The Personal Income Tax Law provides for modified conformity to specified provisions of federal income tax law relating to the exclusion of the discharge of qualified principal residence indebtedness, as defined, from an individuals income if that debt is discharged after January 1, 2007, and before January 1, 2014, as provided. Existing law limits the amount excludable from gross income to $500,000 or to $250,000 if the taxpayer is a married individual filing a separate return. The federal Tax Increase Prevention Act of 2014 extended the operation of those provisions to debt that is discharged before January 1, 2015. The federal Protecting Americans from Tax Hikes Act of 2015 extended the operation of those provisions to debt that is discharged before January 1, 2017, and provides that its discharge provisions apply to specified written agreements entered into before January 1, 2017.

This bill would conform to that additional discharge provision relating to specified written agreements and the federal extensions, some of which would be applied retroactively, and would limit the amount excludable under this provision to $250,000 or to $125,000 if the taxpayer is a married individual filing a separate return. The bill would discharge indebtedness for related penalties and interest and would make legislative findings and declarations regarding the public purpose served by the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

The Personal Income Tax Law provides for modified conformity to specified provisions of federal income tax law relating to the exclusion of the discharge of qualified principal residence indebtedness, as defined, from an individuals income if that debt is discharged after January 1, 2007, and before January 1, 2014, as provided. Existing law limits the amount excludable from gross income to $500,000 or to $250,000 if the taxpayer is a married individual filing a separate return. The federal Tax Increase Prevention Act of 2014 extended the operation of those provisions to debt that is discharged before January 1, 2015. The federal Protecting Americans from Tax Hikes Act of 2015 extended the operation of those provisions to debt that is discharged before January 1, 2017, and provides that its discharge provisions apply to specified written agreements entered into before January 1, 2017.

This bill would conform to that additional discharge provision relating to specified written agreements and the federal extensions, some of which would be applied retroactively. retroactively, and would limit the amount excludable under this provision to $250,000 or to $125,000 if the taxpayer is a married individual filing a separate return. The bill would discharge indebtedness for related penalties and interest and would make legislative findings and declarations regarding the public purpose served by the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

The Personal Income Tax Law provides for modified conformity to specified provisions of federal income tax law relating to the exclusion of the discharge of qualified principal residence indebtedness, as defined, from an individuals income if that debt is discharged after January 1, 2007, and before January 1, 2014, as provided. The federal Tax Increase Prevention Act of 2014 extended the operation of those provisions to debt that is discharged before January 1, 2015. The federal Protecting Americans from Tax Hikes Act of 2015 extended the operation of those provisions to debt that is discharged before January 1, 2017, and provides that its discharge provisions apply to specified written agreements entered into before January 1, 2017.

This bill would conform to that additional discharge provision relating to specified written agreements and the federal extensions, some of which would be applied retroactively. The bill would discharge indebtedness for related penalties and interest and would make legislative findings and declarations regarding the public purpose served by the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

Date of Hearing: August 23, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 434

Author:(Galgiani) – As Amended Ver:July 17, 2017

Urgency: Yes State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill extends the tax relief for income generated from the discharge of qualified principal residence indebtedness (QPRI). Specifically, this bill:

1. Provides that the Internal Revenue Code (IRC) Section 108, relating to income from discharge of QPRI, applies to discharges of QPRI occurring on or after January 1, 2014, and before January 1, 2017, and to discharges of QPRI on or after January 1, 2017, if the discharge is pursuant to an arrangement entered into and evidenced in writing prior to January 1, 2017.
2. Limits the amount excluded from gross income for discharges of QPRI occurring between January 1, 2014 and January 1, 2017 to $250,000 ($125,000 for a married individual filing a separate return).
3. Provides that no penalties or interest are due to the discharge of QPRI for the 2014, 2015, or 2016 taxable year, regardless of whether or not a taxpayer reports the discharge during those years.

FISCAL EFFECT:

Annual General Fund (GF) revenue losses of $75 million in 2016-17, $60 million in 2017-18, and $3.1 million in 2018-19, respectively.

COMMENTS:

1. Purpose. According to the author, SB 434 will extend tax relief on the forgiveness of mortgage debt by conforming California law to federal law. Supporters of this bill believe that when debt is forgiven by a lender as part of an agreement with a borrower using the short sale process or a principal reduction, the borrowers should not be penalized on their state income taxes.
2. Background. Income from the cancellation of indebtedness is normally taxable because the individual's net worth has been increased as a result of the debt cancellation, just as any other income increases an individual's net worth. However, as part of the federal response to the housing crisis, federal lawmakers excluded from taxpayers’ gross income (which is used to calculate income taxes) any discharge-of-indebtedness income from a discharge of QPRI occurring on or after January 1, 2007. This exclusion has been repeatedly extended and now applies to any discharges occurring between January 1, 2007, and January 1, 2017.

California implemented a similar exclusion, but that exclusion expired in 2014. Before that expiration, California’s exclusion had some key differences. For one, the federal exclusion limits the eligible QPRI to $2 million (or $1 million in the case of married households filing a separate return). In contrast, California’s QPRI limit was $800,000 (or $400,000 in case of separately-filed returns). This bill would maintain that difference for the extended years when the state exclusion is available. Moreover, California limited the total dollar amount that could be excluded from gross income, whereas under federal law there was no such limit. These state limits were $350,000 in 2007 and 2008 and $500,000 in years 2009 through 2013. This bill would establish an exclusion amount of $250,000 (or $125,000 for separately-filed returns) for taxable years 2014 through 2016.

1. Related legislation. SB 907 (Galgiani), of the 2015-16 Legislative Session, was similar to this bill but was vetoed by Governor Brown, along with a number of other tax expenditure bills. That veto message stated:

“As I said last year, tax breaks are the same as new spending – they both cost the General Fund money. As such, they must be considered during budget deliberations so that all spending proposals are weighed against each other at the same time. This is even more important when the state's budget remains precariously balanced.”

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: July 10, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

SBPCA Bill Id:SB 434

Author:(Galgiani) – As Amended Ver:April 6, 2017

2/3 vote. Urgency. Fiscal committee.

SENATE VOTE: 40-0

SUBJECT: Personal income taxes: gross income exclusion: mortgage debt forgiveness

SUMMARY: Extends tax relief previously granted for income generated from the discharge of qualified principal residence indebtedness (QPRI). Specifically, this bill:

1. Provides that Internal Revenue Code (IRC) Section 108, relating to income from discharge of QPRI, as amended by the Tax Increase Prevention Act (TIPA) of 2014 and the Protecting Americans from Tax Hikes (PATH) Act of 2015, shall apply to discharges of QPRI occurring on or after January 1, 2014, and before January 1, 2017, and to discharges of QPRI on or after January 1, 2017, if the discharge is pursuant to an arrangement entered into and evidenced in writing prior to January 1, 2017.
2. Limits the amount excluded from gross income for discharges of QPRI occurring on or after January 1, 2014, and before January 1, 2017, to $250,000 ($125,000 for a married individual filing a separate return).
3. Provides that no penalties or interest shall be due with respect to the discharge of QPRI for the 2014, 2015, or 2016 taxable years, regardless of whether or not a taxpayer reported the discharge on his/her return during the 2014, 2015, or 2016 taxable years.
4. Makes findings and declarations stating that the retroactive application of this bill is necessary for the public purpose of conforming state law to federal law, thereby preventing undue hardship to taxpayers whose QPRI was discharged on or after January 1, 2014, and before January 1, 2017, as specified, and does not constitute a gift of public funds.
5. Takes immediate effect as an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution.

EXISTING FEDERAL LAW:

1. Includes in the gross income of a taxpayer any amount of debt that is discharged by the lender, except for any of the following:
   1. Debts discharged in bankruptcy;
   2. Some or all of the discharged debts of an insolvent taxpayer. A taxpayer is insolvent when the amount of the taxpayer's total debt exceeds the fair market value of the taxpayer's total assets;
   3. Certain farm debts and student loans; or,
   4. Debt discharged resulting from a non-recourse loan in foreclosure. A non-recourse loan is a loan for which the lender's only remedy in case of default is to repossess the property being financed or used as collateral. (IRC Section 108.)
2. Requires a taxpayer to reduce certain tax attributes, including basis in property, by the amount of the discharged indebtedness in cases where the indebtedness is excluded from the taxpayer's gross income. (IRC Section 108.)
3. Excludes from a taxpayer's gross income cancellation of indebtedness (COD) income that resulted from the discharge of QPRI occurring on or after January 1, 2007, and before January 1, 2017, and on or after January 1, 2017, if the discharge is pursuant to an arrangement entered into and evidenced in writing prior to January 1, 2017.
4. Defines "QPRI" as acquisition indebtedness within the meaning of IRC Section 163(h)(3)(B), which generally means indebtedness incurred in the acquisition, construction, or substantial improvement of the principal residence of the individual and secured by the residence. "QPRI" also includes refinancing of such debt to the extent that the amount of the refinancing does not exceed the amount of the indebtedness being refinanced.
5. Allows married taxpayers to exclude from gross income up to $2 million in QPRI (married persons filing separately may exclude up to $1 million of the amount of that indebtedness). For all taxpayers, the amount of discharge of indebtedness generally is equal to the difference between the adjusted issue price of the debt being cancelled and the amount used to satisfy the debt. For example, if a creditor forecloses on a home owned by a solvent taxpayer and sells it for $180,000 but the house was subject to a $200,000 mortgage debt, then the taxpayer would have $20,000 of income from the COD.
6. Specifies that if, immediately before the discharge, only a portion of a discharged indebtedness is QPRI, then the exclusion applies only to so much of the amount discharged as it exceeds the part of the debt that is not QPRI. For example, a taxpayer's principal residence is secured by an indebtedness of $1 million, of which only $800,000 is QPRI. If the residence is sold for $700,000 and $300,000 of debt is forgiven by the lender, then only $100,000 of the COD income may be excluded under IRC Section 108.

EXISTING STATE LAW:

1. Conforms to the federal income tax law relating to the exclusion of the discharged QPRI from the taxpayer's gross income, with the following modifications:
   1. Applies to the discharge of indebtedness occurring on or after January 1, 2007 and before January 1, 2014.
   2. The maximum amount of acquisition indebtedness that may qualify for the QPRI exclusion is limited to $800,000 ($400,000 for a married/Registered Domestic Partner (RDP) individual filing a separate return).
   3. For discharges occurring in 2007 or 2008, the total COD amount that may be excluded as QPRI from gross income is limited to $250,000 ($125,000 for a married/RDP individual filing a separate return).
   4. For discharges occurring on or after January 1, 2009, and before January 1, 2014, the total COD amount that may be excluded as QPRI from gross income is limited to $500,000 ($250,000 for a married/RDP individual filing a separate return).
2. Provides that no penalty or interest is due for the 2007, 2009, and 2013 taxable years for discharge of QPRI regardless of whether the discharge is reported on the return. Statutes enacting the QPRI exclusion for those specified taxable years took effect after the conclusion of the taxable year.

FISCAL EFFECT: The Franchise Tax Board estimates General Fund revenue losses of $75 million in fiscal year (FY) 2016-17, $60 million in FY 2017-18, and $3.1 million in FY 2018-19.

COMMENTS:

1. Author's Statement: The author has provided the following statement in support of this bill:

SB 434 would extend the tax relief on forgiveness of mortgage debt by conforming California law to the Federal Tax Increase Prevention Act of 2014 and the Protecting Americans from Tax Hikes Act PATH Act of 2015. After a loan modification or short sale of a home, a bank can cancel or forgive thousands of dollars of an individual's mortgage debt. Federal and State income tax laws generally define cancelled debt as a form of income. Without additional legislation to exclude cancelled debt, many Californians may be taxed on "phantom" income they never received. This bill would apply to the tax years: 2014, 2015, and 2016. It is unconscionable that the state would profit from a "windfall" in tax dollars, because people are losing their homes and for some – all of their savings. The Federal government has already extended this debt forgiveness on "phantom income." California needs to follow suit. This bill is urgently needed as taxpayers will have limited time to amend their tax filings to reflect the changes SB 434 is proposing.

1. Arguments in Support: The California Credit Union League states the following in support of this bill:

SB 434 would allow the state to exempt homeowners from paying state income taxes on the loan amount written down on their principal residence through a principal reduction or short-sale. The bill would limit the amount excludable to $250,000 or to $125,000 if the taxpayer is a married individual filing a separate return. Homeowners in these situations already find themselves in a terrible financial situation. Allowing this exemption on income the homeowners never realize, is sound public policy and will allow struggling homeowners to get back on their feet and continue generating economic activity.

1. Committee Staff Comments:
   1. Why is COD Taxable? Most individuals find the idea of taxing debt cancellation counterintuitive, but the practice reflects sound tax policy because it recognizes the fact that an individual's net worth has increased by the cancellation of debt. In Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955), the Court defined “income” as an accession to wealth, that is clearly realized, and over which the taxpayer has complete dominion. When debt is cancelled, money that would have been used to pay that loan is now free to be used on whatever the taxpayer wants. Therefore, because certain assets have been freed, the taxpayer has experienced an accession to wealth. Additionally, under the rule of symmetry, a loan is not considered income to the borrower nor is it a deduction to the lender. A borrower's increased wealth when the loan is obtained is also offset by the obligation to pay the same amount. If the debt is cancelled, the symmetry is destroyed. The borrower is in a much better position after the debt is cancelled. As noted by Debora A. Grier, Professor of Law at Cleveland State University, in her statement before the United State Senate Committee on Finance, without this tax rule "the borrower will have received permanently tax-free cash in the year of the original receipt," i.e., the year in which the borrower received the loan. Even understanding the economic and legal policy for taxing COD, most individuals still find the taxation of cancelled home mortgage debt odd and even unfair. Existing law, however, provides several exceptions to the general rule: for example, allowing a taxpayer to exclude COD income from his/her gross income if the debt is discharged in Title 11 bankruptcy, if he/she is insolvent immediately before the debt is cancelled, or if it is non-recourse debt, as specified.
   2. Non-Recourse Debt: Non-recourse debt is a loan that is secured by the pledge of collateral. If the borrower defaults, the lender can seize the collateral, but the recovery is limited to the collateral. In California, indebtedness incurred in purchasing a home is deemed to be non-recourse debt (Code of Civil Procedure Section 580b) and, thus, generally first mortgages are considered to be non-recourse debt. Property that is foreclosed upon is not considered COD as nonrecourse debt is satisfied by the surrender of the secured property regardless of the fair market value (FMV) at the time of surrender, even if the amount of the loan exceeds the FMV of the property.

However, when a lender agrees to decrease the amount of the original debt to reflect the current value of the property securing the debt, the cancellation of non-recourse debt without a transfer of the property, such as in foreclosure, creates COD income for the taxpayer. Consequently, this bill will once again provide relief to a solvent homeowner who benefited from a reduction of his/her outstanding debt in a "workout" situation with the lender where the homeowner retained the ownership of the home and the lender, instead of foreclosing on the home, reduced the outstanding debt to reflect the home's current value.

• 1. History of Mortgage Debt Forgiveness: "QPRI" is defined as acquisition indebtedness within the meaning of IRC Section 163(h)(3)(B), which generally is defined as indebtedness incurred in the acquisition, construction, or substantial improvement of the principal residence of the individual and secured by the residence. The federal Mortgage Forgiveness Debt Relief Act (MFDRA) of 2007 excluded from the gross income of a taxpayer any discharge of QPRI occurring on or after January 1, 2007 and before January 1, 2010, which was later extended for three more years by the Emergency Economic Stabilization Act of 2008. SB 1055 (Machado), Chapter 282, Statutes of 2008, provided modified state conformity to the MFDRA for the discharge of mortgage indebtedness in 2007 and 2008 tax years. SB 401 (Wolk), Chapter 14, Statutes of 2010, provided homeowners even greater assistance. SB 401 not only extended the mortgage debt forgiveness provision until January 1, 2013, but also increased the total COD amount that may be excluded as QPRI from gross income, from $250,000 ($125,000 in case of married/RDP individual filing a separate return) to $500,000 ($250,000 in case of married/RDP individual filing a separate return).

The federal American Taxpayer Relief Act of 2012 further extended the exclusion from gross income for COD generated from the discharge of QPRI, as provided for by the MFDRA, for one additional taxable year, beginning on or after January 1, 2013 and before January 1, 2014. AB 1393 (Perea), Chapter 152, Statutes of 2014, similarly extended California's modified conformity to the MFDRA for discharges of QPRI for one additional taxable year.

On December 19, 2014, the federal TIPA again extended, for one additional year, the exclusion from gross income for COD generated from the discharge of QPRI occurring on or after January 1, 2014 and before January 1, 2015. AB 99 (Perea), of the 2015-16 Legislative Session, would have similarly extended California's modified conformity to the MFDRA for discharges of QPRI for one additional taxable year. However, Governor Brown vetoed AB 99 using a veto message shared with several other bills, stating:

Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts. Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.

On December 18, 2015, the federal PATH Act again extended, for two additional taxable years, the exclusion from gross income for COD generated from the discharge of QPRI, and also applied the exclusion to discharges of QPRI on or after January 1, 2017, if the discharge is pursuant to an arrangement entered into and evidenced in writing prior to January 1, 2017. SB 907 (Galgiani), of the 2015-16 Legislative Session, would have extended California's modified conformity to the MFDRA for discharges of QPRI retroactively for the 2014 taxable year and into the 2015 and 2016 taxable years. However, Governor Brown vetoed the bill, once again using a veto message shared with several other bills, stating:

As I said last year, tax breaks are the same as new spending – they both cost the General Fund money. As such, they must be considered during budget deliberations so that all spending proposals are weighed against each other at the same time. This is even more important when the state's budget remains precariously balanced.

• 1. What Does This Bill Do? This bill extends, in modified conformity to federal law, mortgage debt relief by excluding from a taxpayer's gross income COD income that resulted from discharges of QPRI occurring on or after January 1, 2014, and before January 1, 2017, and discharges of QPRI on or after January 1, 2017, if the discharge is pursuant to an arrangement entered into and evidenced in writing prior to January 1, 2017. As such, modified conformity would be provided retroactively in California for the 2014 and 2015 taxable years [as would have been provided if AB 99 (Perea) and SB 907 (Galgiani) had not been vetoed by Governor Brown] and for the 2016 taxable year, but the total COD amount excludable from gross income would be reduced back to $250,000 ($125,000 in the case of a married/RDP individual filing a separate return), the amount originally excludable prior to the increase provided by SB 401 (Wolk).

Similar to prior state mortgage forgiveness debt relief bills, this bill also provides that no penalties or interest are to be imposed with respect to discharges of QPRI occurring in the 2014, 2015, or 2016 taxable years, regardless of whether the taxpayer reported the discharge on his or her state tax return for those respective years. Additionally, a taxpayer who included discharges of QPRI as income on his or her state tax return will have to file amended returns with a claim for refund for state taxes paid.

• 1. Is the Exclusion of COD from Gross Income Still Needed? Despite the economics of taxing COD, the rationale for excluding cancelled mortgage debt from gross income has focused on minimizing hardship for households in distress. Individuals who are in danger of losing their homes, due in part to the economic downturn, should not be forced to incur the additional hardship of paying taxes on COD. The exclusion of COD from gross income also reduces the burden on a borrower who may be attempting to write-down the loan with his or her lender or a short sale. On a macroeconomic level, economists have argued that excluding cancelled mortgage debt from gross income may help maintain consumer spending, which may help prevent a recession.

As noted earlier, one of the rationales for excluding mortgage forgiveness from income is to help taxpayers remain in their homes. In some instances, a lender may be able to reduce the loan amount to the home's current FMV and allow the taxpayer to retain ownership of the home. For example, a taxpayer may owe $250,000 of residential debt and after a modification the lender reduces the loan to $200,000 and forgives $50,000. Without an exclusion of the mortgage cancellation, the $50,000 would be subject to taxation. If the taxpayer is subject to a 25% tax rate, the tax liability would be $12,500. Assuming the reduction in loan was done because the taxpayer was facing financial difficulty, incurring a tax obligation on COD may prevent the taxpayer from successfully remaining in the home.^[1]

The recession and drop in housing values are the main factors that led to the original exclusion of COD from gross income. However, over the last few years, the unemployment rate has steadily declined and home values have substantially increased. According to the Employment Development Department, California's unemployment rate had fallen to 4.7% in May 2017, tying the record low that occurred in November to December 2000.^[2] Additionally, the number of seriously "underwater" homes nationwide went from a peak of 12.8 million in 2012^[3] to 5.5 million in the first quarter of 2017, with California experiencing one of the highest shares of equity rich property.^[4] In light of substantial improvements to the economy, the Committee may wish to consider whether the extension of tax relief provided by this bill is still warranted.

• 1. Technical Amendment: To clarify that excludable discharges of QPRI on or after January 1, 2017, pursuant to an arrangement entered into and evidenced in writing prior to January 1, 2017, would also be subject to the reduced exclusion limits provided by this bill, Committee staff recommends the following technical amendment:

On Page 4, Line 9, insert ", including the modification made by Section 17144.5(a)(2)," between "114-113)" and "apply".

REGISTERED SUPPORT / OPPOSITION:

Support

California Bankers Association

California Community Banking Network

California Credit Union League

California Mortgage Bankers Association

California Taxpayers Association

Opposition

None on file

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098

1. See, Congressional Research Service's report, Analysis of the Proposed Tax Exclusion for Cancelled Mortgage Debt Income, January 8, 2008, 2 -8. ↑

2. Employment Development Department, "California's Unemployment Rate Falls to 4.7% in May," News Release No.:17-24, June 16, 2017. ↑

3. RealtyTrac, Less Than One Percent of Seriously Underwater U.S. Properties Qualify for Principal Reduction Under New FHFA Program, May 4, 2016. ↑

4. RealtyTrac, Seriously Underwater Properties Down 1.2 Million From a Year Ago in Q1 2017, Equity Rich Properties Increase 1.4 Million, May 2, 2017. ↑

 THIRD READING  

Bill No: SB 434

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/19/17

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/25/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SUBJECT:

SOURCE: Author

DIGEST:

This bill extends conformity to federal law’s income exclusion for discharges of qualified principal residence indebtedness.

ANALYSIS:

Existing law:

1. Conformed to the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA) for debt discharged on or before January 1, 2014, and provided that no penalties or interest applied for discharge of qualified principal residence indebtedness (SB 1055, Machado, Chapter 282, Statutes of 2008; SB 401, Wolk, Chapter 14, Statutes of 2010; and AB 1393, Perea, Chapter 152, Statutes of 2014).
2. Contained slightly different limits for mortgage debt forgiveness than federal law:
   1. Taxpayers could only exclude up to $250,000 single/$500,000 joint of cancelled debt from income for state purposes, but can exclude cancelled income for federal purposes up to $1 million single/$2 million joint.
   2. Taxpayers could only exclude indebtedness on loans up to $400,000 single/$800,000 joint of qualified principal residence indebtedness, instead of $1 million/$2 million for federal. The taxpayer must first reduce any amount excluded for state tax purposes by any debt forgiven on loan amounts above $400,000/$800,000.

This bill:

1. Extends California’s modified conformity to MFDRA by excluding from income for state tax purposes any discharge of qualified principal residence indebtedness made between January 1, 2014, and January 1, 2017.
2. Limits the exclusion to $125,000 single/$250,000 joint of cancelled debt from income for state purposes. The taxpayer must first reduce any amount excluded for state tax purposes by any debt forgiven on loan amounts above $400,000/$800,000.
3. Provides that no penalties or interest shall be due with respect to the discharge of qualified income.
4. Makes legislative findings and declarations stating that its retroactive application does not constitute a gift of public funds.
5. Takes effect immediately as an urgency measure.

Background

When a lender cancels a borrower’s debt, federal and state law generally treat the amount of debt cancelled as income taxable to the borrower. Taxpayers do not include borrowed funds in income in the year he or she receives loan proceeds because of the obligation to repay the loan; the taxpayer is financially no better off because the loan must be repaid. When lenders reduce the repayable amount, the taxpayer realizes a gain in his or her financial situation because a portion of the loan proceeds that have already been received and not previously taxed need not be repaid. In U.S .v. Kirby Lumber Co., 284 US 1 (1931), the United States Supreme Court held that a company that had issued $12 million in bonds and later repurchased some of them at less than their face amount generated a taxable gain. Congress subsequently deemed cancelled debt as income, with exceptions for:

1. Debts discharged in bankruptcy,
2. When the taxpayer is insolvent, debt discharge is excluded up to the amount of the insolvency, but triggers specified basis adjustments,
3. Certain farm debts, and
4. Debt discharge resulting from a non-recourse loan in foreclosure.

Many Californians experienced rapid declines in the market values of their homes in recent years, so much so that the value was less than the amount of debt they incurred to buy it. Some homeowners have sufficient income, equity, and home value to refinance, but others cannot, and instead attempt to sell their home for less than they are obligated to repay their lender, which is known as a “short-sale.” Instead of a simple transaction between buyer and seller, a short sale requires a third party - the seller’s lender - to agree to cancel the borrower’s debt in an amount equal to the difference between the new sales price of the home and the original amount of the debt issued to the borrower to buy it, plus any additional debt secured by the property. For example, a lender must cancel $150,000 in debt for a borrower who purchased a home in 2005 for $400,000, but wants to short sell it this year for $250,000. While lenders can claim principal forgiven as a deductible business loss, the borrower faces a significant tax bill in addition to the loss of any equity in the home at the time of sale absent legislation. Additionally, any loan modification where the lender forgives principal as part of a loan modification, such as a deed-in-lieu of foreclosure or a foreclosure, usually results in taxable income for the borrower.

In 2007, Congress enacted MFDRA, which provides that taxpayers may exclude from income qualified principal residence indebtedness cancelled after January 1, 2007, but before January 1, 2010. Married taxpayers may exclude up to $2 million in qualified principal residence indebtedness, while married persons filing separately or single persons may exclude up to $1 million. Taxpayers may only exclude indebtedness incurred to purchase, construct, or improve the taxpayer’s principal residence, defined as the residence that the taxpayer owns and uses as his or her principal residence for at least two out of the last five years. The Emergency Economic Stabilization Act of 2008 extended the exclusion until January 1, 2013. In, 2013, Congress enacted the American Taxpayer Relief Act of 2012, which extended the exclusion for the 2013 taxable year. In 2014, Congress again extended mortgage debt forgiveness through the 2014 taxable year when it enacted the Tax Increase Prevention Act (TIPA). Most recently, Congress enacted the Protecting Americans from Tax Hikes (PATH) Act of 2015, which extended forgiveness for two years, applying to discharges made on or before December 31, 2016, and for discharges past that date so long as the discharge was made pursuant to a written agreement entered into before January 1, 2017.

California first conformed to MFDRA in 2008, and again in 2010, for debt discharged on or before December 31, 2012, and additionally provided that no penalties or interest applies for discharge of qualified principal residence indebtedness, regardless of whether the taxpayer reports the discharge on his or her income tax return. However, California applied slightly different limits than federal law:

1. Taxpayers may only exclude up to $250,000 single/$500,000 joint of cancelled debt from income.
2. Taxpayers may only exclude indebtedness on loans up to $400,000 single/$800,000 joint of qualified principal residence indebtedness. The taxpayer must first reduce any amount excluded for state tax purposes by any debt forgiven on loan amounts above $400,000/$800,000.

The Legislature extended mortgage debt relief for discharges of indebtedness made before January 1, 2014 (AB 1393, Perea, 2014), but remains out of conformity for mortgage debt forgiven since that time because the Governor vetoed AB 99 (Perea, 2015), and SB 907 (Galgiani, 2016). SB 434 conforms retroactively to discharges made from January 1, 2014, to January 1, 2017, but at the lower limits of $125,000 single/$250,000 joint.

Related/Prior Legislation

AB 99 (Perea, 2015) would have extended California’s income exclusion for mortgage debt forgiven in the 2014 year. Governor Brown vetoed the bill using the same veto message that he issued for several other bills, stating:

Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts. Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.

SB 907 (Galgiani, 2016) would have extended California’s income exclusion for mortgage debt forgiven in the 2014 and 2015 year. Governor Brown vetoed the bill using the same veto message that he issued for several other bills, stating

I am returning the following seven bills without my signature:

Assembly Bill 717

Assembly Bill 724

Assembly Bill 1561

Assembly Bill 2127

Assembly Bill 2728

Senate Bill 898

Senate Bill 907

Each of these bills creates a new tax break or expands an existing tax break. In total, these bills would reduce revenues by about $300 million through 2017-18.

As I said last year, tax breaks are the same as new spending -- they both cost the General Fund money. As such, they must be considered during budget deliberations so that all spending proposals are weighed against each other at the same time. This is even more important when the state's budget remains precariously balanced.

Therefore, I cannot sign these measures.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, “SB 434 results in General Fund revenue losses of $75 million in 2016-17, $60 million in 2017-18, and $3.1 million in 2018-19. FTB would incur minor administration expenses.”

SUPPORT: (Verified 5/25/17)

BOE Member George Runner

California Association of Realtors

California Bankers Association

California Credit Union League

California Mortgage Bankers Association

California Society of Enrolled Agents

California Taxpayers Association

Southwest California Legislative Council

Southwest Riverside County Association of Realtors

OPPOSITION: (Verified 5/25/17)

None received

ARGUMENTS IN SUPPORT: According to the author, “SB 434 would extend the tax relief on forgiveness of mortgage debt by conforming California law to the Federal Tax Increase Prevention Act of 2014 and the Protecting Americans from Tax Hikes Act PATH Act of 2015. After a loan modification or short sale of a home, a bank can cancel or forgive thousands of dollars of an individual's mortgage debt. Federal and State income tax laws generally define cancelled debt as a form of income. Without additional legislation to exclude cancelled debt, many Californians may be taxed on ‘phantom’ income they never received. This bill would apply to the tax years: 2014, 2015, and 2016.”

Prepared by:

5/27/17 16:00:26

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SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 434 (Galgiani) - Personal income taxes: gross income exclusion: mortgage debt forgiveness

This bill meets the criteria for referral to the Suspense File.

Bill Summary: SB 434 would extend the state exclusion of mortgage forgiveness debt relief to include taxable years 2014 through 2016.

Fiscal Impact: The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $75 million in 2016-17, $60 million in 2017-18, and $3.1 million in 2018-19. FTB would incur minor administration expenses.

Background: Debt that is forgiven or cancelled by a lender is generally treated as income on a tax return, and is thus taxable. Current law generally requires a taxpayer to include a cancellation of debt as taxable income in the year in which the “discharge of indebtedness” occurs, with specified exceptions. Existing federal law, the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA), initially excluded qualified principal residence indebtedness that is discharged from January 1, 2007 through December 31, 2009 from federal taxable income. The exclusion was subsequently extended, such that it is currently effective through the end of taxable year 2016. Married taxpayers filing jointly may exclude up to $2 million in qualified principal residence indebtedness that is forgiven by a lender, while married persons filing separate or single taxpayers may exclude up to $1 million. California law has provided a partial exclusion until January 1, 2014, with the following exceptions:

• Taxpayers may only exclude from their income up to $250,000 (single filers)/$500,000 (joint filers) of cancelled debt.
• Taxpayers may only exclude indebtedness on loans up to $400,000 (single filers)/$800,000 (joint filers). Taxpayers must first reduce any amount excluded for state tax purposes by any debt forgiven on loan amounts above these thresholds.

Proposed Law: This bill would conform state law to MFDRA for discharges of indebtedness made between January 1, 2014 and January 1, 2017, with certain modifications, including limiting the amount of discharged indebtedness that can be excluded to $125,000 (single)/$250,000 (joint). The bill disconnects any penalties or interest with respect to the discharge for the 2014, 2015 and 2016 taxable years.

Related Legislation:

• SB 907 (Galgiani, 2016) would have extended the state exclusion for mortgage debt forgiven in taxable years 2014 through 2016. The bill was vetoed by the Governor.
• AB 99 (Perea, 2015) would have extended the state exclusion for mortgage debt forgiven in taxable year 2014. The bill was vetoed by the Governor.

Staff Comments: This bill would provide income tax relief to distressed homeowners by allowing borrowers who have negotiated a cancellation of debt by a lender as a result of restructuring a mortgage loan or a short sale on a principal residence to exclude the amount of forgiven debt from income for state tax purposes. The exclusion applies to the forgiveness of debt incurred to purchase, construct or improve a principal residence, as defined.

The FTB’s estimate of revenue loss employs a “top-down” methodology that begins with the exclusion’s estimated revenue loss nationally (prepared by the Joint Committee on Taxation) and then applies “California factors” to determine the amount of the estimated loss that would occur in California. FTB’s estimate of the revenue losses resulting from this bill are lower than those from SB 907 because this bill lowers the amount of income that can be excluded from $250,000 (single)/$500,000 (joint) to $125,000 (single)/$250,000 joint.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Personal income taxes: gross income exclusion: mortgage debt forgiveness

Conforms state law to federal law relating to mortgage debt forgiveness with modifications.

Background

California law does not automatically conform to changes to federal tax law, except for specific retirement provisions. Instead, the Legislature must affirmatively conform to federal changes. Conformity legislation is introduced either as individual tax bills to conform to specific federal changes, like the Regulated Investment Company Modernization Act (AB 1423, Perea, 2011), or as one omnibus bill that provides that state law conforms to federal law as of a specified date, currently January 1, 2015 (AB 154, Ting, 2015).

When a lender cancels a borrower’s debt, federal and state law generally treat the amount of debt cancelled as income taxable to the borrower. Taxpayers do not include borrowed funds in income in the year he or she receives loan proceeds because of the obligation to repay the loan; the taxpayer is financially no better off because the loan must be repaid. When lenders reduce the repayable amount, the taxpayer realizes a gain in his or her financial situation because a portion of the loan proceeds that have already been received and not previously taxed need not be repaid. In U.S .v. Kirby Lumber Co., 284 US 1 (1931), the United States Supreme Court held that a company that had issued $12 million in bonds and later repurchased some of them at less than their face amount generated a taxable gain. Congress subsequently deemed cancelled debt as income, with exceptions for:

• Debts discharged in bankruptcy,
• When the taxpayer is insolvent, debt discharge is excluded up to the amount of the insolvency, but triggers specified basis adjustments,
• Certain farm debts, and
• Debt discharge resulting from a non-recourse loan in foreclosure.

Many Californians experienced rapid declines in the market values of their homes in recent years, so much so that the value was less than the amount of debt they incurred to buy it. Some homeowners have sufficient income, equity, and home value to refinance, but others cannot, and instead attempt to sell their home for less than they are obligated to repay their lender, which is known as a “short-sale.” Instead of a simple transaction between buyer and seller, a short sale requires a third party - the seller’s lender - to agree to cancel the borrower’s debt in an amount equal to the difference between the new sales price of the home and the original amount of the debt issued to the borrower to buy it, plus any additional debt secured by the property. For example, a lender must cancel $150,000 in debt for a borrower who purchased a home in 2005 for $400,000, but wants to short sell it this year for $250,000. The lender must assess the current housing market, the borrower’s ability to repay the loan, and federal and state incentives when considering whether to accept this loss. While lenders can claim principal forgiven as a deductible business loss, the borrower faces a significant tax bill in addition to the loss of any equity in the home at the time of sale absent legislation. Additionally, any loan modification where the lender forgives principal as part of a loan modification, such as a deed-in-lieu of foreclosure or a foreclosure, can result in taxable income for the borrower.

In 2007, Congress enacted the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA), which provides that taxpayers may exclude from income qualified principal residence indebtedness cancelled after January 1, 2007 but before January 1, 2010. Married taxpayers may exclude up to $2 million in qualified principal residence indebtedness, while married persons filing separately or single persons may exclude up to $1 million. Taxpayers may only exclude indebtedness incurred to purchase, construct, or improve the taxpayer’s principal residence, defined as the residence that the taxpayer owns and uses as his or her principal residence for at least two out of the last five years. The Emergency Economic Stabilization Act of 2008 extended the exclusion until January 1, 2013. On January 2, 2013, Congress enacted the American Taxpayer Relief Act of 2012, which extended the exclusion for the 2013 taxable year. In 2014, Congress again extended mortgage debt forgiveness through the 2014 taxable year when it enacted the Tax Increase Prevention Act (TIPA). Most recently, Congress enacted the Protecting Americans from Tax Hikes (PATH) Act of 2015, which extended forgiveness for two years, applying to discharges made on or before December 31, 2016 year, and for discharges past that date so long as the discharge was made pursuant to a written agreement entered into before January 1, 2017. Congress has not yet forgiven income derived from discharges of indebtedness made this year.

California first conformed to MFDRA in 2008, and again in 2010, for debt discharged on or before December 31, 2012, and additionally provided that no penalties or interest applies for discharge of qualified principal residence indebtedness, regardless of whether the taxpayer reports the discharge on his or her income tax return (SB 1055, Machado, 2008, and SB 401, Wolk, 2010). However, those bills applied slightly different limits than federal law:

• Taxpayers may only exclude up to $250,000 single/$500,000 joint of cancelled debt from income.
• Taxpayers may only exclude indebtedness on loans up to $400,000 single/$800,000 joint of qualified principal residence indebtedness. The taxpayer must first reduce any amount excluded for state tax purposes by any debt forgiven on loan amounts above $400,000/$800,000.

The Legislature extended mortgage debt relief for discharges of indebtedness made before January 1, 2014 (AB 1393, Perea, 2014), but remains out of conformity for mortgage debt forgiven since that date, because the Governor vetoed AB 99 (Perea, 2015), which would have applied to debts discharged during 2014, and SB 907 (Galgiani, 2016), which would’ve done so for debts discharged during 2014 and 2015 as well as those in 2016 if the discharge was made pursuant to a written agreement entered into before January 1, 2017. The author wants to conform state law to federal law to exclude income from mortgage debt forgiveness for state tax purposes.

Proposed Law

Senate Bill 434 conforms state law to MFDRA for discharges of indebtedness made between January 1, 2014 and January 1, 2017, with some modifications, including limiting the amount of discharged indebtedness that can be excluded to $125,000 (single)/$250,000 (joint). The bill disconnects any penalties or interest with respect to the discharge for the 2014, 2015 and 2016 taxable years. The measure also contains specific legislative findings and declarations justifying its retroactive application, and contains an urgency clause.

State Revenue Impact

According to the Franchise Tax Board (FTB), SB 434 results in revenue losses of $85 million in 2016-17, $65 million in 2017-18, and $5 million in 2018-19.

Comments

1. Purpose of the bill. According to the author, “SB 434 would extend the tax relief on forgiveness of mortgage debt by conforming California law to the Federal Tax Increase Prevention Act of 2014 and the Protecting Americans from Tax Hikes Act PATH Act of 2015. After a loan modification or short sale of a home, a bank can cancel or forgive thousands of dollars of an individual's mortgage debt. Federal and State income tax laws generally define cancelled debt as a form of income. Without additional legislation to exclude cancelled debt, many Californians may be taxed on ‘phantom’ income they never received. This bill would apply to the tax years: 2014, 2015, and 2016.”

2. Debt and equity. Federal and state tax law consistently prefers debt over equity: taxpayers can deduct mortgage interest from income and interest payments on debt incurred for a business, but cannot deduct any returns to equity or saved cash. Taxpayers will more often incur debt instead of using equity because taxpayers can use interest expense deductions to reduce other income subject to tax. Tax incentives for individuals and firms to incur debt may not directly cause social and economic problems, but they have surely contributed to the almost $15.3 trillion in U.S. household debt, and $12.8 trillion in non-financial business debt. SB 907 furthers this preference. The measure cancels for state purposes income received by individuals who incurred debt to purchase a home but sell it for a lesser amount, while taxpayers who did the same with homes purchased with cash cannot deduct any losses. Is this treatment fair for taxpayers who pay for homes by saving money instead of borrowing it, and if not, does this treatment create a moral hazard? Borrowers who face no tax consequence for default may be less responsible about incurring and paying debt. The Committee may wish to consider the potential risks of the tax code’s general existing preference for debt, which is furthered by SB 434.

3. How does this work? SB 434 doesn’t apply to all short sales or principal reductions, and doesn’t forgive all kinds of debt secured by a home. Additionally, SB 434 does not perfectly conform to federal law, so some taxpayers may not be able to exclude income for California purposes that they can for federal tax. Important considerations for taxpayers include:

• First, SB 434 only applies to recourse loans, not non-recourse ones, as discussed below.
• Second, like federal law, SB 434 only applies to the taxpayer’s principal place of residence, defined as the home that the taxpayer owns and uses as a principal residence for at least two out of the last five years. SB 434 does not forgive cancelled debt incurred on investment or business property, or second homes.
• Third, SB 434 only forgives debt incurred by the taxpayer to build, purchase, or substantially improve the home in conformity with federal law. If the taxpayer incurred debt secured by the home, but spent the proceeds on non-home improvement purposes, any debt cancelled by the lender will still result in taxable income for the borrower regardless of the bill.
• Fourth, federal law and SB 434 applies the “ordering rule” that differentiates indebtedness used to acquire and improve the house and indebtedness used for something else. For example, a taxpayer has an $800,000 loan, of which $200,000 is not qualified personal residence indebtedness (such as a home equity loan to send a child to college). The property is sold for $500,000. The $300,000 difference between the loan amount ($800,000), and the sales price ($500,000), must be reduced by the $200,000 in non-qualified personal residence indebtedness, meaning that $100,000 in cancelled debt is excluded for tax purposes, but $200,000 must be included as income. Both federal and state laws apply this rule.
• Lastly, California has never fully conformed to MFDRA, instead differing in two key respects. First, the maximum amount of cancelled debt that can be excluded from income is limited in California, but unlimited for federal income tax. SB 401 doubled these limits initially set by SB 1055, which AB 99 maintained; however, this bill resets those limits to the lower ones initially enacted by SB 1055. Second, the taxpayer cannot exclude cancelled debt on loans above $400,000 (single)/$800,000 (joint), but $1 million (single)/$2 million (joint) for federal tax. On loans above those amounts, the taxpayer reduces his or her cancelled debt exclusion by the amount of the loan that exceeds the threshold. For example, a taxpayer filing jointly with $200,000 in cancelled debt on a $900,000 loan, includes $100,000 in cancelled debt as income, and excludes $100,000 [$200,000 – ($900,000 - $800,000)].
  

4. Recourse/non-recourse. Mortgage debt relief only applies to recourse loans that result in income under Internal Revenue Code §61, not non-recourse ones where IRC §1001 determines the amount of gain during the sale of property. A loan is non-recourse when the lender can only repossess the asset that secures the loan to satisfy delinquent debt; a recourse loan allows a lender to petition a court for a personal deficiency judgment against a delinquent borrower, a public record that allows the lender to collect the delinquent amount from the borrower in a variety of ways. In California, all original loans to purchase homes in the state must be non-recourse, but the status often can change to recourse when the home is refinanced, or the borrower takes out a second mortgage or a home equity line of credit. In California, lenders will generally send form 1099-C regardless of the nature of the debt, so the taxpayer must determine whether he or she must include income for tax purposes. Additionally, due to recent changes to the Code of Civil Procedure, some debts formerly considered recourse may now be considered nonrecourse:

• In 2010, the Legislature prohibited a lender from obtaining a deficiency judgment for any first mortgage deficiency after a short sale of a residence (SB 931, Ducheny).
• In 2011, the Legislature extended that treatment for all residential mortgages, including second mortgages after a short sale (SB 458, Corbett).
• In 2012, the Legislature prohibited lenders from obtaining deficiency judgment in any event on any credit transaction which is used to refinance a purchase money loan, or subsequent refinances of a purchase money loan, except under specified circumstances, applying to transactions entered into on or after January 1, 2013 (SB 1069, Corbett).

As a result, tax practitioners now advise that original recourse debt refinanced with the same lender retains its nonrecourse character up to the amount of the original debt, but anything above that amount is recourse. Refinancing nonrecourse with a different lender before January 1, 2013 used to convert the debt to recourse; however, due to the above changes, the refinance loan now retains its nonrecourse character to the extent the unpaid principal balance was paid off. This change in treatment should reduce the amount of transactions which result in taxable mortgage debt forgiveness income; however, lenders don’t always cancel the debt at the time of the short sale, and therefore generate taxable income for the borrower, so taxpayers may not receive a 1099-C years until years after the short sale. Taxpayers who short sold before the Legislature’s changes to the Code of Civil Procedure may be required to include significant amounts of forgiven debt as taxable income in the year the 1099-C is received, as forgiveness doesn’t apply after January 1, 2014.

5. Veto. In 2015, Governor Brown vetoed AB 99 (Perea), which would have extended California’s income exclusion for mortgage debt forgiven in the 2014 year. Governor Brown vetoed the measure using the same veto message that he issued for several other bills, stating:

“Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts. Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.”

Governor Brown vetoed SB 907 last year, again using the same veto message issued for several other bills which either extended or authorized new tax expenditures. The Governor said:

To the Members of the California State Senate:

I am returning the following seven bills without my signature:

Assembly Bill 717

Assembly Bill 724

Assembly Bill 1561

Assembly Bill 2127

Assembly Bill 2728

Senate Bill 898

Senate Bill 907

Each of these bills creates a new tax break or expands an existing tax break. In total, these bills would reduce revenues by about $300 million through 2017-18.

As I said last year, tax breaks are the same as new spending – they both cost the General Fund money. As such, they must be considered during budget deliberations so that all spending proposals are weighed against each other at the same time. This is even more important when the state's budget remains precariously balanced.

Therefore, I cannot sign these measures.

Sincerely,

Edmund G. Brown Jr.

SB 434 differs from both AB 99 and SB 907 by lowering the amount of income that can be excluded from $250,000 (single)/$500,000 (joint) to $125,000 (single)/$250,000 joint. Additionally, SB 434 includes discharges made in the 2016 taxable year, in addition to the two previous years.

6. A fine mess. California’s lack of conformity with federal law for debt forgiven in the 2014 and 2015 taxable years has caused a significant degree of taxpayer hardship. While excluded for federal purposes, taxpayers with debt forgiveness income had to include the income in their returns filed before the due date, or pay 90% of approximate tax amount when filing an extension or face penalties. As a result, many taxpayers with cancellation of debt income resulting from mortgage forgiveness have ended up facing FTB collections actions. While SB 434 would address the income exclusion, it does so after affected taxpayers have filed 2014, 2015, and likely 2016 ones too. As such, taxpayers will have to file amended returns with a claim for refund for state taxes paid based on including debt forgiveness income which they never included for federal taxes should the Legislature enact this measure.

Support and Opposition

(4/14/17)

Support: BOE Member George Runner, California Association of Realtors; California Bankers Association, California Credit Union League; California Mortgage Bankers Association; California Society of Enrolled Agents; California Taxpayers Association; Southwest California Legislative Council; Southwest Riverside County Association of Realtors.

Opposition: Unknown.

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