California enacts "VCI Two," piggybacks federal economic substance codification

On March 25, Governor Jerry Brown signed a budget trailer bill that establishes an amnesty/voluntary compliance initiative (VCI) for taxpayers that either have utilized an "abusive tax avoidance transaction" (ATAT) or have unreported income from the use of an offshore financial arrangement. The amnesty will run from August 1, 2011 through October 31, 2011, and applies to tax years beginning prior to January 1, 2011. Among other changes, the legislation conforms the existing California noneconomic substance transaction penalty to the federal codification of economic substance, and extends the statute of limitations from eight to twelve years where an abusive tax avoidance transaction is involved. Further, the bill establishes a system to match delinquent tax debtor records with the financial institutions' customer records. (S.B. 86, enacted, 3/25/11)

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