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Business Taxes Law Guide—Revision 2024

BTLG Table of Contents > Energy Resources Surcharge Law > Chapter 7 > entire chapter

Energy Resources Surcharge Law

Revenue and Taxation Code

Division 2. Other Taxes
Part 19. Energy Resources Surcharge Law

Chapter 7. Administration


Article 1. Regulations, Records and Reports

Article 2. Disposition of Proceeds

Article 3. Violations

Article 4. Notices

Article 5. The California Taxpayers' Bill of Rights

Uncodified Sections

Chapter 7. Administration.

Article 1. Regulations, Records and Reports

40171. Enforcement by board; rulings and regulations. The board shall enforce the provisions of this part and may prescribe, adopt, and enforce rules and regulations relating to the administration and enforcement of this part. The board may prescribe the extent to which any ruling or regulation shall be applied without retroactive effect.

40172. Electrical energy records. Every electric utility engaged in generating, purchasing, transmitting, distributing, consuming or selling electrical energy in this state shall keep such records pertaining thereto in such form as the board may prescribe by rule or regulation.

40173. Kilowatt-hour records. Every electric utility shall keep and maintain such records of meter readings and other records as may be necessary for the accurate determination of the kilowatt-hours of electrical energy generated, purchased, consumed or sold by it in this state.

40174. Examination of records, meters, and equipment. The board or its authorized representative may make such examination of the records, meters and equipment of any person generating, transmitting, distributing, consuming, purchasing or selling electrical energy and such other investigations as it may deem necessary in carrying out the provisions of this part.

40175. Additional reports and estimates; access to records of P.U.C., political subdivisions, and public agencies. In addition to any other reports or returns required under this part, the board may by rule or otherwise require additional, supplemental or other reports from electric utilities, consumers, and any other person generating, purchasing, transmitting, distributing or consuming electrical energy, including verification of the information to be given on and the times for filing of such reports. For the purpose of carrying out its duties under Article 2 (commencing with Section 40031) of Chapter 2 of this part, the board may require such reports of estimates of future availability, generation, sales and consumption of electrical energy from such electric utilities and other persons as it may deem necessary. The board shall have full access to records of the Public Utilities Commission, and any political subdivision or public agency of this state that regulates, operates or owns an electric utility, which pertain to the generation, transmission, distribution, sale, purchase or consumption of electrical energy in this state.

40176. Information confidential; tax preparer. (a) Except as otherwise provided by law, any person who is engaged in the business of preparing, or providing services in connection with the preparation of, returns under Chapter 4 (commencing with Section 40051), or any person who for compensation prepares any such return for any other person, and who knowingly or recklessly does either of the following, shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than one thousand dollars ($1,000) or imprisoned no more than one year, or both, together with the costs of prosecution:

(1) Discloses any information furnished to him or her for, or in connection with, the preparation of the return.

(2) Uses that information for any purpose other than to prepare, or assist in preparing, the return.

(b) Subdivision (a) shall not apply to disclosure of information if that disclosure is made pursuant to the person's consent or pursuant to a subpoena, court order, or other compulsory legal process.

History—Added by Stats. 2000, Ch. 1052 (AB 2898), in effect January 1, 2001.

40177. Board determines which accounts are eligible. (a) The board shall determine which taxpayer's accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.

(b) A taxpayer is not required to participate in the managed audit program.

History—Added by Stats. 2014, Ch. 105 (AB 2009), operative January 1, 2015.

40177.1. Eligibility. A taxpayer's account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:

(a) The taxpayer's business involves few or no statutory exemptions.

(b) The taxpayer's business involves a single or a small number of clearly defined taxability issues.

(c) The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.

(d) The taxpayer has the resources to comply with the managed audit instructions provided by the board.

History—Added by Stats. 2014, Ch. 105 (AB 2009), operative January 1, 2015.

40177.2. Information required to conduct self-audit. (a) If the board selects a taxpayer's account for a managed audit, all of the following apply:

(1) The board shall identify all of the following:

(A) The audit period covered by the managed audit.

(B) The types of transactions covered by the managed audit.

(C) The specific procedures that the taxpayer is to follow in determining any liability.

(D) The records to be reviewed by the taxpayer.

(E) The manner in which the types of transactions are to be scheduled for review.

(F) The time period for completion of the managed audit.

(G) The time period for the payment of the liability and interest.

(H) Any other criteria that the board may require for completion of the managed audit.

(2) The taxpayer shall:

(A) Examine its books and records to determine if it has any unreported tax liability for the audit period.

(B) Make available to the board for verification all computations and books and records examined pursuant to subparagraph (A).

(b) The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.

History—Added by Stats. 2014, Ch. 105 (AB 2009), operative January 1, 2015.

40177.3. Authority to examine records. Nothing in the article limits the Board's authority to examine the books and records of a taxpayer under Section 40174.

History—Added by Stats. 2014, Ch. 105 (AB 2009), operative January 1, 2015.

40177.4. Interest on liabilities. Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.

History—Added by Stats. 2014, Ch. 105 (AB 2009), operative January 1, 2015.

Article 2. Disposition of Proceeds

40181. Energy Resources Surcharge Fund. All amounts required to be paid to the state under this part shall be paid to the board in the form of remittances payable to State Board of Equalization of the State of California. The board shall transmit the payments to the State Treasurer to be deposited in the State Treasury to the credit of the Energy Resources Surcharge Fund, which fund is hereby created.

40182. Disposition of fund. All money deposited in the Energy Resources Surcharge Fund under this part shall upon order of the Controller be drawn therefrom and transferred to pay the refunds authorized by this part. The balance shall be transferred to the Energy Resources Programs Account, which is hereby created in the General Fund.

It is the intent of the Legislature that the funds in the Energy Resources Programs Account be used for ongoing energy programs and energy projects deemed appropriate by the Legislature, including, but not limited to, the activities of the State Energy Resources Conservation and Development Commission.

Notwithstanding any other provisions of law to the contrary, all appropriations from the Energy Resources Programs Account shall be made by the annual Budget Act.

History—Stats. 1982, Ch. 1067, in effect January 1, 1983, operative July 1, 1983, deleted the balance of the first sentence after "transferred," deleted subdivisions (a), (b), and (c), added "to pay … part" at the end of the first sentence of, and added the second sentence to, the first paragraph; and, added the second and third paragraphs.

Article 3. Violations

40186. Criminal penalties. Any person who fails or refuses to file a return or report required to be made or who fails or refuses to furnish a supplemental report or other data required by the board, or who renders a false or fraudulent report is guilty of a misdemeanor and may be fined not exceeding five hundred dollars ($500) for each offense.

40187. Felony provisions. Notwithstanding any other provision of this part, any person who violates this part with intent to defeat or evade the determination of an amount due required by law to be made is guilty of a felony when the amount of tax liability aggregates twenty-five thousand dollars ($25,000) or more in any 12-consecutive-month period. The determination shall be approved by the executive director or his or her designee. Each offense shall be punished by a fine of not less than five thousand dollars ($5,000) and not more than twenty thousand dollars ($20,000), or imprisonment for 16 months, two years, or three years, or by both the fine and imprisonment in the discretion of the court.

History—Added by Stats. 1987, Ch. 1064, effective January 1, 1988. Stats. 1989, Ch. 654, in effect January 1, 1990, substituted "Deputy Director, Business Taxes," for "administrator of the excise taxes" and "designee" for "supervisor". Stats. 1995, Ch. 555, in effect January 1, 1996, substituted "any person who violates this part" for "any violation of this part by any person" after "of this part," in the first sentence, and substituted "executive director or his or her" for "Deputy Director, Business Taxes, or that person's" after "approved by the" and added "by" after "three years, or" in the second sentence.

40188. Prosecution for violation. Any prosecution for violation of any of the penal provisions of this part shall be instituted within three years after commission of the offense or within two years after the violation is discovered, whichever is later.

History—Added by Stats. 1986, Ch. 1361, effective January 1, 1987.

Note.—Sec. 41, Stats. 1986, Ch. 1361 required that:

(a) On January 15 of each year from 1988 to 1992, inclusive, the State Board of Equalization and the Franchise Tax Board shall submit a report to the Legislature on implementation of the provisions of this act, with the exception of Section 40 of this act (for which separate reporting requirements are set out).

(b) The revenue and taxation policy committees of each house of the Legislature shall hold a public hearing no later than June 30 of each year from 1988 to 1992, inclusive, on the reports submitted pursuant to subdivision (a).

(c) The intent of this section is to assure the Legislature the opportunity to oversee the implementation of this act. The intent of the Legislature in enacting this act is to improve enforcement and voluntary compliance with the tax system and cash-pay reporting rules. The intent of the Legislature in enacting this act is not to cause harassment of or undue burden on innocent taxpayers.

Sec. 41. applies to the following Revenue and Taxation Code Sections: 6069, 6071, 6366, 6366.1, 6368.1, 6452, 6455, 6776, 6777, 7154, 8404, 9355, 30481, 32556, 40188, 41143, and 44186.

Article 4. Notices

40191. Notices. A certificate by the board or an employee of the board stating that a notice required by this part was given by mailing or personal service shall be prima facie evidence in any administrative or judicial proceeding of the fact and regularity of the mailing of personal service in accordance with any requirement of this part for the giving of notice. Unless otherwise specifically required, any notice required by this part to be mailed or served may be given by mailing or personal service in the manner provided for giving notice of a deficiency determination.

Article 5. The California Taxpayers' Bill of Rights*

* Added by Stats. 1992, Ch. 438, in effect January 1, 1993.

40200. Administration. The board shall administer this article. Unless the context indicates otherwise, the provisions of this article shall apply to this part.

40201. Taxpayers' Rights Advocate. (a) The board shall establish the position of the Taxpayers' Rights Advocate. The advocate or his or her designee shall be responsible for facilitating resolution of taxpayer complaints and problems, including any taxpayer complaints regarding unsatisfactory treatment of taxpayers by board employees, and staying actions where taxpayers have suffered or will suffer irreparable loss as the result of those actions. Applicable statutes of limitation shall be tolled during the pendency of a stay. Any penalties and interest that would otherwise accrue shall not be affected by the granting of a stay.

(b) The advocate shall report directly to the executive officer of the board.

40202. Education and information program. (a) The board shall develop and implement an education and information program directed at, but not limited to, all of the following groups:

(1) Taxpayers newly registered with the board.

(2) Board audit and compliance staff.

(b) The education and information program shall include all of the following:

(1) A program of written communication with newly registered taxpayers explaining in simplified terms their duties and responsibilities.

(2) Participation in seminars and similar programs organized by federal, state, and local agencies.

(3) Revision of taxpayer education materials currently produced by the board that explain the most common areas of taxpayer nonconformance in simplified terms.

(4) Implementation of a continuing education program for audit and compliance personnel to include the application of new legislation to taxpayer activities and areas of recurrent taxpayer noncompliance or inconsistency of administration.

(c) Electronic media used pursuant to this section shall not represent the voice, picture, or name of members of the board or of the Controller.

History—Stats. 1999, Ch. 929 (AB 1638), in effect January 1, 2000, added "and compliance" after "program for audit" in paragraph (4) of subdivision (b).

40203. Annual hearing for taxpayer proposals. The board shall conduct an annual hearing before the full board where industry representatives and individual taxpayers are allowed to present their proposals on changes to the Energy Resources Surcharge Law which may further improve voluntary compliance and the relationship between taxpayers and government.

40204. Preparation of statements by board. The board shall prepare and publish brief but comprehensive statements in simple and nontechnical language that explain procedures, remedies, and the rights and obligations of the board and taxpayers. As appropriate, statements shall be provided to taxpayers with the initial notice of audit, the notice of proposed additional taxes, any subsequent notice of tax due, or other substantive notices. Additionally, the board shall include this language for statements in the annual tax information bulletins that are mailed to taxpayers.

40205. Limit on uses of revenue collected or assessed. (a) The total amount of revenue collected or assessed pursuant to this part shall not be used for any of the following:

(1) To evaluate individual officers or employees.

(2) To impose or suggest production quotas or goals, other than quotas or goals with respect to accounts receivable.

(b) The board shall certify in its annual report submitted pursuant to Section 15616 of the Government Code that revenue collected or assessed is not used in a manner prohibited by subdivision (a).

(c) Nothing in this section shall prohibit the setting of goals and the evaluation of performance with respect to productivity and the efficient use of time.

40206. Evaluation of employee's contact with taxpayers. The board shall develop and implement a program that will evaluate an individual employee's or officer's performance with respect to his or her contact with taxpayers. The development and implementation of the program shall be coordinated with the Taxpayers' Rights Advocate.

40207. Plan to timely resolve claims and petitions. The board shall, in cooperation with the Taxpayers' Rights Advocate, and other interested taxpayer-oriented groups, develop a plan to reduce the time required to resolve petitions for redetermination and claims for refunds. The plan shall include determination of standard timeframes and special review of cases which take more time than the appropriate standard timeframe.

40208. Procedures relating to review conferences. Procedures of the board, relating to appeals staff review conferences before a staff attorney of supervising tax auditor independent of the assessing department, shall include all of the following:

(a) Any conference shall be held at a reasonable time at a board office that is convenient to the taxpayer.

(b) The conference may be recorded only if prior notice is given to the taxpayer and the taxpayer is entitled to receive a copy of the recording.

(c) The taxpayer shall be informed prior to any conference that he or she has a right to have present at the conference his or her attorney, accountant, or other designated agent.

40209. Reimbursement to taxpayers. (a) Every taxpayer is entitled to be reimbursed for any reasonable fees and expenses related to a hearing before the board if all of the following conditions are met:

(1) The taxpayer files a claim for the fee and expenses with the board within one year of the date the decision of the board becomes final.

(2) The board, in its sole discretion, finds that the action taken by the board staff was unreasonable.

(3) The board decides that the taxpayer be awarded a specific amount of fees and expenses related to the hearing, in an amount determined by the board in its sole discretion.

(b) To determine whether the board staff has been unreasonable, the board shall consider whether the board staff has established that its position was substantially justified.

(c) The amount of reimbursed fees and expenses shall be limited to the following:

(1) Fees and expenses incurred after the date of the notice of determination, jeopardy determination, or a claim for refund.

(2) If the board finds that the staff was unreasonable with respect to certain issues but reasonable with respect to other issues, the amount of reimbursed fees and expenses shall be limited to those that relate to the issues where the staff was unreasonable.

(d) Any proposed award by the board pursuant to subdivision (a) shall be available as a public record for at least 10 days prior to the effective date of the award.

(e) The amendments to this section by the act adding this subdivision shall be operative for claims filed on or after January 1, 2000.

History— Stats. 1995, Ch. 555, in effect January 1, 1996, substituted "board" for "State Board of Control" after "expenses with the" in paragraph (1) of, substituted "decides" for "makes a recommendation to the State Board of Control" after "The board" in paragraph (3) of, and deleted paragraph (4) which read: "The State Board of Control concurs with the recommendation and orders the board to provide reimbursement of fees and expenses to the taxpayer." from, subdivision (a); and added subdivision (d). Stats. 1999, Ch. 929 (AB 1638), in effect January 1, 2000, added "within one year of the date the decision of the board becomes final" after "with the board" in paragraph (1) of, substituted "in an amount … its sole discretion" for "which shall be determined by the board" after "to the hearing," in paragraph (3), of, subdivision (a), substituted "the board staff … was substantially justified" for "taxpayer has established that the position was not substantially justified" in subdivision (b), and added subdivision (e). Stats. 2000, Ch. 1052 (AB 2898), in effect January 1, 2001, substituted "the notice of determination … claim for refund" for "filing petitions for redetermination and claims for refund" in paragraph (1) of subdivision (c).

40210. Investigation for nontax administrative purposes. (a) An officer or employee of the board acting in connection with any law administered by the board shall not knowingly authorize, require, or conduct any investigation of, or surveillance over, any person for nontax administration related purposes.

(b) Any person violating subdivision (a) shall be subject to disciplinary action in accordance with the State Civil Service Act, including dismissal from office or discharge from employment.

(c) This section shall not apply with respect to any otherwise lawful investigation concerning organized crime activities.

(d) The provisions of this section are not intended to prohibit, restrict, or prevent the exchange of information where the person is being investigated for multiple violations which include energy resources surcharge violations.

(e) For the purposes of this section:

(1) "Investigation" means any oral or written inquiry directed to any person, organization, or governmental agency.

(2) "Surveillance" means the monitoring of persons, places, or events by means of electronic interception, overt or covert observations, or photography, and the use of informants.

40211. Settlement of disputed tax liabilities. [Repealed by Stats. 1995, Ch. 497, in effect January 1, 1996.]

40211. Settlement authority. (a) It is the intent of the Legislature that the department, its staff, and the Attorney General pursue settlements as authorized under this section with respect to surcharge matters in dispute that are the subject of protests, appeals, or refund claims, consistent with a reasonable evaluation of the costs and risks associated with litigation of these matters.

(b) (1) Except as provided in paragraph (2), no recommendation of settlement shall be submitted to the director for approval unless and until that recommendation has been submitted by the chief counsel to the Attorney General. Within 30 days of receiving that recommendation, the Attorney General shall review the recommendation and advise the chief counsel in writing, of their conclusions as to whether the recommendation is reasonable from an overall perspective. The chief counsel shall, with each recommendation of settlement submitted to the director, also submit the Attorney General's written conclusions obtained pursuant to this paragraph.

(2) (A) A settlement of any civil surcharge matter in dispute involving a reduction of surcharge or penalties in settlement, the total of which reduction of surcharge and penalties in settlement does not exceed eleven thousand five hundred dollars ($11,500), may be approved by the director.

(B) Beginning on July 1, 2029, and each fifth fiscal year thereafter, the department shall adjust the amount specified in subparagraph (A) by increasing that amount by a percentage amount equal to the increase in the California Consumer Price Index, as calculated by the Department of Finance with the resulting amount rounded to the nearest one hundred dollars ($100). The first adjustment pursuant to this subparagraph shall be a percentage amount equal to the increase in the California Consumer Price Index from January 1, 2024, to January 1, 2029. Subsequent fifth fiscal year adjustments shall cover subsequent five-year periods. The incremental change shall be added to the previously adjusted amount.

(c) Whenever a reduction of surcharge, or penalties, or total surcharge and penalties in settlement in excess of five hundred dollars ($500) is approved pursuant to this section, there shall be placed on file, for at least one year, in the office of the director of the department a public record with respect to that settlement. The public record shall include all of the following information:

(1) The name or names of the surcharge payers who are parties to the settlement.

(2) The total amount in dispute.

(3) The amount agreed to pursuant to the settlement.

(4) A summary of the reasons why the settlement is in the best interests of the State of California.

(5) (A) For any settlement approved by the director, except those settlements approved pursuant to paragraph (2) of subdivision (b), the Attorney General's conclusion as to whether the recommendation of settlement was reasonable from an overall perspective.

(B) The public record shall not include any information that relates to any trade secret, patent, process, style of work, apparatus, business secret, or organizational structure that, if disclosed, would adversely affect the surcharge payer or the national defense.

(d) The director shall not participate in the settlement of surcharge matters pursuant to this section, except as provided in subdivision (e).

(e) (1) Any recommendation for settlement shall be approved or disapproved by the director within 45 days of the submission of that recommendation to the director. Any recommendation for settlement that is not either approved or disapproved by the director within 45 days of the submission of that recommendation shall be deemed approved.

(2) Where the director disapproves a recommendation for settlement, at the discretion of the director and chief counsel, the matter shall be remanded to staff for further negotiation, and may be resubmitted to the director, in the same manner and subject to the same requirements as the initial submission.

(f) All settlements entered into pursuant to this section shall be final and nonappealable, except upon a showing of fraud or misrepresentation with respect to a material fact.

(g) The Legislature finds that it is essential for fiscal purposes that the settlement program authorized by this section be expeditiously implemented. Accordingly, Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any determination, rule, notice, or guideline established or issued by the department in implementing and administering the settlement program authorized by this section.

(h) The amendments made to this section by the act adding this subdivision shall apply to any settlements approved on or after January 1, 2024.

History—Added by Stats. 1995, Ch. 497, in effect January 1, 1996. Stats. 2003, Ch. 605 (SB 1060), in effect January 1, 2004, added ", for at least one year," after "placed on file" and substituted "of" for "or" in subdivision (c). Stats. 2006, Ch. 364 (AB 3076), in effect January 1, 2007, substituted "Except as provided in paragraph (3) and subject" for "Subject" before "to paragraph (2)" in paragraph (1) of, added ", itself," after "submitted to the board" in the first and third sentences of paragraph (2) of, and added paragraph (3) to subdivision (b); added ", or penalties, or total surcharge and penalties" after "a reduction of surcharge" in the first paragraph of, and substituted "For any settlement approved by the board, itself, the" for "The" before "Attorney General's conclusion" in the first sentence of paragraph (5) of subdivision (c); and added ", itself," after "disapproved by the board" in the second sentence of paragraph (1) of subdivision (e). Stats. 2023. Ch. 511 (SB 889) in effect January 1, 2024, substituted "department," for "State Board of Equalization" before "its staff" in subdivision (a); deleted paragraph (1) and renumbered paragraph (2) to (1) and paragraph (3) to (2)(A), substituted "Except as provided in paragraph (2), no recommendation" for "No recommendation" before "of settlement", substituted "director for approval" for "board, itself," after "submitted to" and deleted "executive director or" before "chief counsel" in the first sentence of new paragraph (1), substituted "advise the chief counsel," for "advise" before "in writing,", substituted "of their" for "the executive director or chief counsel of the board of his or her" before "conclusions" in the second sentence of new paragraph (2), deleted "executive director or" before "chief counsel" after "The", substituted "director," for "board, itself," before "also submit" in third sentence of new paragraph (1), substituted "eleven thousand five hundred dollars ($11,500)" for "five thousand dollars ($5,000)" after "exceed" and substituted "director." for "executive director and chief counsel, jointly. The executive director shall notify the board, itself, of any settlement approved pursuant to this paragraph." after "approved by the" in subparagraph (A) of new paragraph (2) and added new subparagraph (B) in new paragraph (2) in subdivision (b); deleted "executive" before "director" and substituted "department" for "board" before "a public" in the first sentence, lettered first paragraph to subparagraph (A), substituted "director, except those settlements approved pursuant to paragraph (2) of subdivision (b)," for "board, itself," before "the Attorney" in new subparagraph (A), lettered second paragraph to subparagraph (B) of subdivision (c); substituted "director" for "members of the State Board of Equalization" after "The" in subdivision (d); substitute "director" for "board, itself," before "within", substitute "director." for "board." after "to the" in first sentence of paragraph (1), substitute "director" for "board" before "within" in second sentence of paragraph (1), deleted third sentence of paragraph (1), deleted first sentence of paragraph (2), substituted "director" for "board" before "disapproves", added "at the discretion of the director and chief counsel," after "settlement’, deleted "board" before "staff", substituted "director," for "board" before "in the same" and substituted "submission." for "submission, at the discretion of the executive director or chief counsel." after "initial" in former second sentence in paragraph (2) of subdivision (e); deleted subdivision (g) and (h); relettered subdivision (i) to (g) and added new subdivision (h).

40211.5. Offers in compromise. (a) (1) Beginning on January 1, 2007, the executive director and chief counsel of the board, or their delegates, may compromise any final surcharge liability where the reduction of surcharges is seven thousand five hundred dollars ($7,500) or less.

(2) Except as provided in paragraph (3), the board, upon recommendation by its executive director and chief counsel, jointly, may compromise a final surcharge liability involving a reduction in surcharges in excess of seven thousand five hundred dollars ($7,500). Any recommendation for approval of an offer in compromise that is not either approved or disapproved within 45 days of the submission of the recommendation shall be deemed approved.

(3) The board, itself, may by resolution delegate to the executive director and the chief counsel, jointly, the authority to compromise a final surcharge liability in which the reduction of surcharges is in excess of seven thousand five hundred dollars ($7,500), but less than ten thousand dollars ($10,000).

(b) For purposes of this section, "a final surcharge liability" means any final surcharge liability arising under Part 19 (commencing with Section 40001), or related interest, additions to surcharges, penalties, or other amounts assessed under this part.

(c) Offers in compromise shall be considered only for liabilities that were generated from a business that has been discontinued or transferred, where the surcharge payer making the offer no longer has a controlling interest or association with the transferred business or has a controlling interest or association with a similar type of business as the transferred or discontinued business.

(d) Offers in compromise shall not be considered where the surcharge payer has been convicted of felony tax evasion under this part during the liability period.

(e) For amounts to be compromised under this section, the following conditions shall exist:

(1) The surcharge payer shall establish that:

(A) The amount offered in payment is the most that can be expected to be paid or collected from the surcharge payer's present assets or income.

(B) The surcharge payer does not have reasonable prospects of acquiring increased income or assets that would enable the surcharge payer to satisfy a greater amount of the liability than the amount offered, within a reasonable period of time.

(2) The board shall have determined that acceptance of the compromise is in the best interest of the state.

(f) A determination by the board that it would not be in the best interest of the state to accept an offer in compromise in satisfaction of a final surcharge liability shall not be subject to administrative appeal or judicial review.

(g) (1) Offers for liabilities with a fraud or evasion penalty shall require a minimum offer of the unpaid surcharge and fraud or evasion penalty.

(2) The minimum offer may be waived if it can be shown that the surcharge payer making the offer was not the person responsible for perpetrating the fraud or evasion. This authorization to waive only applies to partnership accounts where the intent to commit fraud or evasion can be clearly attributed to a partner of the surcharge payer.

(h) When an offer in compromise is either accepted or rejected, or the terms and conditions of a compromise agreement are fulfilled, the board shall notify the surcharge payer in writing. In the event an offer is rejected, the amount posted will either be applied to the liability or refunded, at the discretion of the surcharge payer.

(i) When more than one surcharge payer is liable for the debt, such as with spouses or partnerships or other business combinations, including, but not limited to, surcharge payers who are liable through dual determination or successor's liability, the acceptance of an offer in compromise from one liable surcharge payer shall reduce the amount of the liability of the other surcharge payers by the amount of the accepted offer.

(j) Whenever a compromise of surcharges or penalties or total surcharges and penalties in excess of five hundred dollars ($500) is approved, there shall be placed on file for at least one year in the office of the executive director of the board a public record with respect to that compromise. The public record shall include all of the following information:

(1) The name of the surcharge payer.

(2) The amount of unpaid surcharges and related penalties, additions to surcharges, interest, or other amounts involved.

(3) The amount offered.

(4) A summary of the reason why the compromise is in the best interest of the state.

The public record shall not include any information that relates to any trade secrets, patent, process, style of work, apparatus, business secret, or organizational structure, that if disclosed, would adversely affect the surcharge payer or violate the confidentiality provisions of Section 40175. No list shall be prepared and no releases distributed by the board in connection with these statements.

(k) Any compromise made under this section may be rescinded, all compromised liabilities may be reestablished, without regard to any statute of limitations that otherwise may be applicable, and no portion of the amount offered in compromise refunded, if either of the following occurs:

(1) The board determines that any person did any of the following acts regarding the making of the offer:

(A) Concealed from the board any property belonging to the estate of any surcharge payer or other person liable for the surcharge.

(B) Received, withheld, destroyed, mutilated, or falsified any book, document, or record or made any false statement, relating to the estate or financial condition of the surcharge payer or other person liable for the surcharge.

(2) The surcharge payer fails to comply with any of the terms and conditions relative to the offer.

(l) Any person who, in connection with any offer or compromise under this section, or offer of that compromise to enter into that agreement, willfully does either of the following shall be guilty of a felony and, upon conviction, shall be fined not more than fifty thousand dollars ($50,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or both, together with the costs of investigation and prosecution:

(1) Conceals from any officer or employee of this state any property belonging to the estate of a surcharge payer or other person liable in respect of the surcharge.

(2) Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the surcharge payer or other person liable in respect of the surcharge.

(m) For purposes of this section, "person" means the taxpayer, any member of the surcharge payer's family, any corporation, agent, fiduciary, or representative of, or any other individual or entity acting on behalf of, the surcharge payer, or any other corporation or entity owned or controlled by the surcharge payer, directly or indirectly, or that owns or controls the surcharge payer, directly or indirectly.

History—Added by Stats. 2006, Ch. 364 (AB 3076), in effect January 1, 2007. Stats. 2011, Ch. 15 (AB 109), in effect April 4, 2011, operative October 1, 2011, substituted "pursuant to subdivision (h) of Section 1170 of the Penal Code" for "in the state prison" after "($50,000) or imprisoned" in subdivision (l).

Note.—SEC 1 of Stats 2011, Ch. 15 (AB 109), in effect April 4, 2011, states: "This act is titled and may be cited as the 2011 Realignment Legislation addressing public safety."

Note.—SEC 636 of Stats 2011, Ch. 15 (AB 109) in effect April 4, 2011, states: "This act will become operative no earlier than July 1, 2011, and only upon creation of a community corrections grant program to assist in implementing this act and upon an appropriation to fund the grant program."

Note.—The Community Corrections Grant Program referred to in SEC 636 of Stats. 2011, Ch. 15 (AB 109), as amended by SEC 68 of Stats. 2011, Ch. 39 (AB 117), was created by SEC 3 of Stats. 2011, Ch. 40 (AB 118), operative October 1, 2011.

40212. Release of levy. (a) The California Department of Tax and Fee Administration shall release any levy or notice to withhold issued pursuant to this part on any property in the event that the expense of the sale process exceeds the liability for which the levy is made.

(b) (1) (A) The Taxpayers' Rights Advocate may order the release of any levy or notice to withhold issued pursuant to this part or, within 90 days from the receipt of funds pursuant to a levy or notice to withhold, order the return of any amount up to two thousand three hundred dollars ($2,300) of moneys received, upon his or her finding that the levy or notice to withhold threatens the health or welfare of the taxpayer or his or her spouse and dependents or family.

(B) The amount the Taxpayers' Rights Advocate may return to each taxpayer subject to a levy or notice to withhold, is limited to two thousand three hundred dollars ($2,300), or the adjusted amount as specified in paragraph (2), in any monthly period.

(C) The Taxpayers' Rights Advocate may order amounts returned in the case of a seizure of property as a result of a jeopardy determination, subject to the amounts set or adjusted pursuant to this section and if the ultimate collection of the amount due is no longer in jeopardy.

(2) (A) The California Department of Tax and Fee Administration shall adjust the two-thousand-three-hundred-dollar ($2,300) amount specified in paragraph (1) as follows:

(i) On or before March 1, 2016, and on or before March 1 each year thereafter, the California Department of Tax and Fee Administration shall multiply the amount applicable for the current fiscal year by the inflation factor adjustment calculated based on the percentage change in the Consumer Price Index, as recorded by the California Department of Industrial Relations for the most recent year available, and the formula set forth in paragraph (2) of subdivision (h) of Section 17041. The resulting amount will be the applicable amount for the succeeding fiscal year only when the applicable amount computed is equal to or exceeds a new operative threshold, as defined in subparagraph (B).

(ii) When the applicable amount equals or exceeds an operative threshold specified in subparagraph (B), the resulting applicable amount, rounded to the nearest multiple of one hundred dollars ($100), shall be operative for purposes of paragraph (1) beginning July 1 of the succeeding fiscal year.

(B) For purposes of this paragraph, "operative threshold" means an amount that exceeds by at least one hundred dollars ($100) the greater of either the amount specified in paragraph (1) or the amount computed pursuant to subparagraph (A) as the operative adjustment to the amount specified in paragraph (1).

(c) The California Department of Tax and Fee Administration shall not sell any seized property until it first has notified the taxpayer in writing of the exemptions from levy under Chapter 4 (commencing with Section 703.010) of Division 2 of Title 9 of Part 2 of the Code of Civil Procedure.

(d) Except as provided in subparagraph (C) of paragraph (1) of subdivision (b), this section shall not apply to the seizure of any property as a result of a jeopardy determination.

History—Stats. 1993, Ch. 589, in effect January 1, 1994, added "of Division 2" after "(commencing with Section 703.010)" and added "Part 2 of" after "Title 9 of" in subdivision (b). Stats. 1995, Ch. 555, in effect January 1, 1996, substituted "that the" for "of any of the following: (1) The" after "in the event" in subdivision (a); substituted subdivision letter "(b)" for paragraph number "(2)" and substituted "may order the release of any" for "orders the release of the" after "Taxpayers' Rights Advocate" in, and added "issued pursuant to … of moneys received," after "notice to withhold" in, subdivision (b); relettered former subdivisions (b) as (c); and added subdivision (d). Stats. 2015, Ch. 789 (AB 1277), in effect January 1, 2016, redesignated former subdivision (b) as (b)(1)(A), substituted "two thousand three hundred dollars ($2,300)" for "one thousand five hundred dollars ($1,500)" after "any amount up to" in, added subparagraphs (B) and (C) to paragraph (1) in, and added paragraph (2) in subdivision (b); substituted "it first has" for "its has first" after "seized property until" in subdivision (c); substituted "Except as provided in subparagraph (C) of paragraph (1) of subdivision (b), this" for "This", and substituted "determination" for "assessment" in subdivision (d). Stats. 2018, Ch. 181 (SB 1507), in effect January 1, 2019, deleted "release or" in paragraph (b)(1)(B), and substituted "California Department of Tax and Fee Administration" for "board" in subdivisions (a), (b), and (c).

40212.5. Return of property. (a) Except in any case where the board finds collection of the tax to be in jeopardy, if any property has been levied upon, the property or the proceeds from the sale of the property shall be returned to the taxpayer if the board determines any one of the following:

(1) The levy on the property was not in accordance with the law.

(2) The taxpayer has entered into and is in compliance with an installment payment agreement pursuant to Section 40167 to satisfy the tax liability for which the levy was imposed, unless that or another agreement allows for the levy.

(3) The return of the property will facilitate the collection of the tax liability or will be in the best interest of the state and the taxpayer.

(b) Property returned under paragraphs (1) and (2) of subdivision (a) is subject to the provisions of Section 40214.

History—Added by Stats. 1999, Ch. 929 (AB 1638), in effect January 1, 2000.

40213. Exemptions from levy. Exemptions from levy under Chapter 4 (commencing with Section 703.010) of Division 2 of Title 9 of Part 2 of the Code of Civil Procedure shall be adjusted for purposes of enforcing the collection of debts under this part to reflect changes in the California Consumer Price Index whenever the change is more than 5 percent higher than any previous adjustment.

History—Stats. 1993, Ch. 589, in effect January 1, 1994, added "of Division 2" after "(commencing with Section 703.010)" and added "Part 2 of" after "Title 9 of".

40214. Claim for reimbursement of bank charges by taxpayer. (a) A taxpayer may file a claim with the board for reimbursement of bank charges and any other reasonable third-party check charge fees incurred by the taxpayer as the direct result of an erroneous levy or notice to withhold, erroneous processing action, or erroneous collection action by the board. Bank and third-party charges include a financial institution's or third party's customary charge for complying with the levy or notice to withhold instructions and reasonable charges for overdrafts that are a direct consequence of the erroneous levy or notice to withhold, erroneous processing action, or erroneous collection action. The charges are those paid by the taxpayer and not waived or reimbursed by the financial institution or third party. Each claimant applying for reimbursement shall file a claim with the board that shall be in a form as may be prescribed by the board. In order for the board to grant a claim, the board shall determine that both of the following conditions have been satisfied:

(1) The erroneous levy or notice to withhold, erroneous processing action, or erroneous collection action, was caused by board error.

(2) Prior to the erroneous levy or notice to withhold, erroneous processing action, or erroneous collection action, the taxpayer responded to all contacts by the board and provided the board with any requested information or documentation sufficient to establish the taxpayer's position. This provision may be waived by the board for reasonable cause.

(b) Claims pursuant to this section shall be filed within 90 days from the datethe bank and third-party charges were incurred by the taxpayer. Within 30 days from the date the claim is received, the board shall respond to the claim. If the board denies the claim, the taxpayer shall be notified in writing of the reason or reasons for the denial of the claim.

History—Stats. 2001, Ch. 543 (SB 1185), in effect January 1, 2002, added "and any other … check charge fees" after "of bank charges" to subdivision (a), added "and third party" after "the board. Bank" in subdivision (a), added "or third party's" after "a financial institution's" in subdivision (a) and added "or third party" after "the financial institution" in subdivision (a). Stats. 2013, Ch. 253 (SB 442), in effect January 1, 2014, added ", erroneous processing action, or erroneous collection action" after "erroneous levy or notice to withhold" throughout the section; substituted "or reimbursed" for "for reimbursement" after "taxpayer and not waived" in, and added "erroneous" after "Prior to the" in the first sentence of paragraph (2) of, subdivision (a); and substituted "the bank and third-party charges were incurred by the taxpayer" for "of the levy or notice to withhold" after "90 days from the date" in the first sentence of subdivision (b).

40215. Preliminary notice to taxpayer prior to lien. (a) At least 30 days prior to the filing or recording of liens under Chapter 14 (commencing with Section 7150) or Chapter 14.5 (commencing with Section 7220) of Division 7 of Title 1 of the Government Code, the department shall mail to the taxpayer a preliminary notice. The notice shall specify the statutory authority of the department for filing or recording the lien, indicate the earliest date on which the lien may be filed or recorded, and state the remedies available to the taxpayer to prevent the filing or recording of the lien. In the event tax liens are filed for the same liability in multiple counties, only one preliminary notice shall be sent.

(b) If the department determines that filing a lien was in error, it shall mail a release to the taxpayer and the entity recording the lien as soon as possible, but no later than seven days, after this determination and receipt of lien recording information. The release shall contain a statement that the lien was filed in error. In the event the erroneous lien is obstructing a lawful transaction, the department shall immediately issue a release of lien to the taxpayer and the entity recording the lien.

(c) When the department releases a lien erroneously filed, a notice of that fact shall be mailed to the taxpayer and, upon the request of the taxpayer, a copy of the release shall be mailed to the major credit reporting companies in the county where the lien was filed.

(d) (1) The department may release or subordinate a lien if the department determines any of the following:

(A) Release or subordination will facilitate the collection of the tax liability.

(B) Release or subordination will be in the best interest of the state and the taxpayer.

(C) Release or subordination will be in the best interest of the state and another person that is not the taxpayer but that holds an interest with the taxpayer in the property that is subject to the lien.

(2) The amendments added to this subdivision do not constitute a change in, and are declaratory of, existing law.

History—Stats. 1999, Ch. 929 (AB 1638), in effect January 1, 2000, added subdivision (d). Stats. 2022, Ch. 474 (SB 1496), in effect January 1, 2023, substituted "department" for "board" throughout the section; deleted "a" before "notice of" in subdivision (c); numbered former paragraph to (1), substituted "any of" for "that" after "determines", substituted "following:" for "release" after "the", added "(A) Release" before "or subordination", substituted "." for "or" after "liability", added "(B) Release or subordination" before "will be", added subparagraph (C) and added paragraph (2) in subdivision (d).

40216. Disregard by board employee or officer. (a) If any officer or employee of the board recklessly disregards board-published procedures, a taxpayer aggrieved by that action or omission may bring an action for damages against the State of California in superior court.

(b) In any action brought under subdivision (a), upon finding of liability on the part of the State of California, the state shall be liable to the plaintiff in an amount equal to the sum of all of the following:

(1) Actual and direct monetary damages sustained by the plaintiff as a result of the actions or omissions.

(2) Reasonable litigation costs including any of the following:

(A) Reasonable court costs.

(B) Prevailing market rates for the kind or quality of services furnished in connection with any of the following:

(i) The reasonable expenses of expert witnesses in connection with the civil proceeding, except that no expert witness shall be compensated at a rate in excess of the highest rate of compensation for expert witnesses paid by the State of California.

(ii) The reasonable cost of any study, analysis, engineering report, test, or project that is found by the court to be necessary for the preparation of the party's case.

(iii) Reasonable fees paid or incurred for the services of attorneys in connection with the civil proceeding, except that those fees shall not be in excess of seventy-five dollars ($75) per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceeding, justifies a higher rate.

(c) In the awarding of damages under subdivision (b), the court shall take into consideration the negligence or omissions, if any, on the part of the plaintiff which contributed to the damages.

(d) Whenever it appears to the court that the taxpayer's position in the proceeding brought under subdivision (a) is frivolous, the court may impose a penalty against the plaintiff in an amount not to exceed ten thousand dollars ($10,000). A penalty so imposed shall be paid upon notice and demand from the board and shall be collected as a tax imposed under this part.

Uncodified Sections

1. Multiagency task force. (a) The multiagency task force established pursuant to Executive Order D-51-86 (hereinafter referred to as "task force") shall include among its goals and objectives the following:

(1) To deter tax evasion by maximizing recoveries from blatant tax evaders and violators of cash-pay reporting laws, utilizing all penalties which are available to the taxing and enforcement agencies under existing law.

(2) To reduce enforcement costs by eliminating duplicative audits and investigations.

(3) To generate greater voluntary taxpayer compliance and to deter tax and cash-pay violations by publicizing the efforts of the task force.

(4) To provide opportunities for auditors and investigators from tax and enforcement agencies to become familiar with other agencies' laws and enforcement procedures.

(5) To concentrate its efforts in investigating and prosecuting violations of cash-pay and tax laws by employers with five or more employees and by individuals who are habitual or willful violators of those laws.

(b) In addition to the responsibilities cited in Executive Order D-51-86, the task force shall be empowered to do all of the following:

(1) Identify areas of blatant violations and noncompliance with tax and cash-pay laws.

(2) Solicit referrals from the tax and enforcement agencies represented on the task force committee of instances of blatant violations and noncompliance with tax and cash-pay laws.

(3) Conduct audits, investigations, and referrals for prosecution of violations referred by other agencies and in the identified areas of violations and noncompliance, using all enforcement powers available in existing laws and regulations.

(4) Establish an advertised telephone "hotline" for referrals from the public.

(5) Publicize the activities of the task force.

(6) Keep the audit and investigative staff of the tax and enforcement agencies represented on the task force committee fully informed of the activities of the task force.

(7) Develop procedures for improved information sharing among the agencies represented on the task force committee, consistent with restrictions on disclosure of confidential tax information in existing law, for the purpose of improving enforcement.

(8) Based on the activities of the task force, evaluate the need for any law changes to do any of the following:

(A) Eliminate barriers to interagency information sharing.

(B) Improve agencies' ability to audit, investigate, and prosecute tax and cash-pay violations.

(C) Deter violations and improve voluntary compliance.

(D) Eliminate duplication and improve cooperation among the participating agencies.

(c) The task force shall report to the Governor, the Senate and Assembly Revenue and Taxation Committees, and the Commission on California State Government Organization and Economy every six months during the period it is in existence, beginning on March 1, 1987, regarding the activities of the task force. The reports shall include, but not be limited to, all of the following:

(1) The number of cases of blatant violations and noncompliance with tax and cash-pay laws identified, audited or investigated, and referred for prosecution.

(2) Actions taken by the task force to publicize its activities.

(3) Efforts made by the task force to establish an advertised telephone "hotline" for referrals from the public.

(4) Procedures developed for improved information sharing among the agencies represented on the task force.

(5) Steps taken by the task force to improve cooperation among participating agencies, reduce duplication of effort, and improve voluntary compliance.

(6) Recommendations for any law changes needed to accomplish the goals described in paragraph (8) of subdivision (b).

History—Added by Sec. 40, Stats. 1986, Ch. 1361, effective January 1, 1987.