California ~ Personal Income Tax: State Does Not Conform to Exclusion for COD Income From Disposition of Principal Residence

The Franchise Tax Board (FTB) notes that A.B. 99 would have conformed California personal income law to federal law extending the exclusion from income for certain discharges of qualified principal residence indebtedness to discharges occurring in 2014. However, Gov. Jerry Brown vetoed the bill on October 10, 2015. Therefore, California remains out of conformity with the federal exclusion for income from the discharge of qualified principal residence indebtedness occurring after 2013, and such income remains includable in the computation of California taxable income.

Some taxpayers with cancellation of debt income (CODI) who expected A.B. 99 to be enacted may have failed to make sufficient payments before the original due date of the return, and may incur penalties when the 2014 return is filed that includes the appropriate CODI. As a general rule, taxpayers must follow the law in effect and applicable to the tax year at issue. The law does not provide a reasonable cause exception for reliance on pending legislation. However, where other factors are present, the FTB will continue to consider reasonable cause requests for penalty abatement for taxpayers in this situation on a case by case basis.

Tax NewsFlash, California Franchise Tax Board, October 13, 2015



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