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Archive - California Conformity to Federal Law


2012 Conformity

Rollover of Airline Payments to Traditional IRAs

On February 14, 2012, the president signed the FAA Modernization and Reform Act into law. The Act allows qualified airline employees who participated in pension plans that were terminated as a result of airline bankruptcies during 2001-2007 to transfer an airline payment amount received by the employee to a traditional IRA. Under the provisions of the Act, qualified airline employees can roll over up to 90% of such payments to a traditional IRA. The new law also allows a qualified airline employee who previously rolled over an airline payment amount to a Roth IRA to transfer up to 90% of the payment to a traditional IRA. The airline payment amount rolled over to a traditional IRA may be excluded from gross income in the taxable year such payment was initially received by the employee. The IRA contribution must be made within 180 days from the date the payment was received or before August 14, 2012, whichever is later.

The California treatment of pension income is generally the same as federal treatment. The FAA Modernization and Reform Act provides for an extended period of limitations, if needed, to file an amended federal tax return for the year in which an airline payment amount was received. California taxpayers who file an amended federal tax return excluding airline payment amounts from gross income will need to file Form 540X, Amended Individual Income Tax Return, in order to report the changes for California income tax purposes. For more information, see Rollover of Airline Payments to Traditional IRAs.

Taxable Year 2011 - California Conformity to Federal Law

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010. California’s conformity results in numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2005. The Act would also conform to the February 17, 2009, federal legislation providing an exclusion from gross income in any taxable year for energy grants provided in lieu of federal energy credits.

Yearly Summary of Federal Income Tax Changes

On or before January 10 of each year (unless federal changes are enacted late in the year), we provide an annual report (Summary of Federal Income Tax Changes) to the Legislature concerning changes to federal tax law occurring during the previous calendar year and the effect of those changes on California law.

Taxable Year 2010 - California Conformity to Federal Law

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010. California’s conformity results in numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2005. The Act would also conform to the February 17, 2009, federal legislation providing an exclusion from gross income in any taxable year for energy grants provided in lieu of federal energy credits.

The following are provisions of the new law affecting taxable years beginning prior to January 1, 2010. In addition, we will also provide updates about changes to the law for taxable years beginning on or after January 1, 2010.

Mortgage Forgiveness Debt Relief Extended

The Act allows taxpayers that had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013. Go to Mortgage Forgiveness Debt Relief for additional information.

Income Exclusion of Federal Energy Grants

The Act provides that federal energy grants provided in lieu of federal energy credits are excluded from California gross income and alternative minimum taxable income of individuals and business. The income exclusion is applicable for any taxable year and is thus retroactive in its application.

Hokie Spirit Memorial Fund Exclusion

The Act allows a California taxpayer to exclude from gross income any amount received from the Virginia Polytechnic Institute and State University, out of amounts transferred from the Hokie Spirit Memorial Fund established by the Virginia Tech Foundation. The income is excluded from gross income for any taxable year and is thus retroactive in its application.

Taxable Year 2009 - California Conformity to Federal Law

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010. California’s conformity results in numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2005. The Act would also conform to the February 17, 2009, federal legislation providing an exclusion from gross income in any taxable year for energy grants provided in lieu of federal energy credits.

Federal Acts

American Recovery and Reinvestment Act of 2009 (PL 111-5, H.R. 1) enacted January 6, 2009. This provides supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization, for the fiscal year ending September 30, 2009 and for other purposes.

Taxable Year 2008 - California Conformity to Federal Law

In general, California income tax law is based on federal income tax law. Usually, this is accomplished by conforming to specific provisions of the Internal Revenue Code (IRC) by reference as of a "specified date", which is currently January 1, 2005. However, not all provisions of the IRC are applicable for California purposes. In addition, not all federal changes to a particular provision are applicable for California purposes for the same period and to the same extent the change is applicable for federal purposes.

  • Economic Stimulus Act of 2008 (PL 110-185, H.R. 5140) enacted February 13, 2008. This provides economic stimulus through recovery rebates to individuals, incentives for business investment, and an increase in the maximum amounts of mortgage loans issued by Fannie Mae and Freddie Mac.
  • Food, Conservation, and Energy Act of 2008 (PL 110-234, H.R. 2419 and reenacted by PL 110-246, HR 6124) enacted May 22, 2008. This act runs from 2008 through 2012 and reauthorizes most programs of the 2002 farm bill.
  • Housing and Economic Recovery Act of 2008 (PL 110-289, H.R. 3221) enacted July 30, 2008. This provides four important tax law changes that impact individuals and small businesses. The changes are (1) tax credit of up to $7,500 for first-time homebuyers, to be repaid over 15 years; (2) property tax deduction for people who don't itemize; (3) reporting of credit card and merchant payments to the IRS; and (4) prorated capital gains exclusion for real estate for periods of nonprimary use.
  • The Worker, Retiree, and Employer Recovery Act of 2008 ( H.R. 7327) enacted December 23, 2008. The act suspends the requirement to make annual minimum distributions from retirement plan accounts in 2009. The act provides pension funding relief for both single employer and multiple employer plans.

We provide an annual report (Summary of Federal Income Tax Changes) to the legislature on or before January 10th of each year (unless federal changes are enacted late in the year) concerning changes to federal tax law. See below for the Summary of Federal Income Tax Changes.

Taxable Year 2007 - California Conformity to Federal Law

In general, California income tax law is based on federal income tax law. Usually, this is accomplished by conforming to specific provisions of the Internal Revenue Code (IRC) by reference as of a "specified date", which is currently January 1, 2005. However, not all provisions of the IRC are applicable for California purposes. In addition, not all federal changes to a particular provision are applicable for California purposes for the same period and to the same extent the change is applicable for federal purposes.

Small Business and Work Opportunity Tax Act of 2007 – (Subtitle B of TITLE VIII of Federal P.L. 110-28) – Enacted into law on May 25, 2007 and is generally effective for taxable years after the date of enactment. This act affects provisions from the Gulf Opportunity Zone Tax Incentives, Subchapter S provisions, other general and revenue provisions.

We provide an annual report (Summary of Federal Income Tax Changes) to the legislature on or before January 10th of each year (unless federal changes are enacted late in the year) concerning changes to federal tax law. See below for the Summary of Federal Income Tax Changes.

Taxable Year 2006 - California Conformity to Federal Law

In general, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2005. However, there are differences between California and federal law. Also, please note that California does not always conform to all of the provisions of a federal public law. For example, California does not conform to certain provisions of the American Jobs Creation Act (AJCA) of 2004 (P.L. 108-357). Also, California in general does not conform to the provisions of the Katrina Emergency Tax Relief Act of 2005 (P.L. 109-73).

The Heroes Earned Retirement Opportunities Act (P.L. 109-227) is applicable for California purposes. Some provisions of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) and the Pension Protection Act of 2006 (P.L. 109-280) are also applicable for California purposes. California conforms to the federal Pension Protection Act change, applicable for taxable year 2006, that allows tax-free distribution from traditional and Roth IRAs from taxpayers who are age 70 ½ or older of up to $100,000 for charitable contribution purposes. (This change is for tax years 2006 and 2007 only.)

We provide an annual report (Summary of Federal Income Tax Changes) to the legislature on or before January 10th of each year (unless federal changes are enacted late in the year) concerning changes to federal tax law. See below for the Summary of Federal Income Tax Changes.

Taxable Year 2005 - California Conformity to Federal Law

In general, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2005. However, there are continuing differences between California and federal law. It should be noted that California does not always conform to the entire provisions of a public law. For example, California does not conform to certain provisions of the American Jobs Creation Act (AJCA) of 2004 (P.L. 108-357). Also, California in general does not conform to the provisions of the Katrina Emergency Tax Relief Act of 2005 (P. L. 109-73). Also see: Conformity-related impacts of Assembly Bill 115 (Stats. 2005, Ch. 691).

Taxable Year 2004 - California Conformity to Federal Law

In general, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2001. However, there are continuing differences between California and federal law. It should be noted that California does not always conform to the entire provisions of a public law. California has conformed to some of the changes made to the IRC after January 1, 2001, including some provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16), the Victims of Terrorism Tax Relief Act of 2001 (Public Law 107-134), and the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147). In addition, California has now conformed to the Military Family Tax Relief Act of 2003 (Public Law 108-121). California has not conformed to any of the provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law 108-27), the Working Families Tax Relief Act of 2004 (Public Law 108-311) and the American Jobs Creation Act (Public Law 108-357). However, pursuant to Revenue and Taxation Code Section 23801 any federal S corporation is a California S corporation and any shareholder of a federal S corporation is a shareholder of a California S corporation. Thus the expansion of eligibility for S corporation status contained in the American Jobs Creation Act (Public Law 108-357), is applicable under California law. California has not conformed to the new federal Health Savings Accounts contained in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173).