19777. (a) If a taxpayer has been contacted by the Franchise Tax Board regarding an abusive tax avoidance transaction, and has a deficiency attributable to an abusive tax avoidance transaction, there shall be added to the tax an amount equal to 100 percent of the interest payable under Section 19101 for the period beginning on the last date prescribed by law for the payment of that tax, determined without regard to extensions, and ending on the date the notice of proposed assessment is mailed.
(b) For purposes of this section, “abusive tax avoidance transaction” means any of the following:
(1) A tax shelter as defined in Section 6662(d)(2)(C) of the Internal Revenue Code, relating to reduction not to apply to tax shelters. For purposes of this chapter, Section 6662(d)(2)(C) of the Internal Revenue Code is modified by substituting the phrase “income or franchise tax” for “Federal income tax.”
(2) A reportable transaction, as defined in Section 6707A(c)(1) of the Internal Revenue Code, relating to reportable transaction, with respect to which the requirements of Section 6664(d)(3)(A) of the Internal Revenue Code are not met.
(3) A listed transaction, as defined in Section 6707A(c)(2) of the Internal Revenue Code, relating to listed transaction.
(4) A gross misstatement, within the meaning of Section 6404(g)(2)(D) of the Internal Revenue Code.
(5) Any transaction to which Section 19774 applies.
(c) The penalty imposed by this section is in addition to any other penalty imposed under Part 10 (commencing with Section 17001), Part 11 (commencing with Section 23001), or this part.
(d) (1) If a taxpayer files an amended return reporting an abusive tax avoidance transaction, described in subdivision (b), after the taxpayer is contacted by the Franchise Tax Board regarding that abusive tax avoidance transaction but before a notice of proposed assessment is issued under Section 19033, then the amount of the penalty under this section shall be 50 percent of the interest payable under Section 19101 with respect to the amount of any additional tax reflected in the amended return attributable to that abusive tax avoidance transaction.
(2) If a notice of proposed assessment under Section 19033, with respect to an abusive tax avoidance transaction as described in subdivision (a), is issued after the amended return described in paragraph (1) is filed, the penalty imposed pursuant to subdivision (a) shall be applicable to the additional tax reflected in the notice of proposed assessment attributable to that abusive tax avoidance transaction in excess of the additional tax shown on the amended return.
(e) The amendments made to this section by Chapter 14 of the Statutes of 2011 shall apply to notices mailed on or after the effective date of that act and to amended returns filed more than 90 days after that effective date with respect to taxable years for which the statute of limitations for mailing a notice of proposed assessment has not expired as of that date.
(Amended by Stats. 2022, Ch. 28, Sec. 148. (SB 1380) Effective January 1, 2023.)