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California Revenue And Taxation Code Section 18533

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(a) (1) Notwithstanding subdivision (a) and the first
sentence of subdivision (b) of Section 19006:
   (A) An individual who has made a joint return may elect to seek
relief under the procedures prescribed under subdivision (b), and
   (B) If the individual is eligible to elect the application of
subdivision (c), the individual may, in addition to any election
under subparagraph (A), elect to limit the individual's liability for
any deficiency with respect to the joint return in the manner
prescribed under subdivision (c).
   (2) Any determination under this section shall be made without
regard to community property laws.
   (b) (1) Under procedures prescribed by the Franchise Tax Board,
if--

     (A) A joint return has been made under this chapter for a
taxable year,
     (B) On that return there is an understatement of tax
attributable to erroneous items of one individual filing the joint
return,
     (C) The other individual filing the joint return establishes
that in signing the return he or she did not know of, and had no
reason to know of, that understatement,
     (D) Taking into account all facts and circumstances, it is
inequitable to hold the other individual liable for the deficiency in
tax for that taxable year attributable to that understatement, and
     (E) The other individual elects (in the form and manner as the
Franchise Tax Board may prescribe) the benefits of this subdivision
not later than the date that is two years after the date the
Franchise Tax Board has begun collection activities with respect to
the individual making the election,

then the other individual shall be relieved of liability for tax
(including interest, penalties, and other amounts) for that taxable
year to the extent that the liability is attributable to that
understatement.
   (2) If an individual who, but for subparagraph (C) of paragraph
(1), would be relieved of liability under paragraph (1), establishes
that in signing the return the individual did not know, and had no
reason to know, the extent of the understatement, then the individual
shall be relieved of liability for tax (including interest,
penalties, and other amounts) for that taxable year to the extent
that the liability is attributable to the portion of the
understatement of which that individual did not know and had no
reason to know.
   (3) For purposes of this subdivision, the term "understatement"
has the meaning given to that term by Section 6662(d)(2)(A) of the
Internal Revenue Code.
   (c) (1) Except as provided in this subdivision, if an individual
who has made a joint return for any taxable year elects the
application of this subdivision, the individual's liability for any
deficiency that is assessed with respect to the return may not exceed
the portion of the deficiency properly allocable to the individual
under subdivision (d).
   (2) Except as provided in clause (ii) of subparagraph (A) of
paragraph (3) or subparagraph (C) of paragraph (3), each individual
who elects the application of this subdivision shall have the burden
of proof with respect to establishing the portion of any deficiency
allocable to that individual.
   (3) (A) (i) An individual shall only be eligible to elect the
application of this subdivision if--
   (I) At the time the election is filed, that individual is no
longer married to, or is legally separated from, the individual with
whom that individual filed the joint return to which the election
relates, or
   (II) That individual was not a member of the same household as the
individual with whom the joint return was filed at any time during
the 12-month period ending on the date the election is filed.
   (ii) If the Franchise Tax Board demonstrates that assets were
transferred between individuals filing a joint return as part of a
fraudulent scheme by those individuals, an election under this
subdivision by either individual shall be invalid (and subdivision
(a) and the first sentence of subdivision (b) of Section 19006 shall
apply to the joint return).
   (B) An election under this subdivision for any taxable year shall
be made not later than two years after the date on which the
Franchise Tax Board has begun collection activities with respect to
the individual making the election.
   (C) If the Franchise Tax Board demonstrates that an individual
making an election under this subdivision had actual knowledge, at
the time the individual signed the return, of any item giving rise to
a deficiency (or portion thereof) that is not allocable to the
individual under subdivision (d), that election does not apply to
that deficiency (or portion). This subparagraph does not apply where
the individual with actual knowledge establishes that the individual
signed the return under duress.
   (4) (A) Notwithstanding any other provision of this subdivision,
the portion of the deficiency for which the individual electing the
application of this subdivision is liable (without regard to this
paragraph) shall be increased by the value of any disqualified asset
transferred to the individual.
   (B) For purposes of this paragraph--
   (i) The term "disqualified asset" means any property or right to
property transferred to an individual making the election under this
subdivision with respect to a joint return by the other individual
filing the joint return if the principal purpose of the transfer was
the avoidance of tax or payment of tax.
   (ii) (I) For purposes of clause (i), except as provided in
subclause (II), any transfer that is made after the date that is one
year before the date on which the first notice of proposed assessment
under Article 3 (commencing with Section 19031) of Chapter 4 is sent
shall be presumed to have as its principal purpose the avoidance of
tax or payment of tax.
   (II) Subclause (I) does not apply to any transfer pursuant to a
decree of divorce or separate maintenance or a written instrument
incident to that decree or to any transfer that an individual
establishes did not have as its principal purpose the avoidance of
tax or payment of tax.
   (d) For purposes of subdivision (c)--
   (1) The portion of any deficiency on a joint return allocated to
an individual shall be the amount that bears the same ratio to the
deficiency as the net amount of items taken into account in computing
the deficiency and allocable to the individual under paragraph (3)
bears to the net amount of all items taken into account in computing
the deficiency.
   (2) If a deficiency (or portion thereof) is attributable to--
   (A) The disallowance of a credit, or
   (B) Any tax (other than tax imposed by Section 17041 or 17062)
required to be included with the joint return, and the item is
allocated to one individual under paragraph (3), that deficiency (or
portion) shall be allocated to that individual. Any item so allocated
may not be taken into account under paragraph (1).
   (3) For purposes of this subdivision--
   (A) Except as provided in paragraphs (4) and (5), any item giving
rise to a deficiency on a joint return shall be allocated to
individuals filing the return in the same manner as it would have
been allocated if the individuals had filed separate returns for the
taxable year.
   (B) Under rules prescribed by the Franchise Tax Board, an item
otherwise allocable to an individual under subparagraph (A) shall be
allocated to the other individual filing the joint return to the
extent the item gave rise to a tax benefit on the joint return to the
other individual.
   (C) The Franchise Tax Board may provide for an allocation of any
item in a manner not prescribed by subparagraph (A) if the Franchise
Tax Board establishes that the allocation is appropriate due to fraud
of one or both individuals.
   (4) If an item of deduction or credit is disallowed in its
entirety solely because a separate return is filed, the disallowance
shall be disregarded and the item shall be computed as if a joint
return had been filed and then allocated between the spouses
appropriately.
   (5) If the liability of a child of a taxpayer is included on a
joint return, that liability shall be disregarded in computing the
separate liability of either spouse and that liability shall be
allocated appropriately between the spouses.
   (e) (1) In the case of an individual who elects to have
subdivision (b) or (c) apply--
   (A) (i) The determination of the Franchise Tax Board as to whether
the liability is to be revised as to one individual filing the joint
return shall be made not less than 30 days after notification of the
other individual filing the joint return.
   (ii) Any action taken under this section shall be treated as
though it were action on a protest taken under Section 19044 and
shall become final upon the expiration of 30 days from the date that
notice of the action is mailed to both individuals filing the joint
return, unless, within that 30-day period, the individual making the
election under subdivision (b) or (c) appeals the determination to
the board as provided in clause (iii) or the other individual filing
the joint return appeals the determination to the board as provided
in Section 19045.
   (iii) The individual making the election under subdivision (b) or
(c) may appeal the determination of the Franchise Tax Board of the
appropriate relief available to the individual under this section if
that appeal is filed during the 30-day period prescribed in clause
(ii) and the appeal shall be treated as an appeal to the board under
Section 19045.  Notwithstanding the preceding sentence, the
individual making the election under subdivision (b) or (c) may
appeal to the board at any time after the date that is six months
after the date the election is filed with the Franchise Tax Board and
before the close of the 30-day period prescribed in clause (ii).
   (B) Except as otherwise provided in Section 19081 or 19082, no
levy or proceeding in court shall be made, begun, or prosecuted
against the individual making an election under subdivision (b) or
(c) for collection of any assessment to which the election relates
until the expiration of the 30-day period described in clause (ii) of
subparagraph (A), or, if an appeal to the board has been filed under
clause (iii) or Section 19045, until the decision of the board has
become final.
   (2) The running of the period of limitations in Section 19371 on
the collection of the assessment to which the petition under
subparagraph (A) of paragraph (1) relates shall be suspended for the
period during which the Franchise Tax Board is prohibited by
subparagraph (B) of paragraph (1) from collecting by levy or a
proceeding in court and for 60 days thereafter.
   (3) (A) Except as provided in subparagraph (B), notwithstanding
any other law or rule of law (other than Section 19306 and Article 6
(commencing with Section 19441) of Chapter 6), a credit or refund
shall be allowed or made to the extent attributable to the
application of this section.
   (B) In the case of any election under subdivision (b) or (c), if a
decision of the board in any prior proceeding for the same taxable
year has become final, that decision shall be conclusive except with
respect to the qualification of the individual for relief that was
not an issue in that proceeding. The exception contained in the
preceding sentence does not apply if the board determines that the
individual participated meaningfully in the prior proceeding.
   (C) No credit or refund shall be allowed as a result of an
election under subdivision (c).
   (f) Under procedures prescribed by the Franchise Tax Board, if
taking into account all the facts and circumstances, it is
inequitable to hold the individual liable for any unpaid tax or any
deficiency (or any portion of either), and relief is not available to
the individual under subdivision (b) or (c), the Franchise Tax Board
may relieve the individual of that liability.
   (g) (1) The Franchise Tax Board may prescribe regulations
providing methods for allocation of items other than the methods
under paragraph (3) of subdivision (d).
   (2) It is the intent of the Legislature that, in construing this
section and any other sections that are specifically cross-referenced
in this section, any regulations that may be promulgated by the
Secretary of the Treasury under Section 6015 of the Internal Revenue
Code, as amended by Public Law 105-206, shall apply to the extent
that those regulations do not conflict with this section or with any
regulations that may be promulgated by the Franchise Tax Board.
   (h) (1) Except as provided in paragraph (2), the amendments made
by Section 5 of Chapter 931 of the Statutes of 1999 shall apply to
any liability for tax arising after October 10, 1999, and any
liability for tax arising on or before that date but remaining unpaid
as of that date.
   (2) The period specified under subparagraph (E) of paragraph (1)
of subdivision (b) or subparagraph (B) of paragraph (3) of
subdivision (c) does not expire before the date that is four years
after the date of the first collection activity after October 10,
1999.
   (i) An individual may not be granted relief under this section if
a court has revised the tax liability in a proceeding for dissolution
of the marriage in accordance with subdivision (b) of Section 19006.

   (j) Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to any
procedure or rule prescribed by the Franchise Tax Board pursuant to
this section.
   (k) This section shall become operative on January 1, 2009.

Last modified: January 12, 2009