BILL ANALYSIS Ó
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|Hearing Date:April 29, 2013 |Bill No:SB |
| |484 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 484Author:Wyland
As Amended:April 22, 2013 Fiscal:Yes
SUBJECT: Tax preparers.
SUMMARY: Revises the composition of the California Tax Education
Council, authorizes the council to deny, suspend or revoke a tax
preparer registration for specified violations, and makes other
related changes to the law relating to tax preparers.
Existing law:
1)Provides for the registration of tax preparers by the California Tax
Education Council (CTEC), and repeals (sunsets) those provisions of
law effective January 1, 2015. (Business and Professions Code (BPC)
§ 22250 et. seq.)
2)Defines certain terms for purposes of the tax preparer law,
including: (BPC § 22251)
a) "Tax preparer" to mean a person who, for a fee or for other
consideration, assists with or prepares tax returns for another
person or who assumes final responsibility for completed work on
a return on which preliminary work has been done by another
person, or who holds himself or herself out as offering those
services.
b) "Tax preparer" to mean a corporation , partnership ,
association , or other entity that has associated with it persons
who have as part of their responsibilities the preparation of
data and ultimate signatory authority of tax returns or that
holds itself out as offering those services or having that
authority.
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c) Specifies that a "tax preparer" does not include an employee
who, as part of the regular clerical duties of employment,
prepares his or her employer's income, sales or payroll tax
returns.
d) "Tax return" to mean a return, declaration, statement, refund
claim, or other document required to be made or filed in
connection with state or federal income taxes or state bank and
corporation franchise taxes.
3)Establishes the California Tax Education Council (CTEC) as a single
organization made up of not more than one representative from each
specified entity operating as a nonprofit corporation that
represents, among others, tax preparers with a membership in
California of at least 200 for the last 3 years and not more than
one representative from each for-profit tax
preparation corporation that has at least 200 employees and has been
operating in California for the last 3 years. (BPC § 22251 (d))
4)Establishes various requirements for tax preparers including
obligations to: (BPC § 22250)
a) Register with the CTEC.
b) Obtain a "certificate of completion" based on completing a tax
education curriculum as specified.
c) Maintain a surety bond of $5,000 payable to State of
California. The bond shall be for the benefit of any person or
persons damaged by any fraud, dishonesty, misstatement,
misrepresentation, deceit, or any unlawful acts or omissions by
the tax preparer.
5)Requires a tax preparer, prior to rendering any tax preparation
services, to provide the customer in writing with, among other
things, his or her name, address, telephone number, and evidence of
the required bond. (BPC § 22252)
6)Prohibits a tax preparer from disclosing confidential information
regarding a client without the written permission of the client,
except in specific instances. (BPC § 22252.1)
7)Makes it a violation for a tax preparer to: (BPC § 22253)
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a) Fail to register with CTEC.
b) Make fraudulent, untrue or misleading statements to a
customer.
c) Obtain a customer's signature on a document with blank spaces
to be filled in after it has been signed.
d) Fail to sign a customer's tax return when payment for services
rendered has been made.
e) Fail to return a customer's records upon his or her request
f) Knowingly give false or misleading information to the
consumer, the surety company or CTEC
g) Commit any other acts or omissions as specified.
8)Authorizes the Franchise Tax Board, pursuant to an agreement with
CTEC, to cite and fine tax preparers for any violations, as
specified, or issue a cease and desist order. (BPC § 22253.2)
9)Requires the council to issue a "certificate of completion" when a
tax preparer demonstrates completion of not less than 60 hours of
specified educational requirements. (BPC § 22255)
10)Provides that the Superior Court in the county where any person acts
as a tax preparer in violation of the tax preparer law, may, upon
petition by any person, issue an injunction or other appropriate
order restraining the conduct. (BPC § 22256 (a))
11)Provides that a person who violates the tax preparer law is guilty
of a misdemeanor (crime) punishable by a fine of not more than
$1,000 or by imprisonment in a county jail for not more than one
year, or by both. (BPC § 22256 (b))
12)Exempts from the requirement to register as a tax preparer the
following: certified public accountants, enrolled agents,
attorneys, trust companies, federal or state regulated financial
institutions, or employees of exempt persons or entities. (BPC §
22258)
This bill:
1)Revises the composition of the CTEC to specify that is a nonprofit
501(c)(3) organization and consists of not more than one
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representative from each California nonprofit corporation in good
standing that represents, among others, tax preparers with a
membership in California of at least 400 in each of the previous
three calendar years and not more than one representative from each
for-profit tax preparation corporation in good standing that had at
least 400 employees or franchisees during the previous calendar year
and has been operating in California for the last three years.
2)Defines "registrant" to mean a tax preparer that has met all of the
requirements of the tax preparer law and has been issued a
registration by CTEC.
3)Authorizes CTEC to take any reasonable actions to carry out its
specified responsibilities and duties, including, but not limited to
the following:
a) Hire staff and enter into contracts
b) Issue registrations, deny applications, and discipline
registrants.
c) Adopt bylaws, rules, regulations, and procedures.
d) Establish application, renewal, delinquent, and other fees
related to the regulatory cost of providing services and carrying
out the council's responsibilities and duties not exceed the
reasonable cost of providing those services and carrying out
those responsibilities and duties.
4)Requires CTEC to issue a registration to any applicant who submits an
application with evidence of the following: successful completion
of the educational requirements; payment of the fees; meeting all
other requirements for registration.
5)Makes a registration subject to annual renewal and requires the
payment of a renewal fee.
6)Makes it an unfair business practice for any person to hold himself
or herself out as a registered tax preparer or any other term, such
as "licensed" that implies or suggests that the person is registered
as a tax preparer without meeting the requirements for registration.
7)Makes it a violation of the tax preparer law, and authorizes CTEC to
deny an application or discipline a registrant, for an applicant or
registrant to do any of the following:
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a) Unprofessional conduct, including any disciplinary action of a
license, certificate, permit, or registration held by the
applicant or registrant by the federal government, another state,
any government agency, or by any licensing board or organization.
b) Failing to register as a tax preparer with CTEC.
c) Procuring or attempting to procure a registration by fraud,
misrepresentation, or mistake.
d) Violating or attempting to violate, directly or indirectly, or
assisting in or abetting the violation of, or conspiring to
violate, any provision the chapter or any rule or bylaw adopted
by the council.
e) Conviction of any felony or misdemeanor substantially related
to the qualifications, functions, or duties of a registrant.
f) Impersonating an applicant or acting as a proxy for an
applicant in any situation or examination for the issuance of a
registration.
g) Impersonating a registrant, or allowing an unregistered person
to use a registration.
h) Committing any fraudulent, dishonest, or corrupt act that is
substantially related to the qualifications, functions, or duties
of a registrant.
8)Specifies that violations listed under Item # 7, are not subject to
the misdemeanor penalties.
9)Authorizes CTEC to discipline a registrant by, among other things,
placing the registration on probation or suspending or revoking the
registration, and requires CTEC to notify the Franchise Tax Board
and the Internal Revenue Service when a registration is suspended or
revoked.
10)Establishes procedures for denial of an applicant or discipline of a
registrant, including:
a) Requires 15 days prior notice of the application denial or
registration discipline and the reasons for taking that action.
b) Requires an opportunity for the applicant or registrant to be
heard, either orally or in writing, not less than five days
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before the effective date of the application denial or registrant
discipline by a person or body authorized to decide that the
proposed application denial or registrant discipline not take
place.
c) Specifies that any required notice may be given by any method
reasonably calculated to provide actual notice. A notice given
by mail must be given by first-class or express mail sent to the
last address of the applicant or registrant shown on CTEC's
records.
d) Any action challenging a denial or discipline, shall be
commenced within one year after the effective date of the denial
or discipline in the superior court in and for the county of
CTEC's principal place of business. The court may order any
relief, including reinstatement, which it finds equitable under
the circumstances.
e) Authorizes CTEC to charge applicants and registrants a
reasonable regulatory fee as a condition of any hearing requested
for the purpose of contesting a denial or discipline. The fee
shall not exceed the reasonable cost to CTEC of providing the
hearing. Upon a favorable judgment for the CTEC in any
proceeding, the council shall be entitled to recover its
reasonable attorney's fees.
11)Makes technical and conforming changes.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by the California Tax Education
Council (CTEC) in order to SB 484 will outline a code of conduct for
registered tax preparers and give additional authority to the CTEC
to deny registration to an applicant or discipline a registrant who
violates the CTEC's code of conduct requirements.
Possible offenses include:
Conviction of a felony or misdemeanor that is substantially
related to the qualifications, functions or duties of tax
preparation.
Impersonating a registrant or allowing an uncertified person
to use a registrant's professional ID number.
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Engaging in advertising practices which are fraudulent,
untrue, or misleading
1.Background. California law requires anyone who prepares tax returns
for a fee and is not an exempt preparer to register as a tax
preparer with the California Tax Education Council (CTEC). Exempt
preparers are California certified public accountants (CPAs),
enrolled agents (EAs), attorneys who are members of the State Bar of
California, and certain specified banking or trust officials.
The tax preparer law (BPC § 22250 et. seq.) was established 1996 by SB
1077 (Greene, Chapter 1137, Statutes of 1996), which eliminated the
Tax Preparer Program within the Department of Consumer Affairs and
instead authorized a private organization to certify tax preparers
in California.
As established by SB 1077, the law provides the CTEC with the authority
to oversee and register tax preparers. The CTEC maintains a roster
of registered tax preparers for interested consumers to confirm that
individual tax preparers are approved practitioners, and only
registered tax preparers may prepare returns.
CTEC is a nonprofit corporation that serves to register and oversee
professional tax preparers in California. Certified tax preparers
must be officially registered with the CTEC, which consists of an
application, annual fee, payment of a bond, and completion of
education requirements. Tax preparers are permitted to file
individual tax forms for consumers and are required to use their
CTEC tax preparer identification number when doing so.
There are nearly 40,000 registered tax preparers in California, and the
CTEC provides information regarding which tax preparers are
registered and legally permitted to prepare taxes. Consumers are
able to confirm via the CTEC that their tax preparer is registered.
This oversight ensures that tax preparers are held accountable by
meeting the initial educational requirements, maintaining a $5,000
surety bond, and complying with continuing education requirements
are also met annually.
2.Removing Bad Tax Preparers. Under current law, CTEC does not have
the authority to discipline a registered tax preparer if they are
convicted of fraud or similar criminal offenses related to their
profession.
While the CTEC has the discretion to change a tax preparer's
registration status if they do not pay their annual fees or complete
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their education requirements, it does not have the ability to
discipline or revoke the registration of preparers guilty of
unprofessional conduct or convicted of criminal offenses related to
the scope of their profession.
For example, there are currently CTEC registered tax preparers with
federal injunctions against them barring them from preparing
returns, yet CTEC has no authority to unregister these individuals.
As a case in point - CTEC was contacted by a federal parole officer
in relation to a CTEC registrant that was convicted of federal
crimes related to a complicated scheme to defraud consumers of
money. This person was living in a half-way house and had a federal
injunction against them barring them from preparing tax returns.
CTEC sought to revoke this person's CTEC registration but was unable
to do so since there was no direct authority in the law allowing
revocation. To date, this person remains a CTEC registered tax
preparer, regardless of the fact that they may not prepare returns
as a condition of parole.
This bill is needed to give CTEC the authority to manage its list of
registrants within the Business and Professions Code.
3.Composition of CTEC. The CTEC is comprised of individuals appointed
from qualified organizations. Each qualified organization may
appoint one representative. A qualified organization is defined as:
(1) A professional society, association, or other entity operating
as a California nonprofit corporation which chooses to participate
in the council and which represents tax preparers, enrolled agents,
attorneys, or certified public accountants with a membership of at
least 200 for the last three years. (2) A for profit tax
preparation corporation which chooses to participate in the council
and which has at least 200 employees and has been operating in
California for the last three years.
The CTEC web site lists the following known qualified organizations:
California Society of Certified Public Accountants (CSCPA)
California Society of Enrolled Agents (CSEA)
Mission Society of Enrolled Agents (MSEA)
National Association of Enrolled Agents (NAEA)
California Society of Tax Consultants, Inc (CSTC)
National Association of Tax Preparers (NATP)
CA Society of Accounting & Tax Professionals (CSATP)
East Bay Assn. of Enrolled Agents, Inc (EBEA)
H & R Block Tax Services, Inc.
Jackson Hewitt Tax Services
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National Society of Accountants (NSA)
Liberty Tax Service
4.Arguments in Support. The California Tax Education Council (CTEC) is
the sponsor of the bill, and writes that it does not have the
ability to discipline or revoke the registration of tax preparers
who engaged in unprofessional conduct or are convicted of criminal
offenses substantially related to the qualification, functions, and
duties of a tax preparer.
CTEC states, that on occasion, it has received documents from federal
agencies identifying tax preparers who have criminal convictions
and/or federal injunctions against them prohibiting them from
preparing federal returns. Regardless of the related criminal
convictions or the federal injunctions, CTEC has no express
statutory authority allowing them to un-register these individuals.
Instead, as long as the fee has been paid and the education and bond
requirements have been met, CTEC must maintain the registrations of
these individuals. CTEC is greatly concerned that the continued
registration of these individuals is harmful to consumers. Their
registration and listing on CTEC's website makes it appear as if
CTEC is tacitly approving these individuals for the provision of tax
preparer services, regardless of their criminal history. Consumers
assume that "registered tax preparer" means more than the individual
has merely paid a fee, completed education, and taken out a bond.
With the passage of the proposed legislation, "registered tax
preparer" will mean more. CTEC further believes that these proposed
changes to the law strengthen the industry and protects consumers.
5.Suggested Amendments. The latest amendments to the bill recast a
number of the newly-proposed violations of the tax preparer law to
provide that those violations are a cause for denial or disciplinary
action, but are not considered to be misdemeanor violations of the
law. Committee staff recommends the following amendments to these
provisions.
a) Staff notes an apparent error in the drafted amendments which
duplicates the requirement for a tax preparer to register with
CTEC. The result is that Section 22253 (a) (1) provides that it
is a violation of the chapter (and a misdemeanor) for a tax
preparer to fail to register with CTEC, and Section 22253.1.5 (a)
(2) makes it a violation of the chapter (and a cause for
disciplinary action but not a misdemeanor) for a tax preparer to
fail to register with CTEC. Staff recommends the following
clarifying amendment to remove the duplicate provision in Section
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22253.1.5:
On page 9, Strike out line 7.
b) In recasting the new violations of the chapter proposed by
this bill, as causes for disciplinary action, but not as
misdemeanor violations, the amendments remove the existing
misdemeanor violations of the chapter from actions which would be
cause for disciplinary action. For example: as currently
drafted, CTEC would be able to discipline a tax preparer's
registration for procuring or attempting to procure a
registration by fraud, misrepresentation, or mistake (BPC §
22253.1.5 (a) (3)), but would not be able to discipline a tax
preparer for failing to sign a customer's tax return when payment
for services rendered has been made (BPC § 22253 (a) (9)). Staff
recommends the following amendments to include the misdemeanor
violations as cause for denial or disciplinary action:
(1) Amend Section 22253 (a) to read:
(a) It is a violation of this chapter for a tax preparer to
do or commit, and the council may deny an application for
registration or discipline a registrant for, any of the
following:
(2) Beginning at page 9, line 26, amend Section 22253.1.5 (b)
to read:
(b) A violation of subdivision (a) of this section is not
subject to subdivision (b) of Section 22256.
(3) Beginning at page 12, line 28, amend Section 22256 (b) to
read:
(b) Except as provided in subdivision (a) of Section
22253.1.5, a person who violates a provision of this chapter is
guilty of a misdemeanor, which offense is punishable by a fine
not exceeding one thousand dollars ($1,000), or by imprisonment
in a county jail for not more than one year, or by both.
SUPPORT AND OPPOSITION:
Support:
California Tax Education Council (Sponsor)
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Mission Society of Enrolled Agents
Jackson Hewitt Tax Service
Opposition:
None received as of April 24, 2013
Consultant:G. V. Ayers