United States

California: Federal Conformity Legislation Signed Into Law

Oct 05, 2015
From KPMG TaxWatch

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On September 30, 2015, Governor Brown signed legislation (Assembly Bill 154) updating California’s conformity to the Internal Revenue Code Unlike most states, California does not adopt the Internal Revenue Code as a whole, but conforms only to specified Code sections. Assembly Bill 154 updates California’s general “specified date” of conformity from January 1, 2009, to January 1, 2015 applicable to tax years beginning on or after January 1, 2015. As such, California will generally conform to numerous changes that were made to federal income tax laws during that six-year period, except as otherwise provided. Assembly Bill 154 also conforms California to the federal provision that allows the corporation expecting an NOL carryback to extend the time for payment of taxes for the immediately preceding taxable year. Finally, the bill adopts certain exceptions to the Large Corporate Understatement Penalty (LCUP) for understatements attributable to (1) the FTB requiring use of an alternative apportionment formula or (2) a change in a taxpayer’s federal method of accounting (but only when the due date of the return is before the Treasury consents to the change). Another exception to the LCUP applies when tax is increased due to a proper IRC section 338 election as reported on an amended return.

Assembly Bill 154 also purports to confirm the validity of Senate Bill 401, California’s last conformity bill. Senate Bill 401 was enacted in April 2010. In November 2010, voters approved California Proposition 26, which generally required that any legislation raising taxes on any taxpayer must be passed with a two-thirds majority vote in the Assembly and Senate. Proposition 26 further provided that any legislation enacted after January 1, 2010 that was not adopted with the two-thirds majority vote would be void within twelve months unless reenacted with the requisite majority vote. Senate Bill 401 was never reenacted, which lead to uncertainty as to whether the conformity legislation was void. The California FTB stated at the time that it would enforce Senate Bill 401 until it was voided by the courts. Assembly Bill 154 contains language confirming the validity and ongoing effect of Senate Bill 401. Please contact John Harper at 213-593-6704 with questions.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.