Chapter 74 Oregon Laws 1999

Session Law

AN ACT

SB 257

Relating to taxation; creating new provisions; and amending ORS 305.305, 314.380, 314.410 and 316.082.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 314.380 is amended to read:

314.380. (1) Every taxpayer shall, upon request of the Department of Revenue, furnish a copy of the return for the corresponding year, which the taxpayer has filed or may file with the Federal Government, showing the taxpayer's net income and how obtained and the several sources from which derived. Every taxpayer shall, upon request of the department, furnish a copy of any federal revenue agent's report or other audit report made upon any audit or adjustment of the taxpayer's federal income tax return or income tax return of another state.

(2)(a) If the amount of a taxpayer's [federal] taxable income, tax credit or other amount taken into account in determining the taxpayer's [federal] tax liability as reported on a federal income tax return or an income tax return of another state for any taxable year is changed or corrected by the United States Internal Revenue Service or other competent authority, resulting in a change in the taxpayer's taxable income that is subject to tax by this state or in the taxpayer's tax liability paid to or owing this state, the taxpayer shall report the change or correction to the department. The report shall either concede the accuracy of the determination or state wherein the taxpayer believes it to be erroneous.

(b) A [federal] change or correction that results in a reduction in Oregon tax liability shall be treated by the department as a claim for refund pursuant to ORS 314.415 and, notwithstanding the limitations of ORS 314.415, shall be deemed timely if [filed with] received by the department[, as required by paragraph (a) of this subsection,] within two years after the [federal] correction was made.

(3) Any taxpayer filing an amended federal income tax return or amended income tax return of another state reporting a change in the taxpayer's taxable income that is subject to tax by this state or in the taxpayer's tax liability paid to or owing this state shall also file an amended return with the department within 90 days thereafter.

(4) For purposes of this section, a change or correction of a taxpayer's [federal] taxable income is deemed to be made on the date of the [federal] audit report making the change or correction.

(5) The provisions of ORS 305.305 shall constitute the exclusive remedy of a person whose notice of deficiency or assessment is based upon a [federal] change or correction of the person's taxable income under this section.

SECTION 2. ORS 305.305 is amended to read:

305.305. (1) As used in this section, "[federal] appeal" means an appeal to the Internal Revenue Service or any federal court or an appeal to another state's taxing authority or any state court having jurisdiction over the other state's tax matters that are the subject of the appeal.

(2) If a deficiency is based wholly or in part upon an Internal Revenue Service revenue agent's report made upon any audit or adjustment of the person's federal income tax return or upon an audit report of another state's taxing authority, the following procedures shall apply:

(a) If the person has filed a timely [federal] appeal from the deficiency asserted by the service or other state taxing authority, the person may file proof of the appeal with the Department of Revenue. If proof of the appeal is received before the tax is assessed, the deficiency shall be assessed without penalty for failure to pay the tax at the time the tax became due.

(b) If the department assesses the deficiency before receipt of proof of the filing of a timely [federal] appeal, the person may file the proof with the department. If the proof is filed after the tax has been assessed with a penalty for failure to pay the tax at the time the tax became due, the penalty shall not be waived.

(3) Notwithstanding any other provision of law, filing of proof of a timely [federal] appeal under subsection (2) of this section shall extend the time for [appeal to] filing a complaint or petition with the tax court in accordance with this subsection. The person shall notify the department in writing within 30 days after the [federal] appeal is finally resolved. The department shall review the issues raised by the [federal] appeal and shall make a determination of the effect upon the person's state income or excise tax liabilities. The department shall then issue a refund, notice of denial of refund or notice of assessment, as appropriate, to the person. If the person disagrees with the department's action, the person may file a complaint or petition with the tax court within 60 days after the date of the department's action as provided under ORS 305.404 to 305.560. Notwithstanding ORS 314.835 or any other law relating to confidentiality, the department may notify the magistrate division of the tax court if proof of a timely [federal] appeal is filed with the department or if the department determines that [a federal] an appeal has been finally resolved.

(4) Except as provided in ORS 314.440 (2), when the department receives proof of a timely [federal] appeal, the department shall suspend action to collect the deficiency until the issues are resolved.

(5) Except as provided in ORS 314.415 (5), the provisions of this section shall constitute the exclusive remedy of a person whose notice of deficiency is based wholly or in part upon a federal revenue agent's report or the audit report of another state's taxing authority.

SECTION 3. ORS 314.410 is amended to read:

314.410. (1) At any time within three years after the return was filed, the Department of Revenue may give notice of deficiency as prescribed in ORS 305.265.

(2) If the department finds that gross income equal to 25 percent or more of the gross income reported has been omitted from the taxpayer's return, notice of the deficiency may be given at any time within five years after the return was filed.

(3)(a) The limitations to the giving of notice of a deficiency provided in this section shall not apply to a deficiency resulting from false or fraudulent returns, or in cases where no return has been filed.

(b) If the Commissioner of Internal Revenue or other authorized officer of the Federal Government or an authorized officer of another state's taxing authority makes a change or correction as described in ORS 314.380 (2)(a) and, as a result of the change or correction, an assessment of tax is permitted under any provision of the Internal Revenue Code or applicable law of the other state, then notice of a deficiency under any [state] Oregon law imposing tax upon or measured by income for the corresponding tax year may be mailed within two years after the department is notified by the taxpayer or the commissioner or other tax official of the [federal] correction, or within the applicable three-year or five-year period prescribed in subsections (1) and (2) of this section, respectively, whichever period expires the later.

(4) The tax deficiency must be assessed and notice of tax assessment mailed to the taxpayer or authorized representative, who is authorized in writing, within one year from the date of the notice of deficiency unless an extension of time is agreed upon as prescribed in subsection (6) of this section.

(5) Notwithstanding other provisions of this section, the period for the assessment of any deficiency attributable to any part of the gain realized upon the sale or exchange of the taxpayer's principal residence, as provided in the federal Internal Revenue Code as applicable to the Personal Income Tax Act of 1969, shall not expire prior to the expiration of three years from the date the department is notified by the taxpayer of:

(a) The cost of purchasing the new residence which the taxpayer claims results in nonrecognition of any part of such gain;

(b) The taxpayer's intention not to purchase a new residence; or

(c) A failure to purchase a new residence within the period prescribed in the federal Internal Revenue Code as applicable to the Personal Income Tax Act of 1969.

(6) If, prior to the expiration of any period of time prescribed in this section for giving of notice of deficiency or of assessment, the department and the taxpayer consent in writing to the notice of deficiency being mailed or deficiency being assessed after the expiration of such prescribed period, notice of such deficiency may be mailed or the deficiency assessed 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 agreed upon.

(7) In the case of a deficiency attributable to the application to the taxpayer of a net operating loss carryback, notice of such deficiency may be mailed at any time before the expiration of the period within which notice of a deficiency for the taxable year of the net operating loss which results in such carryback may be mailed.

(8) Notwithstanding the other provisions of this section, if any taxpayer agreed with the United States Commissioner of Internal Revenue or the taxing authority of another state for an extension, or renewals thereof, of the period for giving notices of deficiencies and assessing deficiencies in [federal] income tax for any year, the period for mailing notices of deficiencies of tax for such years and the period for filing a claim for refund under ORS 314.380 (2)(b) shall expire on the later of:

(a) The expiration of an applicable period described in subsections (1) to (7) of this section; or

(b) Six months after the date of the expiration of the agreed period for assessing a deficiency [for federal tax purposes].

(9) Notwithstanding other provisions of this section, the period for giving notice of any deficiency attributable to any estate, trust, partnership or S corporation-related item shown on the taxpayer's return shall not expire prior to the expiration of three years from the date of filing of the estate, trust, partnership or S corporation return to which the item on the taxpayer's return is related.

SECTION 4. The amendments to ORS 305.305, 314.380 and 314.410 by sections 1 to 3 of this 1999 Act apply to:

(1) Changes and corrections made by taxing authorities of other states on or after the effective date of this 1999 Act; and

(2) United States Internal Revenue Service audit reports received on or after the effective date of this 1999 Act.

SECTION 5. ORS 316.082 is amended to read:

316.082. (1) A resident individual shall be allowed a credit against the tax otherwise due under this chapter for the amount of any income tax imposed on the individual, or on an Oregon S corporation or Oregon partnership of which the individual is a member (to the extent of the individual's pro rata share [of the individual] of the S corporation or distributive share of the partnership), for the taxable year by another state of the United States or the District of Columbia on income derived from sources therein and that is also subject to tax under this chapter.

(2) The credit provided under this section shall not exceed the proportion of the tax otherwise due under this chapter that the amount of the adjusted gross income of the taxpayer derived from sources in the other taxing jurisdiction bears to the entire adjusted gross income of the taxpayer as modified by this chapter.

(3) The Department of Revenue shall provide by rule the procedure for obtaining credit provided by this section and the proof required. The requirement of proof may be waived partially, conditionally or absolutely, as provided under ORS 315.063.

(4) No credit allowed under this section or ORS 316.292 shall be applied in calculating tax due under this chapter if the tax upon which the credit is based has been claimed as a deduction, unless the tax is restored to income on the Oregon return.

(5) Credit shall not be allowed under this section for income taxes paid to a state which allows a nonresident a credit against the income taxes imposed by that state for taxes paid or payable to the state of residence. It is the purpose of this subsection to avoid duplicative taxation through use of a nonresident, rather than a resident, credit for taxes paid or payable to another state.

(6) For purposes of this section[,]:

(a) "Oregon partnership" means an entity that is treated as a partnership for Oregon excise and income tax purposes.

(b) "Oregon S corporation" means a corporation that has elected S corporation status for Oregon excise and income tax purposes.

(7) For purposes of this section:

(a) A direct tax imposed upon income of an Oregon S corporation is an income tax imposed on the Oregon S corporation.

(b) An excise tax that is measured by income of an Oregon S corporation is an income tax imposed on the Oregon S corporation.

(8) For purposes of subsection (7) of this section, an excise tax is "measured by income" only if the statute imposing the excise tax provides that the base for the excise tax:

(a) Includes:

(A) Revenue from sales;

(B) Revenue from services rendered; and

(b) Permits a deduction for the cost of goods sold and the cost of services rendered.

SECTION 6. The amendments to 316.082 by section 5 of this 1999 Act apply to tax years beginning on or after January 1, 1999.

Approved by the Governor April 20, 1999

Filed in the office of Secretary of State April 20, 1999

Effective date October 23, 1999

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