(a) In the case of an individual who files a return of tax imposed under Part 10 (commencing with Section 17001) for a taxable year on or before the due date for the return, including extensions, if the Franchise Tax Board does not provide a notice to the taxpayer specifically stating the taxpayer’s liability and the basis of the liability before the close of the notification period, the Franchise Tax Board shall suspend the imposition of any interest, penalty, addition to tax, or additional amount with respect to any failure relating to the return which is computed by reference to the period of time the failure continues to exist and which is properly allocable to the suspension period.
(b) For purposes of this section:
(1) Except as provided in subdivision (e), “notification period” means the 36-month period beginning on the later of either of the following:
(A) The date on which the return is filed.
(B) The due date of the return without regard to extensions.
(2) “Suspension period” means the period beginning on the day after the close of the notification period and ending on the date which is 15 days after the date on which notice described in subdivision (a) is provided by the Franchise Tax Board.
(3) If, after the return for a taxable year is filed, the taxpayer provides to the Franchise Tax Board one or more signed written documents showing that the taxpayer owes an additional amount of tax for the taxable year, paragraph (1) shall be applied by substituting the date the last of the documents was provided for the date on which the return was filed.
(c) This section shall be applied separately with respect to each item or adjustment.
(d) This section shall not apply to any of the following:
(1) Any penalty imposed by Section 19131.
(2) Any penalty imposed by Section 19132.
(3) Any interest, penalty, addition to tax, or additional amount involving fraud.
(4) Any interest, penalty, addition to tax, or additional amount with respect to any tax liability shown on the return.
(5) Any criminal penalty.
(6) Any interest, penalty, addition to tax, or additional amount with respect to any gross misstatement.
(7) Any interest, penalty, addition to tax, or additional amount relating to any reportable transaction with respect to which the requirements of Section 6664(d)(2)(A) of the Internal Revenue Code are not met, and any listed transaction, as defined in Section 6707A(c) of the Internal Revenue Code.
(8) Any interest, penalty, addition to tax, or additional amount relating to any abusive tax avoidance transaction, as defined in Section 19777, as amended by the act adding this paragraph.
(e) For taxpayers required by subdivision (a) of Section 18622 to report a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority the following rules shall apply:
(1) The notification period under subdivision (a) shall be either of the following:
(A) One year from the date the notice required by Section 18622 is filed with the Franchise Tax Board by the taxpayer or the Internal Revenue Service, if the taxpayer or the Internal Revenue Service reports that change or correction within six months after the final federal determination.
(B) Two years from the date when the notice required by Section 18622 is filed with the Franchise Tax Board by the taxpayer or the Internal Revenue Service, if after the six-month period required in Section 18622, a taxpayer or the Internal Revenue Service reports a change or correction.
(2) The suspension period under subdivision (a) shall mean the period beginning on the day after the close of the notification period under paragraph (1) and ending on the date which is 15 days after the date on which notice described in subdivision (a) is provided by the Franchise Tax Board.
(f) For notices sent after January 1, 2004, this section does not apply to taxpayers with taxable income greater than two hundred thousand dollars ($200,000) that have been contacted by the Franchise Tax Board regarding the use of a potentially abusive tax shelter as defined by Section 19777, as added by Chapter 656 of the Statutes of 2003 and amended by Section 331 of Chapter 183 of the Statutes of 2004.
(g) This section shall apply to taxable years ending after October 10, 1999.
(h) The amendments made to this section by Chapter 691 of the Statutes of 2005 shall apply to notices sent after January 1, 2005.
(i) (1) The amendments made to paragraph (1) of subdivision (b) by Chapter 14 of the Statutes of 2010 shall apply to notices provided after January 1, 2011.
(2) Paragraph (3) of subdivision (b), as added by Chapter 14 of the Statutes of 2010, shall apply to documents provided on or after January 1, 2011.
(3) Paragraph (8) of subdivision (d), as added by the act adding this paragraph, shall apply to notices provided, or amended returns filed, on or after January 1, 2012.
(Amended by Stats. 2011, Ch. 14, Sec. 4. (SB 86) Effective March 24, 2011. Note: This 2011 amendment added para. (8) of subd. (d) and para. (3) of subd. (i).)