The provisions of Section 408 of the Internal Revenue Code, relating to individual retirement accounts, shall be modified as follows:
(a)
The following provisions shall be incorporated into Section 408(e) of the Internal Revenue Code:
(1)
In the case of a plan in existence in taxable year 1975 where contributions were made pursuant to, and in conformance with, Section 408 or 409 of the Internal Revenue Code of 1954, as amended by the
Employee Retirement Income Security Act of 1974 (Public Law 93-406), any net income attributable to the 1975 contribution shall not be includable in the gross income, for taxable year 1977 or succeeding taxable years, of the individual for whose benefit the plan was established until distributed pursuant to the provisions of the plan or by operation of law.
(2)
In the case of a simplified employee pension, where contributions are also made pursuant to, and in conformance with, the provisions of Section 408(k) of the Internal Revenue Code of 1954, the net income attributable to the nondeductible portion of those contributions shall not be includable in the gross income of the individual for whose benefit the plan was established for the taxable year or for succeeding taxable years until distributed pursuant to the provisions of the plan or by operation of law.
(3)
Notwithstanding
the limitations provided in former Section 17272 (as amended by Chapter 1461 of the Statutes of 1985) with respect to the amount of deductible contributions and individuals eligible for the deduction, any income attributable to contributions made to a plan in existence in taxable years beginning on or after January 1, 1982, in conformance with Sections 219, 220, 408, and 409 of the Internal Revenue Code of 1954, shall not be includable in the gross income of the individual for whose benefit the plan was established until distributed pursuant to the provisions of the plan or by operation of law.
(b)
The provisions of Section 408(d) of the Internal Revenue Code, relating to the tax treatment of distributions, are modified as follows:
(1)
For taxable years beginning on or after January 1, 1982, and before January 1, 1987, the basis of any person in the account or annuity is the
amount of contributions not allowed as a deduction under former subdivision (a), (e), or (g) of Section 17272 (as amended by Chapter 1461 of the Statutes of 1985) on account of the purchase of the account or annuity.
(2)
For purposes of paragraph (1), the rules for recovery of basis shall be governed by Section 17085.
(c)
A copy of the report, which is required to be filed with the Secretary of the Treasury under Section 408(i) or 408(l) of the Internal Revenue Code, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in those sections.