HF 2429

as introduced - 91st Legislature (2019 - 2020) Posted on 03/13/2019 11:22am

A bill for an act
relating to taxation; enforcement; disallowing the tax effect of transactions without
economic substance; imposing a penalty; amending Minnesota Statutes 2018,
sections 16D.08, subdivision 2; 270C.03, subdivision 1; 270C.33, subdivision 6;
289A.60, by adding a subdivision; proposing coding for new law in Minnesota
Statutes, chapter 270C.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2018, section 16D.08, subdivision 2, is amended to read:

Subd. 2.

Powers.

(a) In addition to the collection remedies available to private collection
agencies in this state, the commissioner, with legal assistance from the attorney general,
may utilize any statutory authority granted to a referring agency for purposes of collecting
debt owed to that referring agency. The commissioner may also use the tax collection
remedies in sections 270C.03, subdivision 1, clause deleted text begin (8) deleted text end new text begin (9) new text end , 270C.31, 270C.32, 270C.52,
subdivisions 2 and 3, 270C.63, 270C.65, and 270C.67 to 270C.72. A debtor may take
advantage of any administrative or appeal rights contained in the listed sections. For
administrative and appeal rights for nontax debts, references to administrative appeals or
to the taxpayer rights advocate shall be construed to be references to the case reviewer,
references to Tax Court shall be construed to mean district court, and offers in compromise
shall be submitted to the referring agency. A debtor who qualifies for cancellation of
collection costs under section 16D.11, subdivision 3, clause (1), can apply to the
commissioner for reduction or release of a continuous wage levy, if the debtor establishes
that the debtor needs all or a portion of the wages being levied upon to pay for essential
living expenses, such as food, clothing, shelter, medical care, or expenses necessary for
maintaining employment. The commissioner's determination not to reduce or release a
continuous wage levy is appealable to district court. The word "tax" or "taxes" when used
in the tax collection statutes listed in this subdivision also means debts referred under this
chapter.

(b) Before using the tax collection remedies listed in this subdivision, notice and demand
for payment of the amount due must be given to the person liable for the payment or
collection of the debt at least 30 days prior to the use of the remedies. The notice must be
sent to the person's last known address and must include a brief statement that sets forth in
simple and nontechnical terms the amount and source of the debt, the nature of the available
collection remedies, and remedies available to the debtor.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 2.

Minnesota Statutes 2018, section 270C.03, subdivision 1, is amended to read:

Subdivision 1.

Powers and duties.

The commissioner shall have and exercise the
following powers and duties:

(1) administer and enforce the assessment and collection of taxes;

(2) make determinations, corrections, and assessments with respect to taxes, including
interest, additions to taxes, and assessable penalties;

new text begin (3) disallow the tax effects of a transaction that does not have economic substance;
new text end

deleted text begin (3) deleted text end new text begin (4) new text end use statistical or other sampling techniques consistent with generally accepted
auditing standards in examining returns or records and making assessments;

deleted text begin (4) deleted text end new text begin (5) new text end investigate the tax laws of other states and countries, and formulate and submit
to the legislature such legislation as the commissioner may deem expedient to prevent
evasions of state revenue laws and to secure just and equal taxation and improvement in
the system of state revenue laws;

deleted text begin (5) deleted text end new text begin (6) new text end consult and confer with the governor upon the subject of taxation, the
administration of the laws in regard thereto, and the progress of the work of the department,
and furnish the governor, from time to time, such assistance and information as the governor
may require relating to tax matters;

deleted text begin (6) deleted text end new text begin (7) new text end execute and administer any agreement with the secretary of the treasury or the
Bureau of Alcohol, Tobacco, Firearms and Explosives in the Department of Justice of the
United States or a representative of another state regarding the exchange of information and
administration of the state revenue laws;

deleted text begin (7) deleted text end new text begin (8) new text end require town, city, county, and other public officers to report information as to
the collection of taxes received from licenses and other sources, and such other information
as may be needful in the work of the commissioner, in such form as the commissioner may
prescribe;

deleted text begin (8) deleted text end new text begin (9) new text end authorize the use of unmarked motor vehicles to conduct seizures or criminal
investigations pursuant to the commissioner's authority;

deleted text begin (9) deleted text end new text begin (10) new text end authorize the participation in audits performed by the Multistate Tax Commission.
For the purposes of chapter 270B, the Multistate Tax Commission will be considered to be
a state for the purposes of auditing corporate sales, excise, and income tax returns;

deleted text begin (10) deleted text end new text begin (11) new text end maintain toll-free telephone access for taxpayer assistance for calls from
locations within the state; and

deleted text begin (11) deleted text end new text begin (12) new text end exercise other powers and authority and perform other duties required of or
imposed upon the commissioner by law.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 3.

Minnesota Statutes 2018, section 270C.33, subdivision 6, is amended to read:

Subd. 6.

Assessment presumed valid.

new text begin (a) new text end A return or assessment of tax made by the
commissioner is prima facie correct and valid. The taxpayer has the burden of establishing
its incorrectness or invalidity in any related action or proceeding.

new text begin (b) To overcome the presumption that an order of the commissioner that disallows the
tax effects of a transaction because the commissioner determined the transaction does not
have economic substance pursuant to section 270C.03, subdivision l, clause (3), is prima
facie correct and valid, the taxpayer must prove with clear and convincing evidence that
the transaction has economic substance.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 4.

new text begin [270C.331] PREVENTING TAX EVASION.
new text end

new text begin Subdivision 1. new text end

new text begin Economic substance. new text end

new text begin (a) For purposes of disallowing the tax effects of
a transaction that does not have economic substance pursuant to section 270C.03, subdivision
l, clause (3), a transaction shall be treated as having economic substance only if:
new text end

new text begin (1) the transaction changes in a meaningful way, apart from tax effects, the taxpayer's
economic position; and
new text end

new text begin (2) the taxpayer has a substantial purpose, apart from tax effects, for entering into the
transaction.
new text end

new text begin (b) In determining whether the requirements of paragraph (a), clauses (1) and (2), are
met, the potential for profit of a transaction shall be taken into account only if the present
value of the reasonable expected pretax profit from the transaction is substantial in relation
to the present value of the expected net tax benefits that would be allowed if the transaction
was respected. Fees and other transaction expenses shall be taken into account as expenses
in determining pretax profit.
new text end

new text begin (c) For purposes of paragraph (a), clause (2), achieving a financial accounting benefit
shall not be taken into account as a purpose for entering into a transaction if the origin of
the financial accounting benefit is a reduction of federal, state, or local tax.
new text end

new text begin Subd. 2. new text end

new text begin Apart from tax effects. new text end

new text begin For purposes of this section, "apart from tax effects"
means apart from the state and local tax effects arising from the application of the laws of
any state or local unit of government to the form of the transaction, the federal tax effects
resulting from the transaction, or both.
new text end

new text begin Subd. 3. new text end

new text begin Transaction. new text end

new text begin For purposes of this section and section 270C.03, subdivision l,
clause (3), "transaction" includes a series of transactions.
new text end

new text begin Subd. 4. new text end

new text begin Personal transactions of individuals. new text end

new text begin In the case of an individual, subdivision
1 applies only to transactions entered into in connection with a trade or business or an
activity engaged in for the production of income.
new text end

new text begin Subd. 5. new text end

new text begin Rulemaking. new text end

new text begin (a) The commissioner shall adopt rules to carry out the provisions
of this section. The rules must include, at a minimum, examples of transactions that will
not be challenged as not having economic substance and examples of transactions that may
be challenged as not having economic substance.
new text end

new text begin (b) The commissioner shall establish and publish a formal departmental procedure for
uniform application of this section, except publishing the procedure is subject to the
limitations of protected nonpublic data in section 270B.02.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 5.

Minnesota Statutes 2018, section 289A.60, is amended by adding a subdivision to
read:

new text begin Subd. 27a. new text end

new text begin Noneconomic substance transaction understatement penalty. new text end

new text begin (a) If the
tax effects of a transaction are disallowed pursuant to section 270C.03, subdivision 1, clause
(3), a penalty equal to 20 percent of the amount of the disclosed noneconomic substance
transaction understatement must be added to the tax. This subdivision applies to any income
or item that is attributable to any transaction disallowed pursuant to section 270C.03,
subdivision 1, clause (3).
new text end

new text begin (b) If the tax effects of a transaction are disallowed pursuant to section 270C.03,
subdivision l, clause (3), a penalty equal to 40 percent of the amount of the nondisclosed
noneconomic substance transaction understatement must be added to the tax. This subdivision
applies to any income or item that is attributable to any transaction disallowed pursuant to
section 270C.03, subdivision 1, clause (3).
new text end

new text begin (c) For purposes of this subdivision, "disclosed noneconomic substance transaction"
means a transaction that fails to meet the criteria for having economic substance as described
in section 270C.03, subdivision 1, clause (3), with respect to which the relevant facts affecting
the tax treatment are adequately disclosed in the return or in a statement attached to the
return.
new text end

new text begin (d) For purposes of this subdivision, "nondisclosed noneconomic substance transaction"
means a transaction that fails to meet the criteria for having economic substance as described
in section 270C.03, subdivision 1, clause (3), with respect to which the relevant facts affecting
the tax treatment are not adequately disclosed in the return nor in a statement attached to
the return.
new text end

new text begin (e) In no event shall any amendment or supplement to a tax return be taken into account
for purposes of this subdivision to reduce the noneconomic substance transaction
understatement if the amendment or supplement is filed after the date the taxpayer is first
contacted by the commissioner regarding examination of the return.
new text end

new text begin (f) For purposes of this subdivision, "understatement" means the product of:
new text end

new text begin (1) the amount of the increase, if any, in taxable income that results from a difference
between the proper tax treatment of an item to which section 270C.03, subdivision 1, clause
(3), applies and the taxpayer's treatment of that item as shown on the taxpayer's tax return.
For purposes of this clause, any reduction of the excess of deductions allowed for the taxable
year over gross income for that year, and any reduction in the amount of capital losses that
would, without regard to section 1211 of the Internal Revenue Code, be allowed for that
year, must be treated as an increase in taxable income; and
new text end

new text begin (2) the highest rate of tax imposable on the taxpayer under section 290.06 determined
without regard to the understatement.
new text end

new text begin (g) If the noneconomic substance transaction understatement penalty is imposed under
this subdivision, the noneconomic substance transaction understatement penalty applies in
lieu of the penalties imposed under subdivision 27.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end