Article 7 - Penalties and Additions to Tax

California Revenue and Taxation Code — §§ 19131-19187

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Sections (55)

§ 19131

Amended by Stats. 2010, Ch. 14, Sec. 44. (SB 401) Effective January 1, 2011.

(a)If any taxpayer fails to make and file a return required by this part on or before the due date of the return or the due date as extended by the Franchise Tax Board, then, unless it is shown that the failure is due to reasonable cause and not due to willful neglect, 5 percent of the tax shall be added to the tax for each month or fraction thereof elapsing between the due date of the return

(determined without regard to any extension of time for filing) and the date on which filed, but the total penalty may not exceed 25 percent of the tax. In the case of a commencing corporation, the penalty shall apply to all tax accruable on the due date of the return. The penalty so added to the tax shall be due and payable upon notice and demand from the Franchise Tax Board.

(b)In the case of an individual or fiduciary who fails to file a return of tax required by this part within 60 days of the date prescribed for filing of that return (determined with regard to any extension of time for filing), unless it is shown that the failure is due to reasonable cause and not due to willful neglect, this penalty may not be less than the lesser of one hundred thirty-five dollars ($135) or 100 percent of the amount of tax required to be shown on the return.

(c)For purposes of this

section, the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed upon the return.

(d)If any failure to file any return is fraudulent, subdivision (a) shall be applied by:

(1)Substituting “15 percent” for “5 percent,” and

(2)Substituting “75 percent” for “25 percent.”

(e)This section does not apply to any failure to pay any estimated tax required by Section 19025 or 19136.

(f)(1) The penalty described in this section is presumed not to apply if, with respect to the same taxable

year, all of the following conditions are met:

(A) A taxpayer fails to make and file a return required by this part on or before the due date of the return, determined with regard to any extension of time for filing, and fails to make and file a return required by Section 6012 of the Internal Revenue Code on or before the due date of the return, determined with regard to any extension of time for filing.

(B) The Franchise Tax Board proposes a deficiency assessment that is based upon a final federal determination.

(C) The Commissioner of Internal Revenue or other officer of the United States determines that the penalty described in Section 6651(a)(1) of the Internal Revenue Code does not apply because the failure to file the federal return on or before the date prescribed for its filing was due to reasonable cause and

not due to willful neglect.

(2)The Franchise Tax Board may rebut the presumption described in paragraph (1) by establishing, by a preponderance of the evidence, that the taxpayer’s failure to make and file a return required by this part was not due to reasonable cause or was due to willful neglect.

§ 19131.5

Amended by Stats. 2019, Ch. 39, Sec. 19. (AB 91) Effective July 1, 2019.

(a)Section 6164 of the Internal Revenue Code, relating to extension of time for payment of taxes by corporations expecting carrybacks, shall apply, except as otherwise provided.

(b)(1) Section 6164 of the Internal Revenue Code is modified by substituting the phrase “Secretary or the Franchise Tax Board” for the word

“Secretary” in each place it appears.

(2)Section 6164(a) of the Internal Revenue Code is modified by substituting the phrase “Part 11 (commencing with Section 23001)” in lieu of the phrase “subtitle A.”

(3)Section 6164(b) of the Internal Revenue Code, relating to contents of statement, is modified by substituting the phrase “Section 24416” in lieu of the phrase “Section 172(b).”

(4)Section 6164(d)(2) of the Internal Revenue Code shall not apply.

(5)Section 6164(h) of the Internal Revenue Code, relating to jeopardy, is modified as follows:

(A)By substituting the phrase “he or the Franchise Tax Board” for the word “he” in each place it appears.

(B)By substituting the phrase “him or the Franchise Tax Board” for the word “him” in each place it appears.

(6)Section 6164(i) of the Internal Revenue Code, relating to consolidated returns, is modified by substituting the phrase “combined report” in lieu of the phrase “consolidated return” in each place it appears.

(c)This section shall not apply to a carryback of a net operating loss attributable to taxable years beginning on or after January 1, 2019.

§ 19132

Amended by Stats. 1998, Ch. 322, Sec. 50. Effective August 20, 1998.

(a)(1) Unless it is shown that the failure is due to reasonable cause and not due to willful neglect, a penalty computed in accordance with paragraph (2) is hereby imposed in the case of failure to pay any of the following:

(A) The amount shown as tax on any return on or before the date prescribed for payment of that tax determined with regard to any extension of time for payment.

(B) Any amount in respect of any tax required to be shown on a return which is not so shown including an assessment made pursuant to Section 19051 within 15 days of the date of the notice and demand therefor.

(D) The amount required to be paid by Section 17941 or 23091, if applicable, that is not paid.

(E) The amount required to be paid by Section 17948 or 23097, if applicable, that is not paid.

(2)The penalty imposed under paragraph (1) shall consist of both of the following:

(A)Five percent of the total tax unpaid as defined in subdivision (c).

(B)An amount computed at the rate of 0.5 percent per month of the “remaining tax” as defined in subdivision (d) for each additional month or fraction thereof not to exceed 40 months during which the “remaining tax” is greater than zero.

(3)The aggregate amount of penalty imposed by this subdivision shall not exceed 25 percent of the total unpaid tax and shall be due and payable upon notice and demand by the Franchise Tax Board. The tender of a check or money order does not constitute payment of the tax for purposes of this section unless the check or money order is paid on presentment.

(b)The penalty prescribed by subdivision (a) shall not be assessed if, for the same taxable year, the sum of any penalties imposed under Section 19131 relating to failure to file return and Section 19133 relating to failure to file return

after demand is equal to or greater than the subdivision (a) penalty. In the event the penalty imposed under subdivision (a) is greater than the sum of any penalties imposed under Sections 19131 and 19133, the penalty imposed under subdivision (a) shall be the amount which exceeds the sum of any penalties imposed under Sections 19131 and 19133.

(c)For purposes of this section, total tax unpaid means the amount of tax shown on the return reduced by both of the following:

(1)The amount of any part of the tax which is paid on or before the date prescribed for payment of the tax.

(2)The amount of any credit against the tax which may be claimed upon the return.

(d)For purposes of this section, “remaining tax” means total tax unpaid reduced by the amount

of any payment of the tax.

(e)If the amount required to be shown as a tax on a return is less than the amount shown as tax on that return, subdivisions (a), (c), and (d) shall be applied by substituting that lower amount.

(f)No interest shall accrue on the portion of the penalty prescribed in subparagraph (B) of paragraph (2) of subdivision (a).

(g)The amendments made by the act adding this subdivision are operative for notices issued on or after January 1, 1998.

§ 19132.5

Repealed and added by Stats. 2022, Ch. 55, Sec. 10. (AB 194) Effective June 30, 2022.

(a)(1) An individual taxpayer may elect to request a one-time abatement of a timeliness penalty under this section for a timeliness penalty that has been considered and rejected for abatement pursuant to the provisions of the section under which the penalty is imposed.

(2)An individual taxpayer may, in lieu of requesting consideration for abatement pursuant to the section under which the timeliness penalty is imposed, instead request a one-time abatement of a timeliness penalty under this section.

(b)If a taxpayer described in subdivision (a) requests, either orally or in writing, the abatement of a

timeliness penalty pursuant to this section, the timeliness penalty shall be abated if all of the following apply:

(1)The taxpayer has not previously been required to file a California personal income tax return under Part 10 (commencing with Section 17001) or has not previously been granted abatement under this section.

(2)The taxpayer has filed all returns required under Part 10 (commencing with Section 17001) as of the date of the taxpayer’s request for abatement under this section.

(3)Excluding the timeliness penalty that is the subject of the abatement request under this section, the taxpayer has paid in full, or arranged to pay pursuant to an installment agreement, any tax, penalties, fees, and interest due for the required returns pursuant to paragraph (2) and

the taxpayer is current with all installment payments.

(c)For purposes of this section, “timeliness penalty” means a penalty imposed under Section 19131 or 19132 for one taxable year with respect to a return filed by an individual for that taxable year.

(d)For purposes of this section:

(1)A timeliness penalty imposed and subsequently abated due to a determination of reasonable cause, or reasonable cause and not willful neglect, with respect to the taxpayer or the taxpayer’s spouse shall be considered to have not been imposed for purposes of determining eligibility for timeliness penalty abatement under this section.

(2)A timeliness penalty shall be

considered imposed on the original due date of the return for the taxable year for which the penalty is imposed.

(e)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 rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.

(f)This section shall apply to requests for abatement made for taxable years beginning on or after January 1, 2022.

§ 19133

Added by Stats. 1993, Ch. 31, Sec. 26. Effective June 16, 1993. Operative January 1, 1994, by Sec. 83 of Ch. 31.

If any taxpayer fails or refuses to furnish any information requested in writing by the Franchise Tax Board or fails or refuses to make and file a return required by this part upon notice and demand by the Franchise Tax Board, then, unless the failure is due to reasonable cause and not willful neglect, the Franchise Tax Board may add a penalty of 25 percent of the amount of tax determined pursuant to Section 19087 or of any deficiency tax assessed by the Franchise Tax Board concerning the assessment of which the information or return

was required.

§ 19134

Amended by Stats. 2010, Ch. 14, Sec. 45. (SB 401) Effective January 1, 2011.

(a)The provisions of Section 6657 of the Internal Revenue Code, relating to bad checks, shall apply except as otherwise provided.

(b)Section 6657 of the Internal Revenue Code, relating to bad checks, is modified to apply to payments made by credit card remittance or electronic funds transfer (as provided by Section 19011) in addition

to payments made by check or money order.

(c)For payments received prior to January 1, 1993, this section shall be applied only to payments pertaining to taxable years beginning on or after January 1, 1990.

(d)For payments received on or after January 1, 1993, this section shall be applied to all payments, without regard to taxable year.

(e)The amendments made to Section 6657 of the Internal Revenue Code by Public Law 110-28 that are incorporated by reference under this section shall apply to all payments received after the effective date of the act adding this subdivision, without regard to taxable year.

§ 19135

Repealed and added by Stats. 2012, Ch. 313, Sec. 3. (AB 318) Effective January 1, 2013.

(a)(1) The Franchise Tax Board shall impose a penalty of two thousand dollars ($2,000) per taxable year whenever an entity described in paragraph (2) is doing business in this state, within the meaning of Section 23101, and fails to make and file a return as required by this part, within 60 days after the Franchise Tax Board sends the taxpayer a notice and demand to file the

required tax return, unless the failure is due to reasonable cause and not willful neglect.

(2)(A) A foreign corporation or a foreign limited liability company that fails to qualify to do business in this state or whose powers, rights, and privileges have been forfeited.

(B)A domestic corporation or a domestic limited liability company that has been suspended.

(b)The penalty shall be in addition to any other penalty that may be due under this part.

§ 19136

Amended by Stats. 2025, Ch. 73, Sec. 7. (AB 1518) Effective January 1, 2026.

(a)Section 6654 of the Internal Revenue Code, relating to failure by an individual to pay estimated income tax, applies, except as otherwise provided.

(b)Section 6654(a)(1) of the Internal Revenue Code is modified to refer to the rate determined under Section 19521 in lieu of Section 6621 of the Internal Revenue Code.

(c)(1) Section 6654(e)(1) of the Internal Revenue Code, relating to exceptions where the tax is a small amount, does not apply.

(2)An addition to tax shall not be imposed under this section if the tax imposed under Section 17041 or 17048 and the tax imposed under Section 17062 for the preceding

taxable year, minus the sum of any credits against the tax provided by Part 10 (commencing with Section 17001) or this part, or the tax computed under Section 17041 or 17048 upon the estimated income for the taxable year, minus the sum of any credits against the tax provided by Part 10 (commencing with Section 17001) or this part, is less than five hundred dollars ($500), except in the case of a separate return filed by a married person the amount shall be less than two hundred fifty dollars ($250).

(d)Section 6654(f) of the Internal Revenue Code does not apply and for purposes of this section the term “tax” means the tax imposed under Section 17041 or 17048 and the tax imposed under Section 17062 less any credits against the tax provided by Part 10 (commencing with Section 17001) or this part, other than the credit provided by subdivision (a) of Section 19002.

(e)(1) The credit for tax withheld on wages, as specified in Section 6654(g) of the Internal Revenue Code, is the credit allowed under subdivision (a) of Section 19002.

(2)(A) Section 6654(g)(1) of the Internal Revenue Code is modified by substituting the phrase “the applicable percentage” for the phrase “an equal part.”

(B)For purposes of this paragraph, “applicable percentage” means the percentage amount prescribed under Section 6654(d)(1)(A) of the Internal Revenue Code, as modified by subdivision (a) of Section 19136.1.

(f)This section applies to a nonresident individual.

(g)(1) An addition to tax shall not be imposed under this section to the extent that the

underpayment was created or increased by either of the following:

(A) Any law that is chaptered during and operative for the taxable year of the underpayment.

(B) If, for a taxable year prior to its repeal, the adjustment factor for the credit authorized by Section 17052 for the taxable year was less than the adjustment factor for that credit for the preceding taxable year.

(2)(A) Notwithstanding Section 18415, subparagraph (A) of paragraph (1) applies to penalties imposed under this section on or after January 1, 2005.

(B)Notwithstanding Section 18415, subparagraph (B) of paragraph (1) applies to penalties imposed under this section on or after January 1, 2016.

(h)The amendments made to this section by Section 5 of Chapter 305 of the Statutes of 2008 apply to taxable years beginning on or after January 1, 2009.

(i)The amendments made to this section by Section 3 of Chapter 15 of the Fourth Extraordinary Session of the Statutes of 2009 apply to amounts withheld on wages beginning on or after January 1, 2009.

(j)Notwithstanding subdivision (f), this section shall not apply to a nonresident individual electing to file in a group return pursuant to Section 18537, for taxable years beginning on or after January 1, 2026.

§ 19136.1

Amended by Stats. 2009, 4th Ex. Sess., Ch. 15, Sec. 4. (AB 17 4x) Effective October 23, 2009.

(a)Section 6654(d)(1)(A) of the Internal Revenue Code is modified to provide that in lieu of the required installments specified in that section, the amount of required installments shall instead be as follows:

(1)For each taxable year beginning on or after January 1, 2009, and before January 1, 2010, the amount of required installments shall be:

(A)For the 1st and 2nd required installments, 30 percent of the required annual payment.

(B)For the 3rd and 4th required installments, 20 percent of the required annual payment.

(2)For each taxable year beginning on or after January 1, 2010, the amount of required installments shall be:

(A)For the 1st required installment, 30 percent of the required annual payment.

(B)For the 2nd required installment, 40 percent of the required annual payment.

(C)The amount of the 3rd

required installment shall be zero.

(D)For the 4th required installment, 30 percent of the required annual payment.

(b)Section 6654(d)(2)(C)(ii) of the Internal Revenue Code, relating to applicable percentage, is modified as follows:

(1)For each taxable year beginning on or after January 1, 2009, and before January 1, 2010, by substituting “27” for “22.5,” “54” for “45,” and “72” for “67.5.”

(2)For each taxable year beginning on or after January 1, 2010, by substituting “27” for “22.5,” “63” for “45,” and “63” for “67.5.”

§ 19136.12

Added by Stats. 2005, Ch. 691, Sec. 47. Effective October 7, 2005.

(a)No addition to tax shall be made pursuant to Section 19136 for any period before the date prescribed under Section 18566 for the filing of the return for the 2005 taxable year, with respect to any underpayment of an installment for the 2005 taxable year, to the extent that the underpayment was created or increased by any provision of the act adding this section.

(b)No addition to tax shall be made pursuant to Section 18601 for the filing of the return for the 2005

taxable year, with respect to any underpayment of an installment for the 2005 taxable year, to the extent that the underpayment was created or increased by any provision of the act adding this section.

(c)The Franchise Tax Board shall implement this section in a reasonable manner.

§ 19136.13

Added by Stats. 2007, Ch. 426, Sec. 3. Effective October 10, 2007.

No addition to tax shall be made pursuant to Section 19136 for any period before the date prescribed under Section 18566 for the filing of the return for the 2007 taxable year, with respect to any underpayment of an installment for the 2007 taxable year, to the extent that the underpayment was created or increased by any provision of the act adding this section or Chapter 802 of the Statutes of 2006.

§ 19136.2

Added by Stats. 1997, Ch. 611, Sec. 56.5. Effective October 3, 1997.

For taxable years beginning on or after January 1, 1998, and before January 1, 1999, Section 6654(d)(1)(C)(i) of the Internal Revenue Code, relating to limitation on use of preceding year’s tax, shall not apply.

§ 19136.3

Added by Stats. 2008, 1st Ex. Sess., Ch. 1, Sec. 3. Effective December 31, 2008.

(a)Section 6654(d)(1)(B) of the Internal Revenue Code is modified to additionally provide that clause (ii) shall not apply if the adjusted gross income shown on the return of the individual for the taxable year is equal to or greater than $1 million ($500,000 in the case of a married individual filing a separate return).

(b)This section shall apply to taxable years beginning on or after January 1, 2009.

§ 19136.5

Added by Stats. 1993, Ch. 877, Sec. 28.1. Effective October 6, 1993. Operative January 1, 1994, by Sec. 102 of Ch. 877.

No addition to tax shall be made under Section 19136 for any installment of tax due on or after January 1, 1993, to the extent that the underpayment is attributable solely to changes made to the laws of other states applicable to the determination of credits that make Section 18001 inapplicable, by its terms, to a resident of this state.

§ 19136.7

Added by Stats. 2005, Ch. 349, Sec. 3. Effective January 1, 2006.

(a)No additions to tax shall be made under Section 19136 or 19142 with respect to any underpayment of an installment for a taxable year, to the extent that the underpayment was created or increased as the direct result of an erroneous levy, erroneous processing action, or erroneous collection action by the Franchise Tax Board.

(b)The Franchise Tax Board shall implement this section in a reasonable manner.

§ 19138

Amended by Stats. 2015, Ch. 359, Sec. 20. (AB 154) Effective September 30, 2015. Applicable to taxable years beginning on or after January 1, 2015, as provided in Sec. 41 of Stats. 2015, Ch. 359.

(a)(1) A taxpayer subject to the tax imposed under Part 11 (commencing with Section 23001) with an understatement of tax for any taxable year shall be subject to the penalty imposed under this section if that understatement exceeds the greater of the following:

(A) One million dollars ($1,000,000).

(B) Twenty percent of the tax shown on an original return or shown on an amended return filed on or before the original or extended due date of the return for the taxable year.

(2)For taxpayers that are required to be included in a combined report under Section 25101 or authorized to be included in a combined report under Section 25101.15, the threshold amount prescribed in subparagraph (A) or subparagraph (B) of paragraph (1) shall apply to the aggregate amount of tax liability under Part 11 (commencing with Section 23001) for all taxpayers that are required to be or authorized to be included in a combined report.

(b)(1) The penalty under this section shall be an amount equal to 20 percent of any understatement of tax. For purposes of this section, “understatement of tax” means the amount by

which the tax imposed by Part 11 (commencing with Section 23001) exceeds the amount of tax shown on an original return or shown on an amended return filed on or before the original or extended due date of the return for the taxable year.

(2)For any taxable year beginning before January 1, 2008, the amount of tax paid on or before May 31, 2009, and shown on an amended return filed on or before May 31, 2009, shall be treated as the amount of tax shown on an original return for purposes of this section.

(3)The amount of additional tax shown on the first amended return reflecting a proper election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, shall be treated as if that amount was included in the amount of tax shown on an original return for purposes of this section.

(c)The penalty imposed by this section shall be in addition to any other penalty imposed under Part 11 (commencing with Section 23001) or this part.

(d)Article 3 (commencing with Section 19031), relating to deficiency assessments, shall not apply with respect to the assessment or collection of any penalty imposed by subdivision (a).

(e)A refund or credit for any amounts paid to satisfy a penalty imposed under this section may be allowed only on the grounds that the amount of the penalty was not properly computed by the Franchise Tax Board.

(f)No penalty shall be imposed under this section on any understatement to the extent that the understatement is attributable to any of the following:

(1)(A) A change in law that is enacted, promulgated, issued, or becomes final after the earlier of either of the following dates:

(i)The date the taxpayer files the return for the taxable year for which the change is operative.

(ii) The extended due date for the return of the taxpayer for the taxable year for which the change is operative.

(B) For purposes of this paragraph, a “change of law” means a statutory change or an interpretation of law or rule of law by regulation, legal ruling of counsel, within the meaning of subdivision (b) of Section 11340.9 of the Government Code, or a published federal or California court decision.

(2)The imposition of an alternative apportionment or allocation method by the Franchise Tax Board under the authority of Section 25137 because the standard allocation and apportionment provisions of Article 2 (commencing with Section 25120) and the regulations thereunder do not fairly represent the extent of the taxpayer’s business activity in this state.

(3)A change to the taxpayer’s federal accounting method pursuant to Section 446 of the Internal Revenue Code, relating to general rule for methods of accounting, that is applicable for purposes of Part 11 (commencing with Section 23001), but only to the extent of understatements for taxable years where the due date of the return, without regard to any extension of time for filing the return, is before the date of consent of the secretary to that change of accounting method.

(g)No penalty shall be imposed under this section to the extent that a taxpayer’s understatement is attributable to the taxpayer’s reasonable reliance on written advice of the Franchise Tax Board, but only if the written advice was a legal ruling by the Chief Counsel, within the meaning of paragraph (1) of subdivision (a) of Section 21012.

(h)(1) This section shall apply to each taxable year beginning on or after January 1, 2003, for which the statute of limitations on assessment has not expired.

(2)The amendments made to this section by Chapter 721 of the Statutes of 2010 shall apply to each taxable year beginning on or after January 1, 2010.

(3)(A) Except as otherwise provided, the amendments made to this

section by the act adding this paragraph shall apply to each taxable year beginning on or after January 1, 2015.

(B)The provisions of paragraph (2) of subdivision (f), as added by the act adding this paragraph, shall apply to understatements for any taxable year for which the statute of limitations on assessments has not expired as of the effective date of the act adding this paragraph.

§ 19141

Amended by Stats. 2012, Ch. 419, Sec. 28. (SB 323) Effective January 1, 2013. Operative January 1, 2014, by Sec. 32 of Ch. 419.

Upon certification by the Secretary of State pursuant to subdivision (a) of Section 2204 or subdivision (a) of Section 17713.09 of the Corporations Code, the Franchise Tax Board shall assess a penalty of two hundred fifty dollars ($250). Upon certification by the Secretary of State pursuant to subdivision (a) of Section 6810 or subdivision (a) of Section 8810 of the Corporations Code, the Franchise Tax Board shall assess a

penalty of fifty dollars ($50). Any penalty assessed under this section shall be a final assessment due and payable at the time of assessment but no interest shall accrue thereon. The assessment shall be collected as other taxes, interest, and penalties are collected by the Franchise Tax Board unless the Secretary of State decertifies the name of the corporation as provided in subdivision (e) or (f) of Section 2204, subdivision (e) of Section 6810, subdivision (e) of Section 8810, or subdivision (e) of Section 17713.08, of the Corporations Code.

§ 19141.2

Amended by Stats. 2000, Ch. 862, Sec. 21. Effective January 1, 2001.

(a)Section 6038 of the Internal Revenue Code, relating to information with respect to certain foreign corporations, shall apply, except as otherwise provided.

(b)Section 6038(a) is modified as follows:

(1)The information required to be filed with the Franchise Tax Board under this section shall be a copy of the information required to be filed with the Internal Revenue Service.

(2)The term “United States person,” as defined in Section 7701(a)(30) of the Internal Revenue Code, shall be limited to a domestic corporation, as defined in Section 7701(a) of the Internal Revenue Code, or a bank, as defined in Section 23039, that is subject to the tax imposed under Chapter 2 (commencing with Section 23101), Chapter 2.5 (commencing with Section 23400), or Chapter 3 (commencing with Section 23501), of Part 11.

(c)(1) Unless it is shown that the failure is due to reasonable cause and not due to willful neglect, a penalty shall be imposed under this part for failure to furnish information and that penalty shall be determined in accordance with Section 6038 of the Internal Revenue Code, except as otherwise provided.

(A) Section 6038(b) of the Internal Revenue Code shall be modified

by substituting “$1,000” for “$10,000” in each place it appears.

(B) Section 6038(b)(2) of the Internal Revenue Code shall be modified by substituting “$24,000” for “$50,000.”

(2)No penalty shall be imposed under paragraph (1) if the copy of the information required to be filed with the Internal Revenue Service was not attached to the taxpayer’s return as originally filed but the taxpayer does both of the following:

(A)Furnishes the copy of the information required to be filed with the Internal Revenue Service either upon its own initiative or within 90 days of notification by the Franchise Tax Board of the requirements of this section.

(B)Agrees to attach a copy of the information required to be filed with the Internal Revenue Service to the

taxpayer’s original return filed for subsequent taxable years.

(3)All or any portion of the penalty imposed under paragraph (1) may be waived by the Franchise Tax Board when the taxpayer has entered into a voluntary disclosure agreement under Article 8 (commencing with Section 19191) of Chapter 4.

(4)The penalty imposed under this subdivision shall not apply to returns required to be filed for taxable years beginning before January 1, 1998.

(d)This section shall apply to returns required to be filed for taxable years beginning on or after January 1, 1997.

§ 19141.5

Amended by Stats. 2025, Ch. 231, Sec. 68. (SB 711) Effective October 1, 2025. Applicable to taxable years beginning on or after January 1, 2016, as provided in subdivision (g).

(a)(1) Section 6038A of the Internal Revenue Code, relating to information with respect to certain foreign-owned corporations, shall apply.

(2)A penalty shall be imposed under this part for failure to furnish information or maintain records and that penalty shall be determined in accordance with Section 6038A of the Internal Revenue Code, except as otherwise provided.

(3)The penalty amounts in Section 6038A(d) of the Internal Revenue Code, relating to penalty for failure to furnish information or maintain records, are modified by substituting “$10,000” in lieu of “$25,000.”

(4)Section 6038A(e) of the Internal Revenue Code, relating to enforcement of requests for certain records, is modified as follows:

(A)Each reference to Section 7602, 7603, or 7604 of the Internal Revenue Code shall instead refer to Section 19504.

(B)Each reference to “summons” shall instead refer to “subpoena duces tecum.”

(C)Section 6038A(e)(4)(C) of the Internal Revenue Code shall refer to “superior courts of the State of California for the Counties of Los Angeles, Sacramento, and San Diego, and for the City and County of San Francisco,” instead of “United States district court for the district in which the person (to whom the summons is issued) resides or

is found.”

(b)In the case of a corporation, each of the following shall apply:

(1)Section 6038B of the Internal Revenue Code, relating to notice of certain transfers to foreign persons, shall apply, except as otherwise provided.

(2)The information required to be filed with the Franchise Tax Board under this subdivision shall be a copy of the information required to be filed with the Internal Revenue Service.

(3)(A) A penalty shall be imposed under this part for failure to furnish information and that penalty shall be determined in accordance with Section 6038B of the Internal Revenue Code,

except as otherwise provided.

(B)Subparagraph (A) shall not apply to any transfer described in Section 6038B(a)(1)(B) of the Internal Revenue Code.

(c)(1) Section 6038C of the Internal Revenue Code, relating to information with respect to foreign corporations engaged in United States business, shall apply.

(2)A penalty shall be imposed under this part for failure to furnish information or maintain records and that penalty shall be determined in accordance with Section 6038C of the Internal Revenue Code.

(3)Section 6038C(d) of the Internal Revenue Code, relating to enforcement of requests for certain records, is modified

as follows:

(A)Each reference to Section 7602, 7603, or 7604 of the Internal Revenue Code shall instead refer to Section 19504.

(B)Each reference to “summons” shall instead refer to “subpoena duces tecum.”

(d)(1) Section 6038D of the Internal Revenue Code, relating to information with respect to foreign financial assets, shall apply.

(2)A penalty shall be imposed under this part for failure to furnish information and that penalty shall be determined in accordance with Section 6038D of the Internal Revenue Code.

(e)For purposes of this part, the information required to be filed with

the Franchise Tax Board pursuant to this section shall be a copy of the information filed with the Internal Revenue Service.

(f)For purposes of this section, each of the following shall apply:

(1)Section 7701(a)(4) of the Internal Revenue Code, relating to the term “domestic,” shall apply.

(2)Section 7701(a)(5) of the Internal Revenue Code, relating to the term “foreign,” shall apply.

(3)Section 7701(a)(30) of the Internal Revenue Code, relating to the term “United States person,” shall apply. However, the term “United States person” shall not include any corporation that is not subject to the tax imposed under Chapter 2 (commencing with Section 23101),

Chapter 2.5 (commencing with Section 23400), or Chapter 3 (commencing with Section 23501), of Part 11.

(g)The amendments made to this section by the act adding this subdivision shall apply to taxable years beginning on or after January 1, 2016.

§ 19141.6

Amended by Stats. 2000, Ch. 862, Sec. 22. Effective January 1, 2001.

(a)Each taxpayer determining its income subject to tax pursuant to Section 25101 or electing to file pursuant to Section 25110 shall, for taxable years beginning on or after January 1, 1994, maintain (in the location, in the manner, and to the extent prescribed in regulations promulgated by the Franchise Tax Board on or before December 31, 1995) and make available upon request all of the following:

(1)Any records as may be appropriate to determine the correct treatment

of the components that are a part of one or more unitary businesses for purposes of determining the income derived from or attributable to this state pursuant to Section 25101 or 25110.

(2)Any records as may be appropriate to determine the correct treatment of amounts that are attributable to the classification of an item as business or nonbusiness income for purposes of Article 2 (commencing with Section 25120) of Chapter 17 of Part 11.

(3)Any records as may be appropriate to determine the correct treatment of the apportionment factors for purposes of Article 2 (commencing with Section 25120) of Chapter 17 of Part 11.

(4)Documents and information, including any questionnaires completed and submitted to the Internal Revenue Service, that are necessary to audit issues involving attribution of income to the United

States or foreign jurisdictions under Section 882 of, or Subpart F of Part III of Subchapter N of, or similar provisions of, the Internal Revenue Code.

(b)For purposes of this section:

(1)Information for any year shall be retained for that period of time in which the taxpayers’ income or franchise tax liability to this state may be subject to adjustment, including all periods in which additional income or franchise taxes may be assessed, not to exceed eight years from the due date or extended due date of the return, or during which a protest is pending before the Franchise Tax Board, or an appeal is pending before the State Board of Equalization, or a lawsuit is pending in the courts of this state or the United States with respect to California franchise or income tax.

(2)“Related party” means corporations that

are related because one owns or controls, directly or indirectly, more than 50 percent of the stock of the other or because more than 50 percent of the voting stock of each is owned or controlled, directly or indirectly, by the same interests.

(3)“Records” includes any books, papers, or other data.

(c)(1) If a corporation subject to this section fails to maintain or fails to cause another to maintain records as required by subdivision (a), that corporation shall pay a penalty of ten thousand dollars ($10,000) for each taxable year with respect to which the failure occurs.

(2)If any failure described in paragraph (1) continues for more than 90 days after the day on which the Franchise Tax Board mails notice of the failure to the corporation, that corporation shall pay a penalty (in addition to

the amount required under paragraph (1)) of ten thousand dollars ($10,000) for each 30-day period (or fraction thereof) during which the failure continues after the expiration of the 90-day period. The additional penalty imposed by this subdivision shall not exceed a maximum of fifty thousand dollars ($50,000) if the failure to maintain or the failure to cause another to maintain is not willful. This maximum shall apply with respect to taxable years beginning on or after January 1, 1994, and before the earlier of the first day of the month following the month in which regulations are adopted pursuant to this section or December 31, 1995.

(3)For purposes of this section, the time prescribed by regulations to maintain records (and the beginning of the 90-day period after notice by the Franchise Tax Board) shall be treated as not earlier than the last day on which (as shown to the satisfaction of the Franchise Tax Board) reasonable cause existed

for failure to maintain the records.

(d)(1) The Franchise Tax Board may apply the rules of paragraph (2) whether or not the board begins a proceeding to enforce a subpoena, or subpoena duces tecum, if subparagraphs (A), (B), and (C) apply:

(A) For purposes of determining the correct treatment under Part 11 (commencing with Section 23001) of the items described in subdivision (a), the Franchise Tax Board issues a subpoena or subpoena duces tecum to a corporation to produce (either directly or as agent for the related party) any records or testimony.

(B) The subpoena or subpoena duces tecum is not quashed in a proceeding begun under paragraph (3) and is not determined to be invalid in a proceeding begun under Section 19504 to enforce the subpoena or subpoena duces tecum.

(C) The corporation does not substantially comply in a timely manner with the subpoena or subpoena duces tecum and the Franchise Tax Board has sent by certified or registered mail a notice to that corporation that it has not substantially complied.

(D) If the corporation fails to maintain or fails to cause another to maintain records as required by subdivision (a), and by reason of that failure, the subpoena, or subpoena duces tecum, is quashed in a proceeding described in subparagraph (B) or the corporation is not able to provide the records requested in the subpoena or subpoena duces tecum, the Franchise Tax Board may apply the rules of paragraph (2) to any of the items described in subdivision (a) to which the records relate.

(2)(A) All of the following shall be determined by the Franchise Tax

Board in the Franchise Tax Board’s sole discretion from the Franchise Tax Board’s own knowledge or from information the Franchise Tax Board may obtain through testimony or otherwise:

(i)The components that are a part of one or more unitary businesses for purposes of determining the income derived from or attributable to this state pursuant to Section 25101 or 25110.

(ii) Amounts that are attributable to the classification of an item as business or nonbusiness income for purposes of Article 2 (commencing with Section 25120) of Chapter 17 of Part 11.

(iii) The apportionment factors for purposes of Article 2 (commencing with Section 25120) of Chapter 17 of Part 11.

(iv) The correct amount of income under Section 882 of, or Subpart F of Part III of

Subchapter N of, or similar provisions of, the Internal Revenue Code.

(B) This paragraph shall apply to determine the correct treatment of the items described in subdivision (a) unless the corporation is authorized by its related parties (in the manner and at the time as the Franchise Tax Board shall prescribe) to act as the related parties’ limited agent solely for purposes of applying Section 19504 with respect to any request by the Franchise Tax Board to examine records or produce testimony related to any item described in subdivision (a) or with respect to any subpoena or subpoena duces tecum for the records or testimony. The appearance of persons or the production of records by reason of the corporation being an agent shall not subject those persons or records to legal process for any purpose other than determining the correct treatment under Part 11 of the items described in subdivision (a).

(C) Determinations made in the sole discretion of the Franchise Tax Board pursuant to this paragraph may be appealed to the State Board of Equalization, in the manner and at the time prescribed by Section 19045 or 19324, or may be the subject of an action to recover tax, in the manner and at a time prescribed by Section 19382. The review of determinations by the board or the court shall be limited to whether the determinations were arbitrary or capricious, or are not supported by substantial evidence.

(3)(A) Notwithstanding any other law or rule of law, any reporting corporation to which the Franchise Tax Board issues a subpoena or subpoena duces tecum referred to in subparagraph (A) of paragraph (1) shall have the right to begin a proceeding to quash the subpoena or subpoena duces tecum not later than the 90th day after the subpoena or subpoena duces tecum was

issued. In that proceeding, the Franchise Tax Board may seek to compel compliance with the subpoena or subpoena duces tecum.

(B)Notwithstanding any other law or rule of law, any reporting corporation that has been notified by the Franchise Tax Board that it has determined that the corporation has not substantially complied with a subpoena or subpoena duces tecum referred to in paragraph (1) shall have the right to begin a proceeding to review the determination not later than the 90th day after the day on which the notice referred to in subparagraph (C) of paragraph (1) was mailed. If the proceeding is not begun on or before the 90th day, the determination by the Franchise Tax Board shall be binding and shall not be reviewed by any court.

(C)The superior courts of the State of California for the Counties of Los Angeles, Sacramento, and San Diego, and for the City and County of

San Francisco, shall have jurisdiction to hear any proceeding brought under subparagraphs (A) and (B). Any order or other determination in the proceeding shall be treated as a final order that may be appealed.

(D)If any corporation takes any action as provided in subparagraphs (A) and (B), the running of any period of limitations under Sections 19057 to 19064, inclusive (relating to the assessment and collection of tax), or under Section 19704 (relating to criminal prosecutions) with respect to that corporation shall be suspended for the period during which the proceedings, and appeals therein, are pending. In no event shall any period expire before the 90th day after the day on which there is a final determination in the proceeding.

§ 19142