AHLSTARZ Tax and Accounting Service -- Numbers, Simplified.

The California General Assembly has passed a bill that, if enacted, would update California's Internal Revenue Code (IRC) conformity date from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010, for California personal income and corporation franchise and income taxes. By updating the conformity date, California would incorporate many, but not all, of the federal changes enacted by the following federal acts that amended IRC provisions followed by California:

-- the Energy Tax Incentives Act of 2005 (P.L. 109-58),

-- the Katrina Emergency Tax Relief Act of 2005 (KETRA) (P.L. 109-73),

-- the Gulf Opportunity Zone Act of 2005 (GOZA) (P.L. 109-135),

-- the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) (P.L. 109-222),

-- the Pension Protection Act of 2006 (P.L. 109-280), the Tax Relief and Health Care Act of 2006 (TRHCA) (P.L. 109-432),

-- the Small Business and Work Opportunity Tax Act of 2007 (Small Business Tax Act) (P.L. 110-28),

-- the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 (U.S. Troop Readiness Act) (P.L. 110-28),

-- the Energy Independence and Security Act of 2007 (Energy Act) (P.L. 110-140),

-- the Mortgage Forgiveness Debt Relief Act of 2007 (Mortgage Relief Act) (P.L. 110-142),

-- the Tax Increase Prevention Act of 2007 (TIPA) (P.L. 110-166),

-- the Tax Technical Corrections Act of 2007 (TTCA) (P.L. 110-172),

-- the Economic Stimulus Act of 2008 (ESA) (P.L. 110-185),

-- the Heartland, Habitat, Harvest, and Horticulture Act of 2008 (Farm Act) (P.L. 110-246),

-- the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) (P.L. 110-245),

-- the Housing Assistance Tax Act of 2008 (HATA) (P.L. 110-289),

-- the Emergency Economic Stabilization Act of 2008 (EESA) (P.L. 110-343), and

-- the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) (P.L. 110-458).

Additionally, this bill would conform to the February 17, 2009, federal income exclusion of energy grants provided in lieu of federal energy credits.

Conformity to the provisions enacted by the above acts would not be complete. According to the Franchise Tax Board's analysis of the bill, California would not conform to many items, including the following:

-- the energy efficient commercial buildings deduction;

-- the expansion of the research credit;

-- extension of deduction for private mortgage insurance;

-- limitation of excess farm losses of certain taxpayers;

-- many of the tax provisions favorable to oil and gas businesses;

-- the special depreciation allowance for certain reuse and recycling property;

-- the additional standard deduction for real property taxes for nonitemizers;

-- extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements;

-- the 15-year straight line cost recovery for certain improvements to retail space; and

-- various disaster relief provisions.

The bill would conform to the federal erroneous refund provision, but would not apply to individuals with adjusted gross incomes equal to $10 million or less ($20 million or less for joint filers). Last year, Gov. Arnold Schwarzenegger vetoed a similar bill when this provision was added in at the last minute.

S.B. 32, Eighth Extraordinary Session, as passed by the California General Assembly on March 11, 2010; Analysis, California Franchise Tax Board, as introduced on February 5, 2010, and amended on February 11, 2010