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New law changes procedures for abatement of interest Inside...

Assembly Bill 463 (Ch. 99-183) revised Revenue and Taxation Code section 19104 and changed the circumstances under which interest may be abated. In certain cases, the law now requires taxpayers to raise the interest abatement issue at the time of the appeal of the deficiency or be limited thereafter from raising the issue.

Also, R&TC section 19104 now provides specified limitations on the time for taxpayers to appeal and specifies the circumstances under which we will deny a request to abate interest. 

The revisions apply to requests for abatement of interest filed on or after January 1, 2001.

Here are the other significant points of the law change:

. It clarifies that the interest on the deficiency, not the deficiency itself, is subject to abatement.

. It allows taxpayers who protest a deficiency to include a request of certain related interest in their protest.

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Franchise Tax Board revises position on S Corporations
High court says cancellation of debt income passes through to its shareholders
The United States Supreme Court, reversing the 10th Circuit Court, held in Gitlitz v. Commissioner, 2001-1 USTC 50,147, that the S Corporation's excluded discharge of debt is an item of income that passes through to the shareholders pursuant to Internal Revenue Code section 1366(a)(1)(A).

The cancellation of debt (COD) income increases the shareholder's stock basis before the tax attributes reduction takes place pursuant to IRC section 108(b)(4)(A).

Previously, we took the position, consistent with the 10th Circuit Court, that the S Corporation's COD income does not pass through to the shareholder and does not increase the shareholder's basis. We have revised our position to conform to the U.S. Supreme Court decision to allow the S Corporation to pass the COD income to the shareholder and increase the shareholder's basis.

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