Substitute Senate Bill No. 1186

Public Act No. 99-48

An Act Adopting Certain Provisions of the IRS Restructuring and Reform Act of 1998 for Connecticut Tax Purposes.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 12-39aa of the general statutes is repealed and the following is substituted in lieu thereof:

(a) (1) If any return, claim, statement, or other document required to be filed with or any payment required to be made to the Department of Revenue Services within a prescribed period on or before a prescribed date under authority of any provision of the general statutes is, after such period or such date, delivered by United States mail to the Department of Revenue Services, the date of the United States postmark stamped on the cover in which such return, claim, statement, or other document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be, provided [(1)] the return, claim, statement, or other document, or payment, was deposited in the mail in the United States in an envelope or other appropriate wrapper, with sufficient postage prepaid properly addressed to the Department of Revenue Services and [(2)] the postmark was made by the United States Postal Service.

(2) If the postmark is illegible, omitted or purported to be erroneous, [a] the person who is required to file the return, claim, statement, or other document, or to make the payment, shall bear the burden of proving by competent evidence that such return, claim, statement, or other document or payment was deposited in the mail in the United States on or before the due date for filing, or payment.

(3) If the return, claim, statement or other document or payment, is sent by United States registered mail, it shall be deemed to have a postmark date [, if sent by United States registered mail,] that is the date of registration, and, if sent by United States certified mail, it shall be deemed to have a postmark date that is the date that the sender's receipt is postmarked by the postal employee. [, and, if, not sent by United States registered mail or United States certified mail, that is the date of deposit in the mail in the United States, if the sender establishes by competent evidence that the return, claim, statement or other document, or payment, was deposited in the mail in the United States on or before the due date for filing, or payment.]

(b) Unless it is otherwise determined by the commissioner to be inadequate for the needs of the state, (1) any reference in subsection (a) of this section to the United States mail shall be treated as including a reference to any delivery service designated by the Secretary of the Treasury of the United States pursuant to Section 7502 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, (2) any reference in subsection (a) of this section to a postmark made by the United States Postal Service shall be treated as including a reference to any date recorded or marked in the manner described in said Section 7502 of said Internal Revenue Code by a designated delivery service, and (3) any equivalent of registered or certified mail designated by the Secretary of the Treasury of the United States pursuant to said Section 7502 of said Internal Revenue Code shall be included within the meaning of registered or certified mail as used in subsection (a) of this section.

Sec. 2. (NEW) (a) In the case of any individual who files a claim for refund under any provision of title 12 of the general statutes, the running of the period specified for filing such a claim for refund shall be suspended during any period of such individual's life that such individual is financially disabled, provided the individual proves the existence of the financial disability as required and in the form and manner prescribed by the Commissioner of Revenue Services. For purposes of this section, an individual is "financially disabled" if such individual is unable to manage such individual's financial affairs by reason of a medically determinable physical or mental impairment of the individual which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months, except that an individual is not financially disabled during any period that such individual's spouse or any other person is authorized to act on behalf of such individual in financial matters.

(b) In any case under Title 11 of the United States Code, commencing on or after October 1, 1999, the running of any period of time specified in title 12 of the general statutes for the Commissioner of Revenue Services to make an assessment shall be suspended for the time period during which the commissioner is prohibited by reason of such case from making such assessment and for sixty days thereafter.

Sec. 3. Subsection (c) of section 12-702 of the general statutes is repealed and the following is substituted in lieu thereof:

(c) (1) Any husband and wife subject to tax under this chapter for any taxable year who file a return under the federal income tax for such taxable year as married individuals filing joint returns or any person who files a return for such taxable year as a surviving spouse, as defined in Section 2(a) of the Internal Revenue Code, shall be entitled to a single personal exemption of twenty-four thousand dollars in determining Connecticut taxable income for purposes of this chapter. Any husband and wife who elect to file a joint return under the federal income tax for any taxable year shall be required to file jointly with respect to such taxable year for purposes of this chapter, in which event their tax liability under this chapter shall be joint and several, except as otherwise provided in section 4 of this act, and any husband and wife who elect to file separately under the federal income tax for any taxable year shall be required to file separately with respect to such taxable year for purposes of this chapter, provided (A) if either the husband or wife is a resident and the other is a nonresident, separate taxes shall be determined on their separate Connecticut taxable incomes on separate forms as married individuals filing separately unless such husband and wife determine their federal taxable income jointly and both elect to determine their joint Connecticut taxable income as if both were residents, or (B) if any husband and wife, both of whom are nonresidents, elect to file a joint return under the federal income tax for any taxable year and only one of them has income derived from or connected with sources within this state during such taxable year, only the spouse with income derived from or connected with sources within this state shall be required to file a return in this state and, if only the spouse with income derived from or connected with this state files such a return in this state, a separate tax shall be determined on such spouse's separate Connecticut taxable income as a married individual filing separately unless such husband and wife both elect to determine their joint Connecticut taxable income as if both had income derived from or connected with sources within this state.

(2) In the case of any such taxpayer whose Connecticut adjusted gross income for the taxable year exceeds forty-eight thousand dollars, the exemption amount shall be reduced by one thousand dollars for each one thousand dollars, or fraction thereof, by which the taxpayer's Connecticut adjusted gross income for the taxable year exceeds the said amount. In no event shall the reduction exceed one hundred per cent of the exemption.

Sec. 4. (NEW) (a) Any individual who has made a joint return under chapter 229 of the general statutes may elect to seek relief under the provisions of subsection (b) of this section and if such individual is eligible to elect the application of subsection (c) of this section, such individual, may in addition to any election under subsection (b) of this section, elect to limit such individual's liability for any deficiency with respect to such joint return in the manner prescribed under subsection (c) of this section.

(b) (1) Under procedures prescribed by the commissioner, if (A) a joint return has been made for a taxable year and on such return there is an understatement of tax attributable to erroneous items of one individual filing the joint return; (B) the other individual filing the joint return establishes that in signing the return such other individual did not know, and had no reason to know, that there was such an understatement; (C) taking into account all the facts and circumstances, it is inequitable to hold such other individual liable for the deficiency in tax for such taxable year attributable to such understatement or portion of such understatement, as the case may be; and (D) such other individual elects the application of this subsection, in such form as the Commissioner of Revenue Services may prescribe, not later than the date which is two years after the date the commissioner has begun collection activities with respect to the individual making the election, such other individual shall be relieved of liability for tax, including interest, penalties and other amounts due for such taxable year to the extent such liability is attributable to such understatement.

(2) If the electing individual satisfies the conditions of subdivision (1) of this subsection except subparagraph (B) of said subdivision (1), and establishes that in signing the return such individual did not know, and had no reason to know, the extent of such understatement, such individual shall be relieved of liability for tax, including interest, penalties and other amounts due for such taxable year to the extent such liability is attributable to the portion of such understatement of which such individual did not know and had no reason to know.

(c) (1) If an individual who has made a joint return for any taxable year elects the application of this subsection, the individual's liability for any deficiency which is assessed with respect to the return shall not exceed the portion of such deficiency properly allocable to such individual under subsection (d) of this section.

(2) The electing individual shall have the burden of proof with respect to establishing the portion of any deficiency allocable to such individual.

(3) An individual shall be eligible to elect the application of this subsection if (A) at the time such election is filed, such individual is no longer married to, or is legally separated from, the individual with whom such individual filed the joint return to which the election relates, or (B) such individual was not a member of the same household as the individual with whom such joint return was filed at any time during the twelve-month period ending on the date such election is filed.

(4) If the commissioner demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme by such individuals, an election under this subsection by either individual shall be invalid.

(5) If the commissioner demonstrates that the individual electing under this subsection had actual knowledge, at the time such individual signed the return, of any item giving rise to a deficiency or portion thereof which is not allocable to such individual under subsection (d) of this section, the election shall not apply to such deficiency or portion thereof, unless the individual with actual knowledge establishes that the electing individual signed the return under duress.

(6) The portion of the deficiency for which the individual electing under this subsection is liable shall be increased by the value of any disqualified asset transferred to the individual. For purposes of this section, "disqualified asset" means any property or right to property transferred to an electing individual with respect to a joint return by the other individual filing such joint return if the principal purpose of the transfer was the avoidance of tax or payment of tax. Any transfer which is made after the date which is one year before the date on which a notice of proposed deficiency assessment is sent, other than any transfer pursuant to a decree of divorce or separate maintenance or a written instrument incident to such a decree or to any transfer which an individual establishes did not have as its principal purpose the avoidance of tax or payment of tax, shall be presumed to have as its principal purpose the avoidance of tax or payment of tax.

(7) An election under this subsection for any taxable year shall be made not later than two years after the date on which the commissioner has begun collection activities with respect to the individual making the election.

(d) (1) The portion of any deficiency on a joint return allocated to an individual electing under subsection (c) of this section shall be the amount which bears the same ratio to such deficiency as the net amount of items taken into account in computing the deficiency and allocable to the individual under this subdivision bears to the net amount of all items taken into account in computing the deficiency.

(2) If a deficiency or portion thereof is attributable to the disallowance of a credit, and such item is allocated to one individual under subdivision (3) of this subsection, such deficiency or portion thereof shall be allocated to such individual. Any such item shall not be taken into account under subdivision (1) of this subsection.

(3) Except as provided in subdivisions (4) and (5) of this subsection, any item giving rise to a deficiency on a joint return shall be allocated to individuals filing the return in the same manner as it would have been allocated if the individuals had filed separate returns for the taxable year. If the commissioner establishes that the allocation of any item is appropriate due to fraud of one or both individuals, the commissioner may provide for such allocation in a manner as prescribed in regulations adopted in accordance with chapter 54 of the general statutes.

(4) If an exemption under section 12-702 of the general statutes or a credit under section 12-703 of the general statutes would be disallowed in its entirety solely because a separate return is filed, such disallowance shall be disregarded and the item shall be computed as if a joint return had been filed and then allocated between the joint filers appropriately.

(5) If the liability of a child of a taxpayer is included on a joint return, such liability shall be disregarded in computing the separate liability of either joint filer and such liability shall be allocated appropriately between the joint filers.

(e) (1) The commissioner shall determine what relief, if any, is available to an electing individual under this section and shall mail notice of the proposed determination to such individual. Such notice shall set forth briefly the commissioner's findings of fact and the basis of the determination in each case decided in whole or in part adversely to such individual. Sixty days after the date on which it is mailed, a notice of proposed determination shall constitute a final determination except only for such amounts as to which such individual has filed a written protest with the commissioner in accordance with subdivision (2) of this subsection.

(2) On or before the sixtieth day after the mailing of the proposed determination, such individual may file with the commissioner a written protest against the proposed determination in which such individual sets forth the grounds on which the protest is based. If a protest is filed, the commissioner shall reconsider the proposed determination and, if such individual has so requested, may grant or deny such individual or such individual's authorized representative an oral hearing.

(3) The commissioner shall mail notice of the commissioner's determination to such individual, which notice shall set forth briefly the commissioner's findings of fact and the basis of decision in each case decided in whole or in part adversely to such individual.

(4) The action of the commissioner on such individual's protest shall be final upon the expiration of one month from the date on which the commissioner mails notice of the commissioner's action to such individual unless within such period such individual seeks judicial review of the commissioner's determination pursuant to section 12-730 of the general statutes.

(f) Under procedures prescribed by the commissioner, if taking into account all the facts and circumstances, it is inequitable to hold such individual liable for any unpaid tax or any deficiency, or any portion of either, and relief is not otherwise available to such individual under this section, the commissioner may relieve such individual of such liability.

(g) The commissioner shall adopt regulations, in accordance with chapter 54 of the general statutes, as are necessary to carry out the provisions of this section, including regulations providing the opportunity for an individual to have notice of, and an opportunity to participate in, any administrative proceeding with respect to an election made under this section by the other individual filing the joint return.

(h) The provisions of this section shall be applicable with respect to any liability arising after the effective date of this act and any liability arising on or before the effective date of this act, if such liability remains unpaid as of said date, provided the two-year period to make an election under this section  shall not expire before the date that is two years after the date of the first collection activity after the effective date of this act.

Sec. 5. (NEW) In making an assessment or in allowing a claim for refund, the commissioner may, in the commissioner's discretion, offset overpayments of a tax for a taxable period or periods against underpayments of the same tax for another taxable period or periods. If the commissioner exercises the commissioner's discretion under this section, the interest on such underpayments and overpayments shall be computed on the basis of one per cent per month or fraction thereof but only to the extent that, for the same period of time, interest is payable and otherwise allowable on equivalent underpayments and overpayments. If interest is not otherwise allowable on overpayments of the tax, interest shall be treated as allowable for purposes of this section on equivalent underpayments and overpayments. Nothing in this section shall be construed to require the payment of interest where overpayments of the tax exceed underpayments of the tax.

Sec. 6. Section 12-415 of the general statutes is repealed and the following is substituted in lieu thereof:

[(1)] (a) If the commissioner is not satisfied with the return or returns of the tax or the amount of tax required to be paid to the state by any person, [he] the commissioner may compute and assess the amount required to be paid upon the basis of the facts contained in the return or returns or upon the basis of any information [within his possession] which is in or that may come into [his] the commissioner's possession. Except in the case of fraud or intent to evade or in the case of new information that may come into [his] the commissioner's possession, the commissioner may not make more than one assessment for a tax period for which a return has been filed.

[(2)] (b) The amount of the assessment, exclusive of penalties, shall bear interest at the rate of one per cent per month or fraction thereof from the last day of the month succeeding the period for which the amount or any portion thereof should have been returned until the date of payment.

[(3) In making an assessment the commissioner may, in his discretion, offset overpayments for a period or periods, together with interest on the overpayments, against underpayments for another period or periods, together with interest on the underpayments. The interest on underpayments and overpayments shall be computed on the basis of one per cent per month or fraction thereof from the last day for the filing of the respective returns, but the allowance of interest on overpayments shall be limited to the provisions of this subsection and subsection (2) of section 12-416.]

[(4)] (c) When it appears that any part of the deficiency for which a deficiency assessment is made is due to negligence or intentional disregard of the provisions of this chapter or regulations promulgated thereunder, there shall be imposed a penalty equal to fifteen per cent of the amount of such deficiency assessment, or fifty dollars, whichever is greater.

[(5)] (d) When it appears that any part of the deficiency for which a deficiency assessment is made is due to fraud or intent to evade the provisions of this chapter or regulations promulgated thereunder, there shall be imposed a penalty equal to twenty-five per cent of the amount of such deficiency assessment. No taxpayer shall be subject to a penalty under both [subsections (4) and (5)] subsection (c) of this section and this subsection in relation to the same tax period.

[(6)] (e) The commissioner shall give to the retailer or person storing, accepting, consuming or otherwise using services or tangible personal property written notice of [his] the commissioner's assessment. The notice may be served personally or by mail. If by mail, it shall be addressed to the retailer or person storing, accepting, consuming or otherwise using services or tangible personal property at [his] the address as it appears in the records of the commissioner's office. In case of service by mail of any notice required by this chapter, the service is complete at the time of deposit in the United States post office or mail box.

[(7)] (f) Except in the case of fraud, intent to evade this chapter or authorized regulations, failure to make a return, or claim for additional amount pursuant to subsection (3) of section 12-418, every notice of a deficiency assessment shall be mailed within three years after the last day of the month following the period for which the amount is proposed to be assessed or within three years after the return is filed, whichever period expires later. The limitation specified in this subsection does not apply in case of a sales tax proposed to be assessed with respect to sales of services or property for the storage, acceptance, consumption or other use of which notice of a deficiency assessment has been or is given pursuant to subsection [(6)] (e) of this section, subsection [(4)] (c) of section 12-416, as amended by this act, subsection (2) of section 12-417 and this subsection. The limitation specified in this subsection does not apply in case of an amount of use tax proposed to be assessed with respect to storage, acceptance, consumption or other use of services or property for the sale of which notice of a deficiency assessment has been or is given pursuant to said subsections and this subsection.

[(8)] (g) If, before the expiration of the time prescribed in subsection [(7)] (f) of this section for the mailing of a notice of deficiency determination, the taxpayer has consented in writing to the mailing of the notice after such time, the notice may be mailed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

Sec. 7. Section 12-416 of the general statutes is repealed and the following is substituted in lieu thereof:

[(1)] (a) If any person fails to make a return, the commissioner shall make an estimate of the amount of the gross receipts of the person or, as the case may be, of the amount of the total sales price of services or tangible personal property sold or purchased by the person, the storage, acceptance, consumption or other use of which in this state is subject to the use tax. The estimate shall be made for the period or periods in respect to which the person failed to make a return and shall be based upon any information which is in or may come into the commissioner's possession. [or may come into his possession.] To the tax imposed upon the basis of such estimate, there shall be added an amount equal to fifteen per cent of such tax, or fifty dollars, whichever is greater. No person shall be subject to a penalty under both this section and section 12-419. Except in the case of new information that may come into [his] the commissioner's possession, the commissioner may not make more than one assessment for a tax period for which a tax return has not been filed.

[(2) In making an assessment the commissioner may, in his discretion, offset overpayments for a period or periods, together with interest on the overpayments, against underpayments for another period or periods, together with interest on the underpayments. The interest on underpayments and overpayments shall be computed on the basis of one per cent per month or fraction thereof, from the last day for the filing of the respective returns.]

[(3)] (b) The amount of the assessment shall bear interest at the rate of one per cent per month or fraction thereof from the last day of the month succeeding the period for which the amount or any portion thereof should have been returned until the date of payment.

[(4)] (c) Promptly after making [his] the assessment the commissioner shall give to the person written notice of the estimate, assessment and penalty, the notice to be served personally or by mail in the manner prescribed for service of notice of a deficiency assessment.

Sec. 8. Subsection (2) of section 12-408 of the general statutes is repealed and the following is substituted in lieu thereof:

(2) (A) Reimbursement for the tax hereby imposed shall be collected by the retailer from the consumer and such tax reimbursement, termed "tax" in this and the following subsections, shall be paid by the consumer to the retailer and each retailer shall collect from the consumer the full amount of the tax imposed by this chapter or an amount equal as nearly as possible or practicable to the average equivalent thereof. Such tax shall be a debt from the consumer to the retailer, when so added to the original sales price, and shall be recoverable at law in the same manner as other debts except as provided in section 12-432a. The amount of tax reimbursement, when so collected, shall be deemed to be a special fund in trust for the state of Connecticut.

(B) Whenever such tax, payable by the consumer (i) with respect to a charge account or credit sale occurring on or after July 1, 1984, is remitted by the retailer to the commissioner and such sale as an account receivable is determined to be worthless and is actually written off as uncollectible for federal income tax purposes, or (ii) to a retailer who computes taxable income, for purposes of taxation under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, on the cash basis method of accounting with respect to a sale occurring on or after July 1, 1989, is remitted by the retailer to the commissioner and such sale as an account receivable is determined to be worthless, the amount of such tax remitted may be credited against the tax due on the sales tax return filed by the retailer for the monthly or quarterly period, whichever is applicable, next following the period in which such amount is actually so written off, but in no event shall such credit be allowed later than three years following the date such tax is remitted, unless the credit relates to a period for which a waiver is given pursuant to subsection [(8)] (g) of section 12-415, as amended by this act. The commissioner shall, by regulations adopted in accordance with chapter 54, provide standards for proving any such claim for credit. If any account with respect to which such credit is allowed is thereafter collected by the retailer in whole or in part, the amount so collected shall be included in the sales tax return covering the period in which such collection occurs. The tax applicable in any such case shall be determined in accordance with the rate of sales tax in effect at the time of the original sale.

Sec. 9. Subsection (1) of section 12-425 of the general statutes is repealed and the following is substituted in lieu thereof:

(1) No refund shall be allowed unless a claim therefor is filed with the commissioner within three years from the last day of the month succeeding the period for which the overpayment was made, or, with respect to assessments made under sections 12-415, as amended by this act, and 12-416, as amended by this act, within six months after the assessments become final. No credit shall be allowed after the expiration of the period specified for filing claims for refund unless a claim for credit is filed with the commissioner within such period, or unless the credit relates to a period for which a waiver is given pursuant to subsection [(8)] (g) of section 12-415, as amended by this act.

Sec. 10. This act shall take effect from its passage, except that section 1 shall be applicable to returns, claims, statements or other documents required to be filed with, or payments required to be made to, the Department of Revenue Services on or after October 1, 1999, and sections 5 to 8, inclusive, shall take effect January 1, 2000.

Approved May 27, 1999

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