Many celebrities balance maintaining their brand by staying in the public eye with privacy in their personal life. A new California law, however, has some business managers and celebrities concerned about maintaining their privacy. With little fanfare, Governor Newsom signed into law Senate Bill 592 (the Bill) on September 28, 2020, which may raise eyebrows this year as business managers and taxpayers navigate the 2020 tax reporting season. Specifically, the Bill requires the California Franchise Tax Board (FTB) to revise the California resident income tax return form to include a line item for the taxpayer’s address of their principal residence and their county of principal residence. In the past, high-profile taxpayers often used their business manager’s address when filing tax returns, to maintain privacy and security. The Bill, however, takes effect this year, so that California residents must now disclose the address of their principal residence on their 2020 California income tax returns.
The Bill was intended to expand and update the California jury pool by providing an additional source of information regarding prospective jurors to the jury commissioner of each county. Prior to the Bill’s passage, California jurors were primarily selected based on registered voter lists and driver’s license information, which frequently did not contain up-to-date information. Since most people file tax returns on an annual basis, the rationale for the Bill, presumably, was that it would provide a more current source of residence information for selecting local jurors.
The Bill borrows the federal income tax definition of “principal residence,” which, for taxpayers owning multiple properties, is typically the property where the taxpayer spends the majority of their time. Other factors in determining a taxpayer’s principal residence include: (i) the taxpayer’s place of employment, (ii) the principal place of abode of the taxpayer’s family members, (iii) the address listed on the taxpayer’s federal and state tax returns, driver’s license, etc., (iv) the taxpayer’s mailing address for bills and correspondence, (v) the location of the taxpayer’s banks, and (vi) the location of religious organizations and recreational clubs with which the taxpayer is affiliated.
While at first blush this disclosure requirement may seem alarming for business managers and their high-profile clients, it ultimately might not be of great concern. As a threshold matter, it is a misdemeanor for the FTB or any government agent or employee to disclose information contained in a tax return, meaning that taxpayers whose information is leaked may have a cause of action to sue. Furthermore, a taxpayer’s personal income tax returns generally cannot be requested by another person (for instance, via the California Public Records Act) unless such request is pursuant to a court order or the requestor has power of attorney with respect to the taxpayer. In other words, the address of a taxpayer’s principal residence and other sensitive information typically found in a tax return likely should remain secure.
For those business managers or taxpayers who would prefer not to disclose, there currently does not appear to be any exception to the requirement of disclosing one’s principal residence on a California tax return. Concerned Californians might consider taking this issue to the state legislature. In the meantime, when disclosing tax returns for any reason other than filing, business managers and taxpayers should consider redacting the taxpayer’s principal address to maximize the privacy and security of high-profile taxpayers.
Venable will continue to monitor the situation and stands ready to advise.