HB771

SECTION 1. Chapter 231, Hawaii Revised Statutes, is amended by adding six new sections to be appropriately designated and to read as follows:

"§231- Limitation period. (a) General rule. The amount of taxes imposed by this title shall be assessed or levied within ten years after the annual or periodic return, as applicable, was filed, or within ten years of the due date prescribed for the filing of said return, whichever is later, and no proceeding in court for the collection of any such taxes shall be begun after the expiration of the period.

(b) Exceptions. In the case of a false or fraudulent return with intent to evade tax, or of a failure to file the annual or periodic return, as applicable, the tax may be assessed or levied at any time; however, in the case of a return claimed to be false or fraudulent with intent to evade tax, the determination as to the claim shall first be made by a judge of the circuit court as provided in section 235-111(c) which shall apply to the tax imposed under this title.

(c) Under no circumstances shall there be any other exceptions to the limitation period provided for in this section, other than those described in subsection (b).

§231- Taxpayer communications; disclosure. In addition to written opinions under section 231-19.5, the department shall make available to the public all:

(1) Private rulings and other advice provided to taxpayers; and

(2) Settlement agreements reached with taxpayers, under this title; provided that all trade secrets or other confidential, commercial, and financial information and identifying details shall have been redacted before release to the public.

§231- Tax disputes; disclosure of settlements. All disputes in tax cases under this title settled by the department of the attorney general with taxpayers shall be made available to the public; provided that all trade secrets or other confidential, commercial, and financial information and identifying details shall have been redacted before release to the public.

§231- Attorney general opinions. All opinions issued by the department of the attorney general in tax cases under this title shall be made available to the public; provided that all trade secrets or other confidential, commercial, and financial information and identifying details shall have been redacted before release to the public.

§231- Taxpayers; third-party communications. A taxpayer who is being audited by the department, or the taxpayer's representative, shall be provided at least twenty days' notice and the opportunity to participate in any interview or other similar communication between the department and third parties in connection with the audit of the taxpayer.

§231- Audits; mediation. (a) Within thirty days of receiving a notice of audit from the department, a taxpayer may request to enter into mediation with the department. The request shall be made in writing to the department, which shall grant the taxpayer's request.

(b) If the taxpayer and department are unable to reach a mediated agreement in good faith within sixty days, the mediation process shall cease, and the ordinary audit process shall commence."

SECTION 2. Section 232-7, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Each board shall hold public meetings at some central location in its taxation district, commencing not later than April 9 of each year and shall hear, as speedily as possible, all appeals presented for each year. The dates and times of the public meetings shall be posted on the website of the department at least fourteen days prior to the meeting.

Each board shall have the power and authority to decide all questions of fact and all questions of law, excepting questions involving the Constitution or laws of the United States, necessary to the determination of the objections raised by the taxpayer in the notice of appeal; provided that no board shall have power to determine or declare an assessment illegal or void. Without prejudice to the generality of the foregoing, each board shall have power to allow or disallow exemptions pursuant to law whether or not previously allowed or disallowed by the assessor and to increase or lower any assessment."

SECTION 3. Section 235-2.45, Hawaii Revised Statutes, is amended to read as follows:

"§235-2.45 Operation of certain Internal Revenue Code provisions; sections 641 to 7518. (a) Section 641 (with respect to imposition of tax) of the Internal Revenue Code shall be operative for the purposes of this chapter subject to the following:

(1) The deduction for exemptions shall be allowed as provided in section 235-54(b);

(2) The deduction for contributions and gifts in determining taxable income shall be limited to the amount allowed in the case of an individual, unless the contributions and gifts are to be used exclusively in the State; and

(3) The tax imposed by section 1(e) of the Internal Revenue Code as applied by section 641 of the Internal Revenue Code is hereby imposed by this chapter at the rate and amount as determined under section 235-51 on estates and trusts.

(b) Section 667 (with respect to treatment of amounts deemed distributed by trusts in preceding years) of the Internal Revenue Code shall be operative for the purposes of this chapter and the tax imposed therein is hereby imposed by this chapter at the rate determined under this chapter; except that the reference to tax-exempt interest to which section 103 of the Internal Revenue Code applies in section 667(a) of the Internal Revenue Code shall instead be a reference to tax-exempt interest to which section 235-7(b) applies.

(c) Section 685 (with respect to treatment of qualified funeral trusts) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that the tax imposed under this chapter shall be computed at the tax rates provided under section 235-51, and no deduction for the exemption amount provided in section 235-54(b) shall be allowed. The cost-of-living adjustment determined under section 1(f)(3) of the Internal Revenue Code shall be operative for the purpose of applying section 685(c)(3) under this chapter.

(d) Section 704 of the Internal Revenue Code (with respect to a partner's distributive share) shall be operative for the purposes of this chapter; except that section 704(b)(2) shall not apply to:

(1) Allocations of the high technology business investment tax credit allowed by section 235-110.9;

(2) Allocations of net operating loss pursuant to section 235-111.5;

(3) Allocations of the attractions and educational facilities tax credit allowed by section 235-110.46; or

(4) Allocations of low-income housing tax credits among partners under section 235-110.8.

(e) Section 1212 (with respect to capital loss carrybacks and carryforwards) of the Internal Revenue Code shall be operative for the purposes of this chapter; except that for the purposes of this chapter the capital loss carryback provisions of section 1212 shall not be operative and the capital loss carryforward allowed by section 1212(a) shall be limited to five years; except for a qualified high technology business as defined in section 235-7.3, which shall be limited to fifteen years.

(f) Subchapter S (sections 1361 to 1379) (with respect to tax treatment of S corporations and their shareholders) of chapter 1 of the Internal Revenue Code shall be operative for the purposes of this chapter as provided in part VII.

(g) Section 1400N (with respect to tax benefits for Gulf Opportunity Zone) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that sections 1400N(a) (with respect to tax-exempt bond financing); 1400N(b) (with respect to advance refundings of certain tax-exempt bonds); 1400N(d) (with respect to special allowance for certain property acquired on or after August 28, 2005); 1400N(e) (with respect to increase in expensing under section 179); 1400N(h) (with respect to increase in rehabilitation credit); 1400N(l) (with respect to credit to holders of Gulf tax credit bonds); 1400N(m) (with respect to application of new markets tax credit to investments in community development entities serving Gulf Opportunity Zone); 1400N(n) (with respect to treatment of representations regarding income eligibility for purposes of qualified residential rental project requirements) shall not be operative for the purposes of this chapter.

(h) Section 1400S (with respect to additional tax relief provisions) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that section 1400S(d) (with respect to the special rule for determining earned income) shall not be operative for the purposes of this chapter.

(i) Section 6015 (with respect to relief from joint and several liability on joint return) of the Internal Revenue Code is operative for the purposes of this chapter.

(j) Sections 6103(i)(3)(C) and 6103(i)(7) (with respect to disclosures of information to the United States Justice Department or appropriate federal or state law enforcement agency for purposes of investigating terrorist incidents, threats, or activities, and for analyzing intelligence concerning investigating terrorist incidents, threats, or activities) of the Internal Revenue Code shall be operative for the purposes of this chapter.

(k) Subchapter C (sections 6221 to 6233) (with respect to tax treatment of partnership items) of chapter 63 of the Internal Revenue Code shall be operative for the purposes of this chapter.

(l) Subchapter D (sections 6240 to 6255) (with respect to simplified audit procedures for electing large partnerships) of the Internal Revenue Code shall be operative for the purposes of this chapter, with due regard to chapter 232 relating to tax appeals.

(m) Section 6511(h) (with respect to running of periods of limitation suspended while taxpayer is unable to manage financial affairs due to disability) of the Internal Revenue Code shall be operative for the purposes of this chapter, with due regard to section 235-111 relating to the limitation period for assessment, levy, collection, or credit.

(n) Section 7430 (with respect to awarding of costs and certain fees) of the Internal Revenue Code shall be operative for the purposes of this chapter.

(o) Section 7491 (with respect to burden of proof) of the Internal Revenue Code shall be operative for the purposes of this chapter.

[~~(n)~~] (p) Section 7518 (with respect to capital construction fund for commercial fishers) of the Internal Revenue Code shall be operative for the purposes of this chapter. Qualified withdrawals for the acquisition, construction, or reconstruction of any qualified asset that is attributable to deposits made before the effective date of this section shall not reduce the basis of the asset when withdrawn. Qualified withdrawals shall be treated on a first-in-first-out basis."

SECTION 4. Section 237-40, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) General rule. The amount of excise taxes imposed by this chapter shall be assessed or levied within three years after the [~~annual~~] periodic return was filed, or within three years of the due date prescribed for the filing of said return, whichever is later, and no proceeding in court without assessment for the collection of any such taxes shall be begun after the expiration of the period.

(b) Exceptions. In the case of a false or fraudulent return with intent to evade tax, or of a failure to file the [~~annual~~] periodic return, the tax may be assessed or levied at any time; however, in the case of a return claimed to be false or fraudulent with intent to evade tax, the determination as to the claim shall first be made by a judge of the circuit court as provided in section 235-111(c) which shall apply to the tax imposed by this chapter."

SECTION 5. (a) No later than twenty days prior to the convening of the regular session of 2009, the state auditor shall submit a report to the legislature about the feasibility and effectiveness of establishing an appeals office:

(1) Within the department of taxation; and

(2) That reports directly to the director of taxation,

to settle cases between the department and taxpayers at an administrative level.

The department of taxation shall cooperate fully with all requests for assistance made by the state auditor in completing this report.

(b) If the state auditor determines that the establishment of such an appeals office would be feasible and effective, the department of taxation shall prepare legislation, to be submitted to the legislature no later than twenty days prior to the convening of the regular session of 2009, that establishes the appeals office.

SECTION 6. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on January 1, 2008; provided that section 4 shall take effect on July 1, 2007.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	771
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII