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AB-132 Personal income taxes: retirement plans: early distributions.(2013-2014)

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AB132:v97#DOCUMENT

Amended  IN  Assembly  June 20, 2013
Amended  IN  Assembly  March 21, 2013

CALIFORNIA LEGISLATURE— 2013–2014 REGULAR SESSION

Assembly Bill
No. 132


Introduced by Assembly Member Holden
(Coauthor: Assembly Member Morrell)

January 16, 2013


An act to amend Section 17085 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 132, as amended, Holden. Personal income taxes: retirement plans: early distributions.
The Personal Income Tax Law, in modified conformity to federal income tax laws, imposes an additional tax upon early distributions from specified retirement plans, as provided.
This bill would, for taxable years, beginning on or after January 1, 2014, and before January 1, 2017, exclude from that additional tax the first $6,000 distributed to an individual for the purpose of paying qualified costs, as defined, with respect to acquisition indebtedness for a principal residence, as provided.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 17085 of the Revenue and Taxation Code is amended to read:

17085.
 Section 72 of the Internal Revenue Code, relating to annuities, certain proceeds of endowment and life insurance contracts, is modified as follows:
(a) The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except that the repeal of Section 72(d) of the Internal Revenue Code, relating to repeal of special rule for employees’ annuities, shall apply only to the following:
(1) Any individual whose annuity starting date is after December 31, 1986.
(2) At the election of the taxpayer, any individual whose annuity starting date is after July 1, 1986, and before January 1, 1987.
(b) The amount of a distribution from an individual retirement account or annuity or employee trust or employee annuity that is includable in gross income for federal purposes shall be reduced for purposes of this part by the lesser of either of the following:
(1) An amount equal to the amount includable in federal gross income for the taxable year.
(2) An amount equal to the basis in the account or annuity allowed by Section 17507 (relating to individual retirement accounts and simplified employee pensions), the increased basis allowed by Sections 17504 and 17506 (relating to plans of self-employed individuals), the increased basis allowed by Section 17501, or the increased basis allowed by Section 17551 that is remaining after adjustment for reductions in gross income under this provision in prior taxable years.
(c) (1) Except as provided in paragraph (2), the amount of the additional tax imposed under this part shall be computed in accordance with Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as applicable for federal income tax purposes for the same taxable year, using a rate of 21/2 percent, in lieu of the rate provided in those sections.
(2) In the case where Section 72(t)(6) of the Internal Revenue Code, relating to special rules for simple retirement accounts, as applicable for federal income tax purposes for the same taxable year, applies, the rate in paragraph (1) shall be 6 percent in lieu of the 21/2-percent rate specified therein.
(3) (A) For taxable years beginning on or after January 1, 2014, and before January 1, 2017, Section 72(t)(2) of the Internal Revenue Code, relating to subsection not to apply to certain distributions, is modified to additionally provide that Section 72(t)(1) of the Internal Revenue Code, relating to imposition of additional tax, shall not apply to distributions made to an individual from a qualified retirement plan to the extent such distributions do not exceed the aggregate amount of qualified principal residence payment distributions.
(B) For the purposes of this paragraph:
(i) “Acquisition indebtedness” shall have the same meaning as in Section 163(h)(3)(B) of the Internal Revenue Code, except that the dollar limitation in Section 163(h)(3)(B)(ii) of the Internal Revenue Code shall not apply Code.
(ii) “Qualified costs” means either of the following:
(I) Amounts paid as principal or interest on acquisition indebtedness.
(II) Amounts paid as part of a loan modification that either reduces the principal or interest of acquisition indebtedness.
(iii) “Qualified principal residence payment distribution” means any payment or distribution received by an individual to the extent that the payment or distribution is used by the individual before the close of the 60th day after the day on which that payment or distribution is received to pay qualified costs with respect to a principal residence of the individual or spouse of the individual.
(C) This paragraph shall apply only if:
(i) The individual and, if married, the spouse of the individual, collectively own no more than one residence that is used by either the individual or the spouse of the individual, or by both, as a principal residence (within the meaning of Section 121 of the Internal Revenue Code, relating to exclusion of gain or sale of principal residence) and neither the individual nor, if married, the spouse of the individual, own any other residence that is used by either the individual or spouse of the individual, or by both, as a residence that is not a principal residence within the meaning of Section 280A(d)(1) of the Internal Revenue Code, relating to use as a residence.
(ii) The principal residence has a market value that is less than the unpaid balance of acquisition indebtedness on that residence.
(D) The aggregate amount of distributions received by an individual that may be treated as qualified principal residence payment distributions under this paragraph shall not exceed a total of six thousand dollars ($6,000) for all taxable years.
(E) The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this paragraph.
(d) Section 72(f)(2) of the Internal Revenue Code shall be applicable without applying the exceptions which immediately follow that paragraph.
(e) Section 72(e)(II) of the Internet Internal Revenue Code shall not apply.

SEC. 2.

 This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.