebtedness to discharges occurring from January 1, 2014 through December 31, 2014.

Under current law, California’s Revenue and Taxation Code ("RTC") 17144.5 partially conforms to Internal Revenue Code ("IRC") section 108. Under RTC section 17144.5, California’s exclusion of income from the discharge of debt on a qualified personal residence is $500,000 (or $250,000 for married or RDP filing separately). However, California only conforms to IRC section 108 for discharges occurring between 2007 and 2013. AB 99 would have extended California’s conformity to discharges occurring in 2014.

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Taxpayers who relied upon the anticipated extension of RTC section 17144.5 may have underpaid on their 2014 tax returns, and could face penalties. The Franchise Tax Board’s ("FTB") website stated that, where other factors are present, the FTB will consider reasonable cause requests for penalty abatement on a case by case basis. (Tax News: AB 99 and Cancellation of Debt Income (October 14, 2015) (as of November 2, 2015).

Although this result may be disappointing to many taxpayers, a taxpayer may still be able to exclude income from a discharge of qualified principal residence indebtedness. For additional information, see Mortgage Forgiveness Debt Relief (as of November 2, 2015).

– Veronica Long, Sacramento, CA


California tax practitioners and federal and state government attorneys who handle administrative and judicial tax matters participate in, and are members of, the Tax Procedure and Litigation ("TPL") Committee. The Committee fosters communication, coordination and education among its members, as well as among other committees and organizations. The Committee members participate in, and sponsor, several panels and seminars for the State Bar Annual Meeting, the Annual Meeting of the California Tax Bar, and the Section Education Institute Conference. Committee members take an active role in the Washington, D.C., Delegation, ensuring that each year several of its members write and present papers to the Internal Revenue Service, Department of Treasury, and staff for House Ways & Means, Senate Finance, and the Joint Committee on Taxation, as well as the U.S. Tax Court. Individual members are also invited to participate in the Sacramento Delegation where they can present papers on their individual views of California tax law. The Committee meets quarterly, alternating meeting locations between Northern and Southern California. Before each meeting, the Committee distributes its Journal, which includes the minutes of the previous quarterly meeting, announcements, schedule of upcoming events, short articles, and items of interest provided by Committee members. All members are invited to contribute articles.

Committee Activities

The Committee hosts quarterly meetings in various locations in California. The Q3 membership meeting occurred on August 28, 2015 at Greenberg Traurig, LLP’s San Francisco Office. Susan Maples, the Taxpayer Rights Advocate with the California Franchise Tax Board, gave an informative presentation on the resources available to taxpayers who have been unable to resolve their tax issues through normal channels. Ms. Maples also updated the Committee on recent initiatives of the Taxpayer Rights Advocate office. The Committee discussed paper topics for the 2016 Sacramento Delegation and Washington Delegation. The Committee members also elected Aubrey Hone to serve as the Editor of the California Journal of Tax Litigation. In an effort to connect new and longstanding committee members, Courtney Hopley and Carolyn Lee hosted an informal networking reception immediately following the meeting.

The Q4 membership meeting was held during the Annual Meeting of the California Tax Bar at the Hilton La Jolla Torrey Pines. The Vice-Chair, Carolyn Lee, graciously hosted the breakfast meeting on November 5, 2015, as Courtney Hopley was unavailable due to work commitments. The Committee discussed webinar topics and paper topics for upcoming issues of the California Tax Lawyer. Various Committee members also attended the YTL Reception on November 4, 2015 to promote new membership in the Committee.

The Committee publishes quarterly editions of the California Journal of Tax Litigation. The Q4 edition was published in November 2015 and featured an interview of Martin A. Schainbaum and an update on recent cases by Robert Horwitz. Please contact Aubrey Hone at if you are interested in writing an article for the California Journal of Tax Litigation.

The Committee is currently planning the quarterly membership meetings for 2016. Details are forthcoming. The Committee is also soliciting ideas for webinars and paper topics for the California Tax Lawyer. Please contact the TPL Committee Chair, Courtney Hopley at or (415) 655-1314 if you would like information about upcoming meetings, are interested in presenting a webinar regarding a tax procedure topic or are interested in writing an article for the California Tax Lawyer.

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Quick Points

Bringing Secret Subpoenas to Light

California tax practitioners might assume that the Tax Court’s broad discovery rules would require that the Internal Revenue Service ("IRS") produce all discoverable information when a request is made. But, a recent Tax Court order shows that perhaps parties have been withholding information behind an unintentional divergence between Tax Court rules and the Federal Rules of Civil Procedure ("FRCP").

In Kissling v. Commissioner, Dkt. No. 19857-10, Judge Mark V. Holmes ordered the IRS to produce any non-party subpoenas it issued, as well as any responses from the non-parties it received as a result of the subpoena. Although the IRS argued, and the Tax Court agreed, that no rule expressly requires that a party in a Tax Court proceeding give such notice, Judge Holmes did not allow the IRS to hide behind such formalism. He noted that FRCP 45(a)(4), upon which Tax Court Rule 147 was modeled, was modified in 1991 to require that parties give notice of nonparty subpoenas in order to allow party challenges, similar to the practice of allowing challenges to subpoenas for depositions in FRCP 30 and 31. He stated that the continuation of Tax Court Rule 147 without an update to reflect the change to FRCP 45(a)(4) was an unintentional drafting error.

Consequently, Judge Holmes adopted the notification requirement of FRCP 45 as a modification to the pretrial order governing the case.

Although the order only affected one particular case, it seems reasonable to assume that other Tax Court judges will find this reasoning sound. Going forward, it makes sense for tax practitioners to specifically request that the IRS provide notice of any nonparty subpoenas it issues as well as any information it receives in response pursuant to Tax Court Rule 147. After all, IRC sections 7602(c) and 7609 already require that taxpayers receive notice of and the opportunity to object to third-party administrative summonses issued by the IRS.

To the extent that a Tax Court judge has not already modified a standing pre-trial order to incorporate such a change, practitioners should request that the Tax Court judge put the notification requirement in the pre-trial order. Hopefully, if the Tax Court revises its rules, it will include an explicit nonparty subpoena notice requirement in Rule 147. This rule of fairness would apply to the IRS and taxpayers, alike.

-Jeremiah Coder, Washington, D.C.


The Young Tax Lawyers Committee ("YTLC") is composed of an executive board that works with regional chapters to provide education and support for new tax lawyers throughout California. The purpose of the YTLC is to provide opportunities for new tax lawyers to further their personal and professional development through participation in Taxation Section activities. Local chapters hold periodic meetings on current tax developments and facilitate educational talks on noteworthy tax topics while providing networking opportunities to meet fellow young tax attorneys and to meet more senior tax practitioners who often speak at the meetings. There are presently chapters in Los Angeles, Sacramento, San Diego, Silicon Valley and the San Francisco Bay Area.

If you are interested in becoming a member or submitting a topic to speak or write on, please contact Laura L. Buckley, at

Committee Activities

The Young Tax Lawyers Los Angeles Chapter ("LAYTL") sponsored a mixer with CalCPA and the National Association of Insurance and Financial Advisors ("NAIFA") on Thursday, November 12, 2015 from 6-9 p.m. at The Parlor, 7250 Melrose Ave, Los Angeles. If you are not yet on the YTL Los Angeles email list and would like to be, please contact current Chair, Christy Harper, by email at, or by phone at (213) 612-7403.

The Young Tax Lawyers San Francisco Bay Area Chapter ("BAYTL")

For information about upcoming events, please contact the BAYTL Co-Chairs Alyssa Snyder and Matthew Miller at

The Young Tax Lawyers Silicon Valley Chapter ("SVYTL"). For more information regarding upcoming meetings and events, please contact Co-Chairs Monica Frassa at or Jessica Anderson at

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The Young Tax Lawyers Sacramento Chapter ("SYTL") continues to hold events and provide opportunities for new tax lawyers to learn, network and develop their careers. For more information regarding upcoming meetings and events, please contact Chair Jaclyn Zumaeta at

The San Diego Chapter of the Young Tax Lawyers ("SDYTL") hosted a quarterly meeting and networking event on Thursday, September 24, 2015 at Higgs Fletcher and Mack. Laura L. Buckley, Esq. of Higgs Fletcher & Mack and Brad Gastineau, CPA of Gatto Pope & Walwick gave a presentation on real estate professional status and passive activity loss rules, where they discussed IRC section 469 tax-reduction strategies for real estate professionals, and choice of entity strategies in connection with income, self-employment, and the 3.8% net investment income tax.

The San Diego Chapter hosted another quarterly meeting and networking event on November 18, 2015 at the University of San Diego School of Law, where M. Katharine Davidson and Brian P. Tsu, Esq. of Henderson Caverly Pum & Charney gave a presentation discussing the estate, gift and income tax implications of U.S. investment by non-resident aliens, with a particular emphasis on the acquisition U.S. real property.

For more information on upcoming San Diego YTL events, please contact Co-Chairs Anne E. Wenger at or Eric A. Baggett at

Quick Points

No joint tax return means no relief from tax liability pursuant to IRC section 6015. Instead, consider IRC section 66.

In California, each spouse is the owner of one-half of all community property. Since income taxation follows ownership, each spouse is taxed on one-half of the community income, regardless of whether the spouse received or enjoyed the income in question. Kimes v. Commissioner, 55 T.C. 774, 779 (1971); see also US v. Mitchell, 403 US 190 (1971). Internal Revenue Code ("IRC") section 6015 provides relief from joint and several liability in limited circumstances, which may address the inequity of one spouse being held liable for erroneously reported income tax returns, attributable to the other spouse. However, if there is no joint tax return, there is no joint and several tax liability, which means no section 6015 relief, even if the requesting spouse otherwise would qualify.

IRC sections 66(b) and (c) offer relief from liability for a deficiency arising from an interest in community property for spouses who did not file a joint tax return (or filed no tax return at all). The relevant factors guiding a determination generally mirror those considered in section 6015(b) cases available to all taxpayers, and section 6015(f) cases, providing equitable relief. For section 66 requests, the spouses are no longer married or did not live together during the preceding calendar year. Equitable relief under section 66(c) may be granted even when the requesting spouse had knowledge ofthe community income item, or substantially benefited from the income. The timing for requests is similar to section 6015 applications. Requesting spouses complete the same Internal Revenue Service Form 8857. Non-requesting spouses may intervene.

Practitioners should consider section 66 as an option for relief when there was no valid joint tax return, and the deficiency arose from the community income of the non-requesting spouse. Note, however, that unlike section 6015 cases, the Tax Court does not have original jurisdiction to review adverse section 66 determinations. The Tax Court may review section 66 determinations in three circumstances: As an affirmative defense in a deficiency proceeding; a review of a lien action; or a review of a levy action. For each, the abuse of discretion standard of review applies. Bernal v. Commissioner, 120 T.C. 102 (2003). If the Tax Court is not available, the requesting spouse must pay the liability and bring a claim for refund in federal district court or the Court of Federal Claims.

– Carolyn Lee, Abkin Law LLP, San Francisco, CA

For additional information on any of the Standing Committees and their activities, please contact one of the officers of the committee. Please refer to the Taxation Section Leadership Directory, infra, for contact information for the various committees. For information on how to join any of the Standing Committees, please see the Taxation Section Overview, supra.

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