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Special Taxes Administration – Miscellaneous

California Code of Regulations

Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration - Business Taxes (State Board of Equalization - Business Taxes, See Chapters 6 and 9.9)
Chapter 9.9. California Department of Tax and Fee Administration and State Board of Equalization - Special Taxes Administration - Miscellaneous

4901 Records
4902 Relief from Liability
4903 Innocent Spouse or Registered Domestic Partner Relief from Liability
4905 Electronic Funds Transfer

Regulation 4901. Records.

Reference: Sections 8301, 8302, 8303, 8304, 9253, 9254, 30453, 30454, 32551, 32453, 40172, 40173, 40174, 40175, 41056, 41073, 41129, 43502, 45852, 46602, 46603, 50153, 55302, 55363.5, 60604, 60605, and 60606, Revenue and Taxation Code.

(a) Definitions.

(1) "Applicable Tax Laws" means any of the following:

(A) Aircraft Jet Fuel Tax, Revenue and Taxation Code sections 7385–7398 and 7486–8406;

(B) Alcoholic Beverage Tax, Revenue and Taxation Code sections 32001–32557;

(C) Childhood Lead Poisoning Prevention Fee, Health and Safety Code section 105310; Revenue and Taxation Code sections 43001–43651;

(D) Cigarette and Tobacco Products Tax, Revenue and Taxation Code sections 30001–30481;

(E) Diesel Fuel Tax, Revenue and Taxation Code sections 60001–60709;

(F) Emergency Telephone Users Surcharge, Revenue and Taxation Code sections 41001–41176;

(G) Energy Resources Surcharge, Revenue and Taxation Code sections 40001–40216;

(H) Fee Collection Procedures Law, Revenue and Taxation Code sections 55001-55381 (see Reg. 3500);

(I) Hazardous Substances Tax, Health and Safety Code sections 25205.2, 25205.5, and 25205.6; Revenue and Taxation Code sections 43001–43651;

(J) Integrated Waste Management Fee, Public Resources Code sections 40000–48008; Revenue and Taxation Code sections 45001–45984;

(K) Motor Vehicle Fuel Tax, Revenue and Taxation Code sections 7301–8526;

(L) Occupational Lead Poisoning Prevention Fee, Health and Safety Code section 105190; Revenue and Taxation Code sections 43001–43651;

(M) Oil Spill Response, Prevention, and Administration Fees, Revenue and Taxation Code sections 46001–46751;

(N) Underground Storage Tank Maintenance Fee, Revenue and Taxation Code sections 50101–50162; and

(O) Use Fuel Tax, Revenue and Taxation Code sections 8601–9355;

(2) "Database Management System"–a software system that controls, relates, retrieves, and provides accessibility to data stored in a database.

(3) "Electronic cash register"–a device that keeps a register or supporting documents through the means of an electronic device or computer system designed to record transaction data for the purpose of computing, compiling, or processing retail sales transaction data. This can include integrated point of sale systems.

(4) "Electronic data interchange" or "EDI technology"–the computer to computer exchange of business transactions in a standardized structured electronic format.

(5) "Electronic record"–a collection of related information in an electronic, machine-sensible format. Electronic records do not include hardcopy records that are created or recorded on paper or stored in or by a storage-only imaging system such as microfilm, microfiche, PDF files, or other media used in electronic imaging. Electronic records include records recorded and maintained by electronic cash registers.

(6) "Hardcopy"–Any document, record, report or other data maintained in a paper format.

(7) "Taxpayer" includes "fee payer" and means any person liable for the payment of a tax or a fee specified under any of the applicable tax laws.

(8) "Tax" includes "fee" and means any amount of tax or fee specified under any of the applicable tax laws.

(b) General.

(1) A taxpayer shall maintain and make available for examination on request by the Department or its authorized representative, all records necessary to determine the correct tax liability under the applicable tax laws and all records necessary for the proper completion of the required tax return or report. Such records include but are not limited to:

(A) Books of account or other similar summary information ordinarily maintained by the taxpayer as required by law or practice or otherwise in the possession of the taxpayer or third party at the direction or request of the taxpayer.

(B) Bills, receipts, invoices, cash register tapes, or other documents of original entry supporting the entries in the books of account.

(2) Electronic records are considered records under Revenue and Taxation Code sections 8301–8306, 9253, 9254, 30453, 30454, 32551, 32453, 40172–40175, 41056, 41073, 41129.30, 43502, 45852, 46602, 46603, 50153, 55302, and 60604–60606.

(1) General.

(A) Electronic records used to establish tax compliance shall contain sufficient source document (transaction-level) information so that the details underlying the electronic records can be identified and made available to the Department upon request. A taxpayer has discretion to discard duplicated records and redundant information provided the integrity of the audit trail is preserved and the responsibilities under this regulation are met.

(B) At the time of an examination, the retained records must be capable of being retrieved and converted to a standard magnetic record format which the Department has the technological capability to use, such as Extended Binary Coded Decimal Interchange Code (EBCDIC) or American Standard Code for Information Interchange (ASCII) flat file.

(C) Taxpayers are not required to construct electronic records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes.

(2) Electronic Data Interchange Requirements.

(A) Where a taxpayer uses electronic data interchange (EDI) processes and technology, the level of record detail, in combination with other records related to the transactions, must be equivalent to that contained in an acceptable paper record. For example, the retained records should contain such information as:

1. vendor name,

2. invoice date,

3. product description,

4. quantity purchased,

5. price,

6. amount of tax,

7. indication of tax status (e.g., exempt), and

8. shipping detail.

Codes may be used to identify some or all of the data elements, provided the taxpayer maintains a method which allows the Department to interpret the coded information.

(B) The taxpayer may capture the information necessary to satisfy subdivision (c)(2)(A) at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established. For example, a taxpayer using EDI technology receives electronic invoices from its suppliers. The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Since neither the EDI transaction nor the accounts payable system capture information from the invoice pertaining to product description and vendor name (i.e., they contain only codes for that information), the taxpayer must also retain other records, such as its vendor master file and product code description lists, and make them available to the Department. In this example, the taxpayer need not retain its EDI transaction for tax purposes.

(3) Electronic Data Processing Systems Requirements. The requirements for an electronic data processing (EDP) accounting system should be similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this regulation.

(4) Business Process Information.

(A) Upon request of the Department, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records.

(B) The taxpayer shall be capable of demonstrating:

1. the functions being performed as they relate to the flow of data through the system;

2. the internal controls used to ensure accurate and reliable processing, and;

3. the internal controls used to prevent unauthorized addition, alteration, or deletion of retained records.

1. record formats or layouts;

2. field definitions (including the meaning of all codes used to represent information);

3. file descriptions (e.g., data set name); and

4. detailed charts of accounts and account descriptions.

(d) Electronic Records Maintenance Requirements.

(1) The taxpayer's computer hardware or software shall accommodate the extraction and conversion of retained electronic records to a standard magnetic record format as provided in subdivision (c)(1)(B).

(2) The Department recommends but does not require that taxpayers refer to the National Archives and Record Administration's (NARA) standards for guidance on the maintenance and storage of electronic records, such as the labeling of records, the location and security of the storage environment, the creation of back-up copies, and the use of periodic testing to confirm the continued integrity of the records.

(e) Access to Electronic Records.

(1) The manner in which the Department is provided access to electronic records may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer.

(2) Such access will be provided in one or more of the following manners:

(A) The taxpayer may arrange to provide the Department with the hardware, software, and personnel resources to access the electronic records.

(B) The taxpayer may arrange for a third party to provide the hardware, software, and personnel resources necessary to access the electronic records.

(C) The taxpayer may convert the electronic records to a standard record format specified by the Department, including copies of files, on a magnetic medium that is agreed to by the Department.

(D) The taxpayer and the Department may agree on other means of providing access to the electronic records.

(f) Taxpayer Responsibility and Discretionary Authority.

(1) In conjunction with meeting the requirements of subdivision (c), a taxpayer may create files solely for the use of the Department. For example, if a data base management system is used, it is consistent with this regulation for the taxpayer to create and retain a file that contains the transaction-level detail from the data base management system and that meets the requirements of subdivision (c). The taxpayer should document the process that created the separate file to show the relationship between that file and the original records.

(2) A taxpayer may contract with a third party to provide custodial or management services of the records. Such a contract shall not relieve the taxpayer of its responsibilities under this regulation.

(g) Hardcopy Records.

(1) Except as specifically provided, taxpayers are not relieved of the responsibility to retain hardcopy records that are created or received in the ordinary course of business as required by existing law and regulations. Hardcopy records may be retained on a record keeping medium as provided in subdivision (h).

(2) If hardcopy transaction level documents are not produced or received in the ordinary course of transacting business (e.g., when the taxpayer uses electronic data interchange technology), such hardcopy records need not be created.

(3) Hardcopy records generated at the time of a transaction using a credit or debit card must be retained unless all the details necessary to determine correct tax liability relating to the transaction are subsequently received and retained by the taxpayer in accordance with this regulation. Such details include those listed in subdivision (c)(2)(A).

(4) Computer printouts that are created for validation, control, or other temporary purposes need not be retained.

(h) Alternative Storage Media.

(1) For purposes of storage and retention, taxpayers may convert hardcopy documents received or produced in the normal course of business and required to be retained under this regulation to storage-only imaging media such as microfilm, microfiche, PDF files, or other media used in electronic imaging and may discard the original hardcopy documents, provided the conditions of subdivision (h) are met. Documents which may be stored on these media include, but are not limited to general books of account, journals, voucher registers, general and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda.

(2) Storage-only imaging media such as microfilm, microfiche, PDF files, or other media used in electronic imaging systems shall meet the following requirements.

(A) Documentation establishing the procedures for converting the hardcopy documents to the storage-only imaging system must be maintained and made available on request. Such documentation shall, at a minimum, contain a sufficient description to allow an original document to be followed through the conversion system as well as internal procedures established for inspection and quality assurance.

(B) Procedures must be established for the effective identification, processing, storage, and preservation of the stored documents and for making them available for the period they are required to be retained under subdivision (i).

(C) Upon request by the Department, a taxpayer must provide facilities and equipment for reading, locating, and reproducing any documents maintained on storage-only imaging media

(D) When displayed on such equipment or reproduced on paper, the documents must exhibit a high degree of legibility and readability. For this purpose, legibility is defined as the quality of a letter or numeral that enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals. Readability is defined as the quality of a group of letters or numerals being recognizable as words or complete numbers.

(E) All data on storage-only imaging media must be maintained and arranged in a manner that permits the location of any particular record.

(F) There is no substantial evidence that the storage-only imaging medium lacks authenticity or integrity.

(i) Record Retention—Time Period. All records required to be retained under this regulation must be preserved for a period of not less than four years unless the Department authorizes in writing their destruction within a lesser period.

For example, if a taxpayer has a point of sale system that overwrites data after a period of time less than four years, the taxpayer should transfer, maintain, and have available, all data that would have been overwritten or otherwise removed from the system for the required time periods indicated above.

(j) Record Retention Limitation Agreements.

(1) The Department has the authority to enter into or revoke a record retention limitation agreement with the taxpayer to modify or waive any of the specific requirements in this regulation. A taxpayer's request for an agreement must specify which records (if any) the taxpayer proposes not to retain and provide the reasons for not retaining such records, as well as, proposing any other terms of the requested agreement. The taxpayer shall remain subject to all requirements of this regulation that are not modified, waived, or superseded by a duly approved record retention limitation agreement.

(A) If a taxpayer seeks to limit its retention of electronic records, the taxpayer may request a record retention limitation agreement, which shall;

1. document understandings reached with the Department, which may include, but is not limited to, any one or more of the following issues:

a. the conversion of files created on an obsolete computer system;

b. restoration of lost or damaged files and the actions to be taken;

c. use of taxpayer computer resources, and

2. specifically identify which of the taxpayer's records the Department determines are not necessary for retention and which the taxpayer may discard, and

3. authorize variances, if any, from the normal provisions of this regulation.

(B) The Department shall consider a taxpayer's request for a record retention limitation agreement and notify the taxpayer of the actions to be taken.

(C) The Department's decision to enter or not to enter into a record retention limitation agreement shall not relieve the taxpayer of the responsibility to keep adequate and complete records supporting entries shown on any tax or information return.

(2) A taxpayer's record retention practices shall be subject to evaluation by the Department when a record retention limitation agreement exists. The evaluation may include a review of the taxpayer's relevant data processing and accounting systems with respect to EDP systems, including systems using EDI technology.

(A) The Department shall notify the taxpayer of the results of any evaluation, including acceptance or disapproval of any proposals made by the taxpayer (e.g., to discard certain records) or any changes considered necessary to bring the taxpayer's practices into compliance with this regulation.

(B) Since the evaluation of a taxpayer's record retention practices is not directly related to the determination of tax reporting accuracy for a particular period or return, an evaluation made under this regulation is not an "examination of records" under the applicable tax law.

(C) Unless otherwise specified, an agreement shall not apply to accounting and tax systems added subsequent to the completion of the record evaluation. All electronic records produced by a subsequently added accounting or tax system shall be retained by the taxpayer in accordance with this regulation until a new evaluation is conducted by the Department.

(D) Unless otherwise specified, an agreement made under this subdivision shall not apply to any person, company, corporation, or organization that, subsequent to the taxpayer's signing of a record retention limitation agreement, acquires or is acquired by the taxpayer. All electronic records produced by the acquired or the acquiring person, company, corporation, or organization, shall be retained pursuant to this regulation.

(3) In addition to the record retention evaluation under subdivision (j)(2), the Department may conduct tests to establish the authenticity, readability, completeness, and integrity of the electronic records retained under a record retention limitation agreement. The state shall notify the taxpayer of the results of such tests. These tests may include the testing of EDI and other procedures and a review of the internal controls and security procedures associated with the creation and storage of the records.

(k) Failure to Maintain Records. Failure to maintain and keep complete and accurate records will be considered evidence of negligence or intent to evade the tax and may result in penalties or other appropriate administrative action.

History—Adopted February 5, 2003, effective May 28, 2003.

Adopted January 27, 2010, effective March 30, 2010. Replaced "Ballast Water Management Fee" with "Marine Invasive Species Fee" in subparagraph (C) of, added a semicolon at the end of subparagraph (Q) of, added subparagraph "(R) Covered Electronic Waste Recycling Fee, Health and Safety Code Sections 25214.9-25214.10.2; Public Resources Code Sections 42460-42486; Revenue and Taxation Code Sections 55001-55381;" to, and added subparagraph "(S) Water Rights Fee, Water Code Sections 1525-1552, 13050, 13160.1; Revenue and Taxation Code Sections 55001-55381" to, paragraph (1) of subdivision (a).

Amendments adopted March 29, 2016, effective October 1, 2016. The amendments replaced "Sections" with "sections" throughout subdivision (a)(1) and in subdivision (b)(2); deleted the comma and inserted "and" after "7398" in subdivision (a)(1)(A); deleted old subdivision (a)(1)(C), (D), (M), (R), and (S), which respectively referred to the "Marine Invasive Species Fee, Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381;" "California Tire Fee, Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381;" "Natural Gas Surcharge, Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381;" "Covered Electronic Waste Recycling Fee, Health and Safety Code Sections 25214.9-25214.10.2; Public Resources Code Sections 42460-42486; Revenue and Taxation Code Sections 55001-55381;" and "Water Rights Fee, Water Code Sections 1525-1552, 13050, 13160.1; Revenue and Taxation Code Sections 55001-55381"; added new subdivision (a)(1)(H) regarding the "Fee Collection Procedures Law"; renumbered subdivision (a)(1)(E) through (I) and (J) through (Q), as subdivision (a)(1)(C) through (G) and (I) through (O), respectively; replaced "Section" with "section" in renumbered subdivision (a)(1)(C) and (L); added "and" to the end of renumbered subdivision (a)(1)(N); replaced the semicolon with a period at the end of renumbered subdivision (a)(1)(O); added new subdivision (a)(3) to define "electronic cash register"; moved the definition of "hardcopy" from subdivision (a)(4) to subdivision (a)(6) and renumbered subdivision (a)(3), (6), and (7) as subdivision (a)(4), (7), and (8), respectively; replaced "Machine-sensible" with "Electronic" at the beginnings subdivisions (a)(5), (b)(2) and (c)(1)(A) and the second sentence in subdivision (a)(5); inserted ", machine-sensible" before "format" in the first sentence in subdivision (a)(5); added a comma after "microfilm" and deleted "or" from before "microfiche" in the second sentence in subdivision (a)(5); added the text after "microfiche" in subdivision (a)(5); inserted "and" before "60604" in and deleted ", Revenue and Taxation Code" from the end of subdivision (b)(2); deleted an extra space after "c" in subdivision "(c)"; replaced "Machine-Sensible" with "Electronic" in subdivisions (c), (d), and (e); replaced "machine-sensible" with "electronic" in subdivisions (c)(1)(A), (1)(C), and (4)(C), (d)(1), (e)(1) and (2)(A)-(D), (j)(1)(A), (2)(C) and (D), and (3); replaced "board" with "Board" in subdivisions (c)(1)(B), (2)(A) and (B), (d)(2), (e)(1), (e)(2)(A), (C), and (D), (f)(1), (h)(2)(C), (j)(1), (1)(A)1 and 2, (1)(B) and (C), (j)(2), (2)(A) and (C), and (j)(3); added ":" after "as" in subdivision (c)(2)(A); numbered the examples provided in subdivision (c)(2)(A); added ", PDF files," after "microfiche" in subdivision (h)(1) and (2); added a new second paragraph to subdivision (i); deleted ".30" from the reference to section "41129.30" in the reference note; and added a reference to Revenue and Taxation Code section 55363.5 to the reference note.

Amended and effective March 15, 2023. Changes without regulatory effect to delete the references to Health and Safety Code sections 25174.1 and 25205.7 from subdivision (a)(1)(I), replace "Board" with "Department" in subdivisions (b)(1), (c)(1)(A) and (B), (2)(A) and (B), and (4)(A), (d)(2), (e)(1), (2)(A), (C), and (D), (f)(1), (h)(2)(C), (j)(1), (1)(A)1 and 2, (B) and (C), (2), (2)(A) and (C), and (3), replace "State Board of Equalization" with "Department" in subdivision (i), and add references to Government Code sections 15570.22, 15570.24, and 15570.40 to the authority note; filed March 15, 2023, pursuant to section 100, title 1, California Code of Regulations (Register 2023, No.12-Z ).

Regulation 4902. Relief from Liability.

Reference: Sections 7657.1, 8879, 30284, 32257, 40104, 41098, 43159, 45157, 46158, 50112.5, 55045, and 60210, Revenue and Taxation Code.

(a) General. A person may be relieved from the liability for the payment of tax, defined in section 4901(a)(7), imposed pursuant to applicable tax laws, defined in section 4901(a)(1), including any penalties and interest added to the tax, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the board to be due to reasonable reliance on:

(1) Written advice given by the board under the conditions set forth in subdivision (b) below, or

(2) Written advice in the form of an annotation or legal ruling of counsel under the conditions set forth in subdivision (d) below; or

(3) Written advice given by the board in a prior audit of that person under the conditions set forth in subdivision (c) below. As used in this regulation, the term "prior audit" means any audit conducted prior to the current examination where the issue in question was examined.

Written advice from the board may only be relied upon by the person to whom it was originally issued or a legal or statutory successor to that person. Written advice from the board which was received during a prior audit of the person under the conditions set forth in subdivision (c) below, may be relied upon by the person audited or a person with shared accounting and common ownership with the audited person or by a legal or statutory successor to those persons.

The term "written advice" includes advice that was incorrect at the time it was issued as well as advicethat was correct at the time it was issued, but, subsequent to issuance, was invalidated by a change in statutory or constitutional law, by a change in board regulations, or by a final decision of a court of competent jurisdiction. Prior written advice may not be relied upon subsequent to: (1) the effective date of a change in statutory or constitutional law and board regulations or the date of a final decision of a court of competent jurisdiction regardless that the board did not provide notice of such action; or (2) the person receiving a subsequent writing notifying the person that the advice was not valid at the time it was issued or was subsequently rendered invalid. As generally used in this regulation, the term "written advice" includes both written advice provided in a written communication under subdivision (b) below and written advice provided in a prior audit of the person under subdivision (c) below.

(b) Advice Provided in a Written Communication. Advice from the board provided to the person in a written communication must have been in response to a specific written inquiry from the person seeking relief from liability, or from his or her representative. To be considered a specific written inquiry for purposes of this regulation, representatives must identify the specific person for whom the advice is requested. Such inquiry must have set forth and fully described the facts and circumstances of the activity or transactions for which the advice was requested.

(c) Written Advice Provided in a Prior Audit. Presentation of the person's books and records for examination by an auditor shall be deemed to be a written request for the audit report by the audited person and any person with shared accounting and common ownership with the audited person. If a prior audit report of the person requesting relief contains written evidence which demonstrates that the issue in question was examined, either in a sample or census (actual) review, such evidence will be considered "written advice from the board" for purposes of this regulation. A census, (actual) review, as opposed to a sample review, involves examination of 100% of the person's transactions pertaining to the issue in question. For written advice contained in a prior audit of the person to apply to the person's activity or transaction in question, the facts and conditions relating to the activity or transaction must not have changed from those which occurred during the period of operation in the prior audit. Audit comments, schedules, and other writings prepared by the board that become part of the audit work papers which reflect that the activity or transaction in question was properly reported and no amount was due are sufficient for a finding for relief from liability, unless it can be shown that the person seeking relief knew such advice was erroneous.

For the purposes of this section a person is considered to have shared accounting and common ownership if the person:

(1) Is engaged in the same line of business as the audited person,

(2) Has common verifiable controlling ownership of 50% or greater ownership or has a common majority shareholder with the audited person, and

(3) Shares centralized accounting functions with the audited person. The audited person routinely follows the same business practices that are followed by each entity involved. Evidence that may indicate sharing of centralized accounting functions includes, but is not limited to, the following:

(A) Quantifiable control of the accounting practices of each business by the common ownership or management that dictates office policies for accounting and tax return preparation.

(B) Shared accounting staff or an outside firm who maintains books and records and prepares returns for tax and fee programs administered under the Revenue and Taxation Code sections referenced under this regulation.

These requirements must be established as existing during the periods for which relief is sought. A subsequent written notification stating that the advice was not valid at the time it was issued or was subsequently rendered invalid to any party with shared accounting and common ownership, including the audited party, serves as notification to all parties with shared accounting and ownership, including the audited party, that the prior written advice may not be relied upon as of the notification date.

(d) Annotations and Legal Rulings of Counsel. Advice from the board provided to the person in the form of an annotation or legal ruling of counsel shall constitute written advice only if:

(1) The underlying legal ruling of counsel involving the fact pattern at issue is addressed to the person or to his or her representative under the conditions set forth in subdivision (b) above.

(2) The annotation or legal ruling of counsel is provided to the person or his or her representative by the board within the body of a written communication and involves the same fact pattern as that presented in the subject annotation or legal ruling of counsel.

(e) Trade or Industry Associations. A trade or industry association requesting advice on behalf of its member(s) must identify and include the specific member name(s) for whom the advice is requested for relief from liability under this regulation.

History—Adopted February 5, 2003, effective May 28, 2003. The underscored citation indicates an electronic hyperlink to the cite.

Amended April 22, 2014, effective October 1, 2014. The amendments deleted "of that person" from between the words "audit" and "under" in the first sentence of subdivision (a)(3); added "or a person with shared accounting and common ownership with the audited person" between the words "audited" and "or" in and replaced "that person" with "those persons" at the end of the last sentence in the second paragraph in subdivision (a); added "by the audited person and any person with shared accounting and common ownership with the audited person" to the end of the first sentence in subdivision (c); and added the text following the end of the first paragraph in subdivision (c).

Regulation 4903. Innocent Spouse or Registered Domestic Partner Relief From Liability.

Authority cited: Section 11651 and 32451, Revenue and Taxation Code. Reference: 11408.5, 11551-11555, 32258 and 32401 and 32401-32407, Revenue and Taxation Code; Sections 297, 297.5, and 308, Family Code.

(a) In General.

(1) A spouse requesting innocent spouse relief from liability for any tax, fee, or surcharge, interest, penalties, and other amounts shall be relieved from such liability where all the following requirements are met:

(A) A liability is incurred under the Alcoholic Beverage Tax Law, Private Railroad Car Tax Law;

(B) The liability is attributable to the non-requesting spouse;

(C) The spouse requesting relief establishes that he or she did not know of, and that a reasonably prudent person in the requesting spouse's circumstances would not have had reason to know of, the liability; and

(D) It would be inequitable to hold the requesting spouse liable for the liability, taking into account whether the requesting spouse significantly benefited directly or indirectly from the liability, and taking into account all other facts and circumstances.

(2) For purposes of this section, the word "tax" shall mean "tax, fee, or surcharge."

(b) Benefited. Whether a requesting spouse has benefited directly or indirectly from the liability will be determined by a review by the Board of all of the available evidence. Normal support payment is not a significant benefit for purposes of this determination. Normal support is measured relative to each family's standard of living. The requesting spouse will not be deemed to have benefited directly or indirectly from the liability solely as a result of normal support unless his or her lifestyle significantly improved during the periods of liability. Gifts received by the requesting spouse, or lavish or luxury purchases made by either spouse may be evidence that the requesting spouse benefited directly or indirectly from the liability. Evidence of direct or indirect benefit may consist of transfers of property, including transfers which may be received several years after the calendar quarter in which the liability occurred. For example, if a requesting spouse receives from the other spouse an inheritance of property or life insurance proceeds which are traceable to the liability, the requesting spouse will be considered to have benefited from that liability. Other factors considered may include desertion of the requesting spouse by the other spouse or that the spouses have become divorced or separated subsequent to the periods of liability.

(c) Attribution. The determination of the spouse to whom items of liability are attributable shall be made without regard to community property laws.

(1) A request for innocent spouse relief may be filed if, at the time relief is requested, the requesting spouse is no longer married to or is legally separated from the non-requesting spouse, or the requesting spouse is no longer a member of the same household as the non-requesting spouse.

(2) With respect to a liability incurred as a result of a failure to file a return or an omission of an item from the return, attribution to one spouse may be determined by whether a spouse rendered substantial services as a taxpayer, feepayer, or surcharge payer engaged in an activity or transaction that is subject to a tax administered under the laws specified in paragraph (1) of subdivision (a) and related to the liability. If neither spouse rendered substantial services as a taxpayer, feepayer, or surcharge payer, then the attribution of the liability shall be treated as community property. A liability incurred as a result of an erroneous deduction or credit shall be attributable to the spouse who caused that deduction or credit to be entered on the return.

(d) Written Request for Relief. To seek relief under subdivision (a), a requesting spouse must file a written request for innocent spouse relief setting forth the tax account number, the period for which relief is requested, and the specific grounds upon which the request for relief is based.

(e) Other Equitable Relief. A requesting spouse may also be relieved of liability for any unpaid tax or deficiency under the laws specified in paragraph (1) of subdivision (a) if, taking into account all the facts and circumstances, it is inequitable to hold the requesting spouse liable for such amount attributable to any item for which relief is not available under subdivisions (a) through (d). A spouse shall be considered for other equitable relief under this subdivision after the spouse files a written request for innocent spouse relief under subdivision (d).

(1) Factors that may be considered for the purpose of granting other equitable relief include, but are not limited to:

(A) The requesting spouse is separated (whether legally or not) or divorced from the non-requesting spouse.

(B) The requesting spouse would suffer economic hardship if relief is not granted.

(C) The requesting spouse, under duress from the non-requesting spouse, did not pay the liability. To substantiate "duress," the requesting spouse must provide objective evidence. "Objective evidence" can include, but is not limited to, such documents as police reports, restraining orders, or counseling reports.

(D) The requesting spouse did not know and had no reason to know about the items causing the understatement or that the tax would not be paid.

(E) The non-requesting spouse has a legal obligation under a divorce decree or agreement to pay the tax. (This obligation will not be considered a positive factor if the requesting spouse knew or had reason to know, at the time the divorce decree or agreement was entered into, that the non-requesting spouse would not pay the tax.)

(F) The tax for which the requesting spouse is requesting relief is attributable to the non-requesting spouse.

(2) Factors that may be considered for purposes of denying other equitable relief include, but are not limited to:

(A) The requesting spouse will not suffer economic hardship if relief is not granted.

(B) The requesting spouse knew or had reason to know about the items causing the understatement or that the tax would be unpaid at the time the requesting spouse signed the return.

(D) The requesting spouse has not made a good faith effort to comply with the Board's laws for the periods for which the requesting spouse is requesting relief or for subsequent periods of liability.

(E) The requesting spouse has a legal obligation under a divorce decree or agreement to pay the tax.

(F) The tax for which relief is being requested is attributable to the requesting spouse.

(f) Reconsideration. A requesting spouse who is denied innocent spouse relief and other equitable relief as to any liability included in his or her request for innocent spouse relief may request that the denials of such relief be reconsidered by the Board.

(g) Statute of Limitations. The provisions for innocent spouse relief and other equitable relief shall apply to all calendar months, quarters, or years for requests filed no later than one year after the Board's first contact with the spouse making the request.

Requests filed after one year from the Board's first contact with the spouse making the request shall not apply to any calendar month, quarter, or year that is

more than five years from the return due date for nonpayment on a return, or

more than five years from the finality date on the Board-issued determination or similar billing document or collection of a tax or fee,

whichever is later.

No calendar months, quarters, or years shall be eligible for relief under this regulation that have been closed by res judicata.

(h) Refunds. A refund of any amounts under this regulation shall be subject to the requirements as set forth in the refund provisions of the applicable tax, fee, and surcharge law, as specified in paragraph (1) of subdivision (a).

(i) This regulation shall apply retroactively to liabilities arising prior to January 1, 2008.

(j) The Board shall send notification by mail of the request for innocent spouse relief from liability and the basis for that request to the non-requesting spouse.

(k) Registered Domestic Partners. Pursuant to Family Code section 297.5, registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon spouses. Accordingly, for purposes of this regulation, domestic partners, as defined in Family Code section 297, have the same rights, protections, and benefits, and are subject to the same responsibilities, obligations, and duties as stated herein with respect to spouses.

History—Adopted March 23, 2010, effective June 17, 2010.

Adopted September 16, 2015, effective January 1, 2016. The amendments reformatted subdivision (a)(1) so that it starts after the title of subdivision (a); replaced "claiming" with "requesting innocent spouse" in subdivision (a)(1); replaced "nonclaiming" with "non-requesting" in subdivisions (a)(1)(B), (c)(1), and (i); replaced "claiming" with "requesting" in subdivisions (a)(1)(C) and (D), (b), (c)(1), and (d); changed "board" to "Board" in subdivisions (b) and (i); replaced "claim" with "request for innocent spouse relief" in subdivision (c)(1) and "request" in two places in subdivisions (e) and (i); replaced "these provisions" with "subdivision (a)," replaced "may submit" with "must file," and inserted "innocent spouse" in subdivision (d); added new subdivisions (e) and (f) and renumbered subdivisions (e), (f), and (g), as subdivisions (g), (h), and (i), respectively; added "for innocent spouse relief and other equitable relief," replaced "claims made" with "requests filed," changed "Board's" to "Board's," and replaced "claim" with "request" in the first sentence in renumbered subdivision (g); replaced "Claims made" with "Requests filed," replaced "claim" with "request," and changed "board-issued" to "Board-issued" in the second sentence in renumbered subdivision (g); replaced "these provisions" with "this regulation" in renumbered subdivision (h); deleted subdivision (h) and renumbered subdivisions (i) and (j) as subdivisions (j) and (k), respectively; and replaced "claim" with "request" in two places and inserted "innocent spouse" in renumbered subdivision (j).

Amendments filed March 19, 2018, as an emergency; effective and operative March 19, 2018. Amendments refiled September 17, 2018, as an emergency; effective and operative September 17, 2018. Amendments refiled December 17, 2018, as an emergency; effective and operative December 17, 2018. Certificate of Compliance transmitted to OAL on February 20, 2019, and filed March 19, 2019. The amendments filed March 19, 2018, deleted "Cigarette and Tobacco Products Tax Law, Diesel Fuel Tax Law, Emergency Telephone Users Surcharge Law, Energy Resources Surcharge Law, Fee Collection Procedures Law, Hazardous Substances Tax Law, Integrated Waste Management Fee Law, Motor Vehicle Fuel Tax Law, Oil Spill Response, Prevention, and Administration Fees Law, Private Railroad Car Tax Law, Timber Yield Tax Law, Underground Storage Tank Maintenance Fee Law, or Use Fuel Tax Law" from subdivision (a)(1)(A); deleted "8251, 9251, 11651, 30451," from before and "38701, 40171, 41128, 43501, 45851, 46601, 50152, 55301 and 60601," from after "32451," in the regulation's authority note; and deleted "7657.5, 8101-8131, 8880, 9151-9156, 11408.5, 11551-11555, 30285, 30361-30384," from before and "38454.5, 38601-38607, 40105, 40111-40117, 41099, 41100-41106, 43159.1, 43159.2, 43451-43456, 45158, 45651-45656, 46159, 46501-46507, 50112.6, 50139-50142.2, 55045.1, 55221-55226, 60210.5 and 60501-60512" from after "32258, 32401-32407," in the reference note. The amendments filed September 17, 2018, also added "or Private Railroad Car Tax Law" to subdivision (a)(1)(A), added "11651 and" before "32451" in the regulation's authority note, and added "11408.5, 11551-11555" before and "and" after "32258" in the regulation's reference note, to correct the amendments filed March 19, 2018.

Regulation 4905. Electronic Funds Transfer.

Reference: Sections 7659.9, 7659.92, 8760, 8762, 30190, 30192, 32260, 32262, 40067, 40069, 41060, 41062, 43170, 43172, 45160, 45162, 46160, 46162, 50112.7, 50112.9, 55050, 55052, 60250, and 60252, Revenue and Taxation Code.

(a) Definitions.

(1) "Electronic funds transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape, so as to order, instruct, or authorize a financial institution to debit or credit an account. Electronic funds transfers shall be accomplished by an automated clearinghouse debit, an automated clearinghouse credit, or by Federal Reserve Wire Transfer.

(2) "Automated clearinghouse" means any federal reserve bank, or an organization established in agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and which authorizes an electronic transfer of funds between these banks or bank accounts.

(3) "Automated clearinghouse debit" means a transaction in which the state, through its designated depository bank, originates an automated clearinghouse transaction debiting the person's bank account and crediting the state's bank account for the amount of tax or fee. Banking costs incurred for the automated clearinghouse debit transaction shall be paid by the state.

(4) "Automated clearinghouse credit" means an automated clearinghouse transaction in which the person through his or her own bank, originates an entry crediting the state's bank account and debiting his or her own bank account. Banking costs incurred for the automated clearinghouse credit transaction charged to the state shall be paid by the person originating the credit.

(5) "Federal Reserve Wire Transfer" means any transaction originated by a person and utilizing the national electronic payment system to transfer funds through the federal reserve banks, when that person debits his or her own bank account and credits the state's bank account. Electronic funds transfers pursuant to Revenue and Taxation Code sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050, and 60250 may be made by Federal Reserve Wire Transfer only if payment cannot, for good cause, be made according to subdivision (a)(1) of this regulation, and the use of Federal Reserve Wire Transfer is preapproved pursuant to subdivision (g) of this regulation. Banking costs incurred for the Federal Reserve Wire Transfer transaction charged to the person and to the state shall be paid by the person originating the transaction.

(b) Participation.

(1) Mandatory Participation. Persons with an estimated monthly tax or fee liability of twenty thousand dollars ($20,000) or more under the applicable part of the Revenue and Taxation Code, are required to remit amounts due by electronic funds transfer under procedures set forth in this regulation. To identify mandatory participants, the Board shall conduct a periodic review of all persons with licenses, permits, or other authorization under sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050, and 60250. The review is performed by calculating an average monthly tax or fee liability for a twelve-month period. Persons whose average monthly tax or fee liability equals or exceeds twenty thousand dollars will be required to remit payments by electronic funds transfer. If a person did not engage in a covered activity until after the beginning of the designated twelve-month review period, then the monthly tax or fee liability will be calculated based upon the number of months in which covered activities occurred (for example, in a calendar year review period, if the person obtains a permit or license and begins operations for which a tax or fee may be imposed in May, the total tax or fee liability would be divided by eight to determine the average monthly tax or fee liability since there are eight months remaining in the evaluation period). Persons registering to report and pay a tax or fee for the first time, except certain successors, will not be required to participate in the electronic funds transfer program until a review is conducted. A successor will be regarded as having an estimated tax or fee liability of twenty thousand dollars ($20,000) or more per month when the monthly tax or fee liability of the predecessor equaled or exceeded twenty thousand dollars per month or the predecessor was a mandatory participant in the electronic funds transfer program. If the successor purchases a portion of a business that is required to participate in the mandatory electronic funds transfer program (e.g. a multiple outlet business that only sells some, but not all of its locations), the average monthly tax or fee liability of the purchased business will be computed to determine if the successor meets the threshold to be identified as a mandatory participant in the electronic funds transfer program. After review, if a person drops below the threshold for mandatory participation, the Board shall provide notification, in writing, that the status has been changed from mandatory participation to voluntary participation in the electronic funds transfer program. If, at that time, a person wishes to discontinue making electronic funds transfer payments, a written request must be made to the Board. Payments must continue to be remitted by electronic funds transfer until the taxpayer or feepayer is notified by the Board, in writing, of an effective date of withdrawal from the program. Any person who fails to comply with the mandatory participation requirements under this section shall be liable for a penalty as provided under the applicable Revenue and Taxation Code sections 7659.9, 8760, 30190, 32260, 40067, 41060, 43170, 45160, 46160, 50112.7, 55050, and 60250.

(2) Voluntary Participation. Any person not meeting the criteria for mandatory participation set forth in subdivision (b)(1) of this regulation may participate in the program on a voluntary basis. A person must register with the Board prior to participation and must remain in the program for a minimum of one year. After that time, if a person wishes to discontinue making electronic funds transfer payments, a written request must be made to the Board. Payments must continue to be remitted by electronic funds transfer until notified by the Board, in writing, of an effective date of withdrawal from the program.

(c) Date of Payment. Payment is deemed complete on the date the electronic funds transfer is initiated, if the settlement to the state's demand account occurs on or before the banking day following the date the transfer is initiated. If the settlement to the state's demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs.

(d) Filing of Returns. In addition to a tax or fee payment made by electronic funds transfer, a return must be filed on or before the due date. Any person who fails to comply with this provision shall be subject to penalty charges as provided under Revenue and Taxation Code sections 7659.9(d), 8760(d), 30190(d), 32260(d), 40067(d), 41060(d), 43170(d), 45160(d), 46160(d), 50112.7(d), 55050(d), and 60250(d).

(e) Failure to Pay by Electronic Funds Transfer. Any person required to pay tax or fee by electronic funds transfer must continue to do so until the Board advises them otherwise in writing. Any person required to pay taxes or fees by electronic funds transfer, as set forth in subdivision (b)(1), who does not pay through electronic funds transfer but uses another means (e.g., pay by check), will be assessed a penalty as provided by Revenue and Taxation Code sections 7659.9(e), 8760(e), 30190(e), 32260(e), 40067(e), 41060(e), 43170(e), 45160(e), 46160(e), 50112.7(e), 55050(e), and 60250(e).

(f) Zero Amount Due. When no tax is due for a given period, a zero dollar transaction must be made by electronic funds transfer or the Board must receive written notification stating that no tax is due for that period.

(g) Emergencies. In emergency situations, a Federal Reserve Wire Transfer transaction may be used to transmit a payment. A Federal Reserve Wire Transfer is an electronic payment system used by federal reserve banks to transfer funds instantaneously. Generally, this method of payment is not approved for recurring transactions. Authorization must be received from the Board prior to making a payment by Federal Reserve Wire Transfer. The person who originates the transfer shall be responsible for any fees incurred in paying by a Federal Reserve Wire Transfer transaction.

History—Adopted March 22, 2005, effective July 7, 2005.