BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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          |SENATE RULES COMMITTEE            |                        SB 484|
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                                    THIRD READING


          Bill No:  SB 484
          Author:   Wyland (R)
          Amended:  5/6/13
          Vote:     21

           
           SENATE BUSINESS, PROF. & ECON. DEVELOP. COMM.  :  10-0, 4/29/13
          AYES:  Price, Emmerson, Block, Corbett, Galgiani, Hernandez,  
            Hill, Padilla, Wyland, Yee

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8


           SUBJECT  :    Tax preparers

           SOURCE  :     California Tax Education Council


           DIGEST  :    This bill revises the composition of the California  
          Tax Education Council (CTEC), authorizes the CTEC to deny,  
          suspend or revoke a tax preparer registration for specified  
          violations, and makes other related changes to the law relating  
          to tax preparers.

           ANALYSIS  :    

          Existing law:

          1.Provides for the registration of tax preparers by the CTEC,  
            and repeals those provisions of law effective January 1, 2015.  


          2.Defines certain terms for purposes of the tax preparer law,  
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            including: 

             A.   "Tax preparer" to mean (1) 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/herself out as offering those services, and  
               (2) 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.  Specifies that a "tax preparer" does not  
               include an employee who, as part of the regular clerical  
               duties of employment, prepares his/her employer's income,  
               sales or payroll tax returns.

             B.   "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.

          1.Establishes the 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 three 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 three years. 

          2.Establishes various requirements for tax preparers including  
            obligations to (a) register with the CTEC; (b) obtain a  
            "certificate of completion" based on completing a tax  
            education curriculum as specified; and (c) maintain a surety  
            bond of $5,000 payable to the State of California.  The bond  
            shall be for the benefit of any person(s) damaged by any  
            fraud, dishonesty, misstatement, misrepresentation, deceit, or  
            any unlawful acts or omissions by the tax preparer.

          3.Requires a tax preparer, prior to rendering any tax  
            preparation services, to provide the customer in writing with,  
            among other things, his/her name, address, telephone number,  

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            and evidence of the required bond. 

          4.Prohibits a tax preparer from disclosing confidential  
            information regarding a client without the written permission  
            of the client, except in specific instances. 

          5.Makes it a violation for a tax preparer to (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/her request; (f) knowingly give  
            false or misleading information to the consumer, the surety  
            company or CTEC; and (g) commit any other acts or omissions,  
            as specified. 

          6.Authorizes the Franchise Tax Board (FTB), pursuant to an  
            agreement with CTEC, to cite and fine tax preparers for any  
            violations, as specified, or issue a cease and desist order. 

          7.Requires the CTEC to issue a "certificate of completion" when  
            a tax preparer demonstrates completion of not less than 60  
            hours of specified educational requirements. 

           8. 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. 

           9. 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. 

           10.Exempts from the requirement to register as a tax preparer  
             the following:  certified public accountants (CPAs), enrolled  
             agents (EAs), attorneys, trust companies, federal or state  
             regulated financial institutions, or employees of exempt  
             persons or entities.
           
          This bill:


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          1.Revises the composition of the CTEC to specify that is a  
            nonprofit 501(c)(3) organization and consists of not more than  
            one 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.   Hiring staff and entering into contracts.

             B.   Issuing registrations, denying applications, and  
               disciplining registrants.

             C.   Adopting bylaws, rules, regulations, and procedures.

             D.   Establishing application, renewal, delinquent, and other  
               fees related to the regulatory cost of providing services  
               and carrying out the CTEC's responsibilities and duties.   
               The fees are not to exceed the reasonable cost of providing  
               those services and carrying out those responsibilities and  
               duties.

          1.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; and meeting all other requirements for  
            registration.

          2.Makes a registration subject to annual renewal and requires  
            the payment of a renewal fee.

          3.Makes it an unfair business practice for any person to hold  
            himself/herself out as a registered tax preparer or any other  

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            term, such as "licensed" that implies or suggests that the  
            person is registered as a tax preparer without meeting the  
            requirements for registration.

          4.Makes it a violation of the tax preparer law, for a tax  
            preparer to do or commit, and authorizes CTEC to deny an  
            application or discipline a registrant for, any of the  
            following:

             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.   Procuring or attempting to procure a registration by  
               fraud, misrepresentation, or mistake.

             C.   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.

             D.   Conviction of any felony or misdemeanor substantially  
               related to the qualifications, functions, or duties of a  
               registrant.

             E.   Impersonating an applicant or acting as a proxy for an  
               applicant in any situation or examination for the issuance  
               of a registration.

             F.   Impersonating a registrant, or allowing an unregistered  
               person to use a registration.

             G.   Committing any fraudulent, dishonest, or corrupt act  
               that is substantially related to the qualifications,  
               functions, or duties of a registrant.

          1.Specifies that violations listed under #7, are not subject to  
            the misdemeanor penalties.

          2.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 FTB  

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            and the Internal Revenue Service when a registration is  
            suspended or revoked.

           3. Establishes procedures for denial of an applicant or  
             discipline of a registrant, including:

             A.   Requiring 15 days prior notice of the application denial  
               or registration discipline and the reasons for taking that  
               action.

             B.   Requiring an opportunity for the applicant or registrant  
               to be heard, either orally or in writing, not less than  
               five days 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.   Specifying 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.   Requiring that any action challenging a denial or  
               discipline, 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.   Authorizing 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.

           1. Makes technical and conforming changes.

           Background
           
          California law requires anyone who prepares tax returns for a  

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          fee and is not an exempt preparer to register as a tax preparer  
          with the CTEC.  Exempt preparers are California CPAs, EAs,  
          attorneys who are members of the State Bar of California, and  
          certain specified banking or trust officials.

          The tax preparer law (Business and Professions Code Section  
          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.

          Currently, 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 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  

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          offenses related to the scope of their profession.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  5/20/13)

          California Tax Education Council (source) 
          H&R Block
          Jackson Hewitt Tax Service
          Mission Society of Enrolled Agents


           ARGUMENTS IN SUPPORT  :    The bill's sponsor, the California Tax  
          Education Council (CTEC), 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 Web site 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 this bill, "registered tax  
          preparer" will mean more.  CTEC further believes that these  
          proposed changes to the law strengthen the industry and protects  
          consumers.


          MW:nk  5/20/13   Senate Floor Analyses 


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                           SUPPORT/OPPOSITION:  SEE ABOVE

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