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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