California Legislature Adopts a Second Voluntary Compliance Initiative


In SB 86, signed by Governor Brown on March 24, 2011, the California legislature adopted a second voluntary compliance initiative. This initiative will run from August 1 to October 31, 2011 and will afford individual and corporate taxpayers the opportunity to resolve pending or potential franchise or income tax disputes for all tax years before 2011, in most cases without any penalties. The prior voluntary compliance program in 2004 raised $1.3 Billion and the legislature is obviously hoping for an even better result this time.

In the near future, the Franchise Tax Board (“FTB”) will provide information about what taxpayers must do to participate. The program applies to “abusive tax avoidance transactions” and “offshore financial arrangements” such as foreign bank accounts and foreign entities that hold unreported income. Abusive tax avoidance transactions include tax shelters, gross misstatements, reportable transactions and listed transactions. In the prior compliance initiative the FTB accepted into the program taxpayers with issues that did not on the surface seem to meet the definition and it is likely that they will also interpret this new program in an expansive manner.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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