The State of California has recently enacted a Voluntary Compliance Initiative 2 (VCI 2) for taxpayers who underreported their California income tax liabilities, through the use of so-called abusive tax avoidance transactions or offshore financial arrangements, to amend their tax returns for 2010 and earlier. An abusive tax avoidance transaction is defined to include a:
1. Tax shelter;
2. Reportable transaction that is not adequately disclosed;
3. Listed transaction;
4. Gross misstatement; or
5. Transaction to which the California noneconomic substance transaction (NEST) penalty applies.