SECTIONS 17501-17510 - California Statutes

REVENUE AND TAXATION CODE

SECTION 17501-17510

17501. (a) Subchapter D of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to deferred compensation, shall apply, except
as otherwise provided.
(b) Notwithstanding the specified date contained in paragraph (1)
of subdivision (a) of Section 17024.5, Part I of Subchapter D of
Chapter 1 of Subtitle A of the Internal Revenue Code, relating to
pension, profitsharing, stock bonus plans, etc., and Part III of
Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code,
relating to rules relating to minimum funding standards and benefit
limitations, shall apply, except as otherwise provided, without
regard to taxable year to the same extent as applicable for federal
income tax purposes.
(c) The maximum amount of elective deferrals (as defined in
Section 402(g)(3)) for the taxable year that may be excluded from
gross income under Section 402(g) of the Internal Revenue Code, as
applicable for state purposes, shall not exceed the amount of
elective deferrals that may be excluded from gross income under
Section 402(g) of the Internal Revenue Code, as in effect on January
1, 2010, including additional elective deferrals under Section 414(v)
of the Internal Revenue Code, as in effect on January 1, 2010.
(d) (1) For taxable years beginning on or after January 1, 2002,
the basis of any person in the plan, account, or annuity shall be
increased by the amount of elective deferrals not excluded as a
result of the application of subdivision (c).
(2) Any basis described in paragraph (1) shall be recovered in the
manner specified in Section 17085.
(e) Notwithstanding the limitations provided in subdivision (c),
any income attributable to elective deferrals in taxable years
beginning on or after January 1, 2002, in conformance with Part I of
Subchapter D of Chapter 1 of Subtitle A of the Internal Revenue Code,
as applicable for federal and state purposes, shall not be
includable in the gross income of the individual for whose benefit
the plan or account was established until distributed pursuant to the
plan or by operation of law.

17501.5. The amendments made by Section 641 of the Economic Growth
and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) to the
following provisions of the Internal Revenue Code or other federal
law shall apply for purposes of this part, Part 10.2 (commencing with
Section 18401), and Part 11 (commencing with Section 23001), with
respect to distributions after December 31, 2001, except as otherwise
provided:
(a) Section 72, relating to annuities and certain proceeds of
endowment and life insurance contracts.
(b) Section 219, relating to retirement savings.
(c) Section 401, relating to qualified pension, profit-sharing,
and stock bonus plans.
(d) Section 402, relating to taxability of beneficiary of
employees' trust.
(e) Section 403, relating to taxation of employee annuities.
(f) Section 408, relating to individual retirement accounts.
(g) Section 415, relating to limitations on benefits and
contribution under qualified plans.
(h) Section 457, relating to deferred compensation plans of state
and local governments and tax-exempt organizations.
(i) Subsections (h)(3) and (h)(5) of Section 1122 of the Tax
Reform Act of 1986.

17501.7. The amendments made by Section 647 of the Economic Growth
and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) to the
following provisions of the Internal Revenue Code shall apply for
purposes of this part, Part 10.2 (commencing with Section 18401), and
Part 11 (commencing with Section 23001), with respect to
trustee-to-trustee transfers after December 31, 2001, except as
otherwise provided:
(a) Section 403, relating to taxation of employee annuities.
(b) Section 457, relating to deferred compensation plans of state
and local governments and tax-exempt organizations.

17502. (a) In addition to the application of Part II (commencing
with Section 421) of Subchapter D of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to certain stock options, paragraphs
(1), (2), and (3) of Section 421(a) of the Internal Revenue Code
shall also apply to any California qualified stock option that is
granted to an individual whose earned income from the corporation
granting the California qualified stock option for the taxable year
in which that option is exercised does not exceed forty thousand
dollars ($40,000). In the event that the option does not meet the
necessary qualifications, the option shall be treated as a
nonqualified stock option.
(b) For purposes of this section, "California qualified stock
option" means a stock option that is issued and exercised pursuant to
this section and that is designated by the corporation issuing the
option as a California qualified stock option at the time the option
is granted.
(c) (1) This section shall apply only to those stock options that
are issued on or after January 1, 1997, and before January 1, 2002,
by a corporation to its employee and are exercised by the employee,
while employed by the corporation that issued those stock options (or
within three months thereof, or within one year thereof if
permanently and totally disabled as defined in Section 22(e)(3) of
the Internal Revenue Code), during the taxable year with respect to
any class of shares, or combination thereof, issued by the
corporation, to the extent that the number of shares transferable by
the exercise of the options does not exceed a total of 1,000 and have
a combined fair market value of less than one hundred thousand
dollars ($100,000). The combined fair market value of any stock shall
be determined as of the time the option with respect to that stock
is granted.
(2) Paragraph (1) shall be applied by taking options into account
in the order in which they were granted.
(d) In the case of a California qualified stock option, no amount
shall be included in the gross income of the employee until the time
of the disposition of the option (or the stock acquired upon exercise
of the option).
No deduction shall be allowed under Section 162 of the Internal
Revenue Code to the employer on the grant or exercise of a California
qualified stock option.
(e) Subdivision (d) shall not apply to any stock option for which
an election has been made under Section 83(b) of the Internal Revenue
Code, relating to election to include in gross income in year of
transfer.

17504. (a) The provisions of Section 402 of the Internal Revenue
Code, relating to taxability of beneficiaries of employees' trusts,
shall be modified as follows:
(1) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
as otherwise provided.
(2) The basis of any person in an employees' trust shall include
the amount of any contributions made prior to January 1, 1987, which
were not allowed as a deduction under former Sections 17503 and 17513
(including predecessor Section 17524 repealed by Chapter 488 of the
Statutes of 1983) relating to special limitations for self-employed
individuals.
(b) (1) There is hereby imposed a tax on lump-sum distributions
computed in accordance with the provisions of Section 402(d) of the
Internal Revenue Code using the rates and brackets prescribed in
subdivision (a) of Section 17041 (without regard to Section 17045) in
lieu of the rates and brackets in Section 1(c) of the Internal
Revenue Code. The recipient of the lump-sum distribution shall be
liable for the tax imposed by this paragraph.
(2) For purposes of this part, the provisions of Section 1122(h)
of Public Law 99-514, as modified by Section 1011A(b) of Public Law
100-647, shall apply, except as modified by each of the following:
(A) The provisions of Section 1122(h)(3)(B) of Public Law 99-514
shall be modified to refer to Section 17041 rather than Section 1 of
the Internal Revenue Code of 1986.
(B) The provisions of Section 1122(h)(3)(B)(ii) of Public Law
99-514 shall be modified to provide a tax rate of 5.5 percent rather
than a tax rate of 20 percent.
(C) The provisions of Section 1122(h)(5) of Public Law 99-514
shall be modified to refer to Section 17041 rather than Section 1 of
the Internal Revenue Code of 1954.
(3) For purposes of this section, a taxpayer shall elect the same
special lump-sum distribution averaging method for purposes of this
part as that elected for federal purposes under Section 402(d)(4)(B)
of the Internal Revenue Code.
(4) The provisions of Section 1124(a) of Public Law 99-514, as
amended by Section 1011A(d) of Public Law 100-647, shall apply.
(5) The provisions of Section 1124(c) of Public Law 99-514, as
added by Section 1011A(d) of Public Law 100-647, shall apply.

17506. The provisions of Section 403 of the Internal Revenue Code,
relating to taxation of employee annuities, shall be modified to
provide that the basis of any person in an employee annuity shall
include the amount of any contributions made prior to January 1,
1987, which were not allowed as a deduction under former Sections
17503 and 17513 of the Revenue and Taxation Code (including
predecessor Section 17524 repealed by Chapter 488 of the Statutes of
1983) relating to special limitations for self-employed individuals.

17507. The provisions of Section 408 of the Internal Revenue Code,
relating to individual retirement accounts, shall be modified as
follows:
(a) The following provisions shall be incorporated into Section
408(e) of the Internal Revenue Code:
(1) In the case of a plan in existence in taxable year 1975 where
contributions were made pursuant to, and in conformance with, Section
408 or 409 of the Internal Revenue Code of 1954, as amended by the
Employee Retirement Income Security Act of 1974 (Public Law 93-406),
any net income attributable to the 1975 contribution shall not be
includable in the gross income, for taxable year 1977 or succeeding
taxable years, of the individual for whose benefit the plan was
established until distributed pursuant to the provisions of the plan
or by operation of law.
(2) In the case of a simplified employee pension, where
contributions are also made pursuant to, and in conformance with, the
provisions of Section 408(k) of the Internal Revenue Code of 1954,
the net income attributable to the nondeductible portion of those
contributions shall not be includable in the gross income of the
individual for whose benefit the plan was established for the taxable
year or for succeeding taxable years until distributed pursuant to
the provisions of the plan or by operation of law.
(3) Notwithstanding the limitations provided in former Section
17272 (as amended by Chapter 1461 of the Statutes of 1985) with
respect to the amount of deductible contributions and individuals
eligible for the deduction, any income attributable to contributions
made to a plan in existence in taxable years beginning on or after
January 1, 1982, in conformance with Sections 219, 220, 408, and 409
of the Internal Revenue Code of 1954, shall not be includable in the
gross income of the individual for whose benefit the plan was
established until distributed pursuant to the provisions of the plan
or by operation of law.
(b) The provisions of Section 408(d) of the Internal Revenue Code,
relating to the tax treatment of distributions, are modified as
follows:
(1) For taxable years beginning on or after January 1, 1982, and
before January 1, 1987, the basis of any person in the account or
annuity is the amount of contributions not allowed as a deduction
under former subdivision (a), (e), or (g) of Section 17272 (as
amended by Chapter 1461 of the Statutes of 1985) on account of the
purchase of the account or annuity.
(2) For purposes of paragraph (1), the rules for recovery of basis
shall be governed by Section 17085.
(c) A copy of the report, which is required to be filed with the
Secretary of the Treasury under Section 408(i) or 408(l) of the
Internal Revenue Code, shall be filed with the Franchise Tax Board at
the same time and in the same manner as specified in those sections.

17507.6. Section 408A of the Internal Revenue Code, relating to
Roth IRAs, is modified to additionally provide all of the following:
(a) Section 408A(c)(3) of the Internal Revenue Code is modified as
follows:
(1) By substituting the phrase "shall not exceed an amount equal
to the amount determined under paragraph (2)(A) for such taxable
year, reduced" in lieu of the phrase "shall be reduced" in Section
408A(c)(3)(A) of the Internal Revenue Code.
(2) By substituting the phrase "in the case of a joint return or a
married individual filing a separate return" in lieu of the phrase
"in the case of a joint return" in Section 408A(c)(3)(A)(ii) of the
Internal Revenue Code.
(3) By substituting the phrase "taxable year if, for the taxable
year of the distribution to which such contribution relates" in lieu
of the phrase "taxable year if" in Section 408A(c)(3)(B) of the
Internal Revenue Code.
(4) By substituting the phrase "adjusted gross income exceeds" in
lieu of the phrase "adjusted gross income for such taxable year
exceeds" in Section 408A(c)(3)(B)(i) of the Internal Revenue Code.
(5) By substituting the phrase "any amount included in gross
income under subsection (d)(3) shall not be taken into account" in
lieu of the phrase "any amount included in gross income under
subsection (d)(3) shall not be taken into account and the deduction
under Section 219 shall be taken into account" in Section 408A(c)(3)
(C)(i) of the Internal Revenue Code.
(b) (1) Section 408A(d)(1) of the Internal Revenue Code shall not
apply and in lieu thereof any qualified distribution from a Roth IRA
shall not be includable in gross income.
(2) Section 408A(d)(2)(B) of the Internal Revenue Code shall not
apply and in lieu thereof:
(A) A payment or distribution from a Roth IRA shall not be treated
as a qualified distribution under Section 408A(d)(2)(A) of the
Internal Revenue Code if the payment or distribution is made within
the five-taxable year period beginning with the first taxable year
for which the individual made a contribution to a Roth IRA (or the
individual's spouse made a contribution to a Roth IRA) established
for that individual.
(B) The term "qualified distribution" shall not include any
distribution of any contribution described in subdivision (g) and any
net income allocable to the contribution.
(c) (1) If a taxpayer has made an election for federal purposes
under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as
amended by Public Law 105-206, to not have Section 408A(d)(3)(A)(iii)
of the Internal Revenue Code, as amended by Public Law 105-206,
apply to any distributions during the 1998 taxable year, that
election shall be treated as an election to include in gross income
for purposes of this part all amounts required to be included in
gross income for the taxable year by reason of Section 408A(d)(3) of
the Internal Revenue Code. A separate election for state purposes may
not be made under paragraph (3) of subdivision (e) of Section
17024.5 and the federal election shall be binding for purposes of
this part.
(2) If a taxpayer fails to make an election for federal purposes
under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code, as
amended by Public Law 105-206, to not have Section 408A(d)(3)(A)(iii)
of the Internal Revenue Code, as amended by Public Law 105-206,
apply to any distributions during a taxable year, Section 408A(d)(3)
(A)(iii) of the Internal Revenue Code shall apply to those
distributions for state purposes, no election under Section 408A(d)
(3)(A)(iii) of the Internal Revenue Code, as amended by Public Law
105-206, shall be allowed for state purposes, and a separate election
for state purposes shall not be allowed under paragraph (3) of
subdivision (e) of Section 17024.5.
(d) In the case of a qualified rollover contribution to a Roth IRA
of a distribution to which Section 408A(d)(3)(A)(iii) of the
Internal Revenue Code, as amended by Public Law 105-206, applied, the
following rules shall apply:
(1) (A) The amount required to be included in gross income for
each of the first three taxable years in the four-year period under
Section 408A(d)(3)(A)(iii) of the Internal Revenue Code shall be
increased by the aggregate distributions from Roth IRAs for the
taxable year which are allocable under Section 408A(d)(4) of the
Internal Revenue Code to the portion of the qualified rollover
contribution required to be included in gross income under Section
408A(d)(3)(A)(i) of the Internal Revenue Code.
(B) The amount required to be included in gross income for any
taxable year under Section 408A(d)(3)(A)(iii) of the Internal Revenue
Code shall not exceed the aggregate amount required to be included
in gross income under Section 408A(d)(3)(A)(iii) of the Internal
Revenue Code for all taxable years in the four-year period (without
regard to subparagraph (A)) reduced by amounts included for all
preceding taxable years.
(2) (A) If the individual required to include amounts in gross
income under Section 408A(d)(3)(A)(iii) of the Internal Revenue Code
dies before all the amounts are included, all remaining amounts shall
be included in gross income for the taxable year which includes the
date of death.
(B) (i) If the spouse of the individual described in subparagraph
(A) acquires the individual's entire interest in any Roth IRA to
which the qualified rollover contribution is properly allocable and
makes an election for federal purposes under Section 408A(d)(3)(E) of
the Internal Revenue Code, as amended by Public Law 105-206, to
treat the remaining amounts described in subparagraph (A) as
includable in the spouse's gross income in the taxable years of the
spouse ending with or within the taxable years of the individual in
which the amounts would otherwise have been includable, subparagraph
(A) shall not apply for state purposes, a separate election for state
purposes shall not be allowed under paragraph (3) of subdivision (e)
of Section 17024.5, the federal election shall be binding for
purposes of this part and that election shall be treated as an
election to treat the remaining amounts described in subparagraph (A)
as includable in the spouse's gross income for state purposes in the
taxable years of the spouse ending with or within the taxable years
of the individual in which the amounts would otherwise have been
includable.
(ii) If the spouse of the individual described in subparagraph (A)
acquires the individual's entire interest in any Roth IRA to which
the qualified rollover contribution is properly allocable and fails
to make an election for federal purposes under Section 408A(d)(3)(E)
of the Internal Revenue Code, as amended by Public Law 105-206, or
revokes an election previously made for federal purposes under
Section 408A(d)(3)(E) of the Internal Revenue Code, as amended by
Public Law 105-206, to treat the remaining amounts described in
subparagraph (A) as includable in the spouse's gross income in the
taxable years of the spouse ending with or within the taxable years
of the individual in which the amounts would otherwise have been
includable, no election under this paragraph shall be allowed for
state purposes, subparagraph (A) shall apply for state purposes, and
a separate election for state purposes shall not be allowed under
paragraph (3) of subdivision (e) of Section 17024.5.
(e) (1) If any portion of a distribution from a Roth IRA is
properly allocable to a qualified rollover contribution described in
Section 408A(d)(3) of the Internal Revenue Code, and the distribution
is made within the five-taxable year period beginning with the
taxable year in which the contributions were made, then Section 72(t)
of the Internal Revenue Code shall be applied as if that portion
were includable in gross income.
(2) Paragraph (1) shall apply only to the extent of the amount of
the qualified rollover contribution includable in gross income under
Section 408A(d)(3)(A)(i) of the Internal Revenue Code.
(f) Section 408A(d)(3)(D) of the Internal Revenue Code shall not
apply.
(g) Section 408A(d)(4) of the Internal Revenue Code shall not
apply and in lieu thereof:
(1) (A) Section 408(d)(2) of the Internal Revenue Code shall be
applied separately with respect to Roth IRAs and other individual
retirement plans.
(B) For purposes of applying Section 408A of the Internal Revenue
Code, as amended by Public Law 105-206, this section and Section 72
of the Internal Revenue Code to any distribution from a Roth IRA, the
distribution shall be treated as made--
(i) From contributions to the extent that the amount of the
distribution, when added to all previous distributions from the Roth
IRA, does not exceed the aggregate contributions to the Roth IRA, and
(ii) From the contributions in the following order:
(I) Contributions other than qualified rollover contributions to
which Section 408A(d)(3) of the Internal Revenue Code, as amended by
Public Law 105-206, applies.
(II) Qualified rollover contributions to which Section 408A(d)(3)
of the Internal Revenue Code, as amended by Public Law 105-206,
applies on a first-in, first-out basis. Any distribution allocated to
a qualified rollover contribution under this clause shall be
allocated first to the portion of the contribution required to be
included in gross income.
(h) (1) Except as provided by the Secretary of the Treasury
(unless the Franchise Tax Board provides otherwise), if, on or before
the due date for any taxable year, a taxpayer transfers in a
trustee-to-trustee transfer any contribution to an individual
retirement plan made during the taxable year from that plan to any
other individual retirement plan, then, for purposes of this part,
the contribution shall be treated as having been made to the
transferee plan (and not the transferor plan).
(2) (A) Paragraph (1) shall not apply to the transfer of any
contribution unless the transfer is accompanied by any net income
allocable to that contribution.
(B) Paragraph (1) shall apply to the transfer of any contribution
only to the extent no deduction was allowed with respect to the
contribution to the transferor plan.
(i) For purposes of Section 408A(d) of the Internal Revenue Code,
the due date for any taxable year is the date prescribed by law
(including extensions of time) for filing the taxpayer's return for
that taxable year.
(j) For purposes of Section 408A of the Internal Revenue Code--
(1) A simplified employee pension or a simple retirement account
may not be designated as a Roth IRA, and
(2) Contributions to that pension or account shall not be taken
into account for purposes of Section 408A(c)(2)(B) of the Internal
Revenue Code.

17508. The provisions of Section 408(o) of the Internal Revenue
Code, relating to definitions and rules relating to nondeductible
contributions to individual retirement plans, shall be applicable and
the information required to be reported shall be reported on the
return filed pursuant to Chapter 2 (commencing with Section 18501) of
Part 10.2 at the time and in the manner as specified in that
section.

17509. Sections 413(b)(6) and 413(c)(5) of the Internal Revenue
Code, relating to liability for funding tax, do not apply.

17510. Section 7701(j) of the Internal Revenue Code, relating to
Federal Thrift Savings Funds, applies, except as otherwise provided.