BILL ANALYSIS Ó SB 484 Page 1 Date of Hearing: July 2, 2013 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Richard S. Gordon, Chair SB 484 (Wyland) - As Amended: May 6, 2013 SENATE VOTE : 39-0 SUBJECT : Tax preparers. SUMMARY : Revises the composition of the California Tax Education Council (CTEC), authorizes CTEC to deny, suspend, or revoke a tax preparer registration for specified violations, and makes other related changes to the Tax Preparers Law. Specifically, this bill : 1)Clarifies that CTEC is a 501(c)(3) nonprofit organization. 2)Revises and clarifies CTEC membership as follows: a) There shall be no more than one representative from each California nonprofit corporation in good standing with a membership of at least 400 specified professionals in each of the previous three calendars years; b) There shall be no more than one representative from each for-profit tax preparation corporation in good standing with at least 400 employees or franchisees, including the employees of a franchisee, in California during the previous calendar year; and, c) Six individuals who are tax preparers shall be appointed to the board of directors of CTEC. 3)Authorizes CTEC to take any reasonable actions to carry out the responsibilities and duties set forth in this bill, including, but not limited to a) Hiring staff and entering into contracts; and, b) Adopting bylaws, rules, regulations, and procedures necessary to effectuate the purposes of this chapter. 4)Requires CTEC to be governed by a board of directors, SB 484 Page 2 comprised as specified. 5)Requires CTEC to: a) Issue registrations, deny applications, and discipline registrants as specified; and, b) Establish application fees, renewal fees, delinquent fees, and other fees related to the regulatory cost of providing services and carrying out the council's responsibilities and duties, provided these fees do not exceed the reasonable cost to CTEC for providing services and carrying out its responsibilities and duties. 6)Requires CTEC to issue a registration to any applicant who provides satisfactory evidence that he or she meets all of the requirements and who complies with the bylaws, rules, and procedures established by CTEC. 7)Requires an applicant to submit a written application in a form provided by CTEC and provide CTEC with satisfactory evidence that he or she meets the following requirements: a) The applicant has successfully completed specified educational requirements; b) All fees required by CTEC have been paid; and, c) The applicant meets all of the other requirements for registration under the Tax Preparers Law. 8)Specifies that any registration must be renewed annually in a manner prescribed by CTEC, and shall expire unless renewed in that manner; and further authorizes CTEC to provide for the late renewal of a registration. 9)Permits CTEC to deny an application for registration or discipline a registrant for specified offenses. 10)States that it is a violation of Tax Preparers Law for a tax preparer to do or commit, and authorizes CTEC to deny an application or discipline a registrant that does or commits, any of the following: a) Unprofessional conduct, including, but not limited to, SB 484 Page 3 denial of licensure, certificate, permit, or registration, or revocation, suspension, restriction, or any other disciplinary action against an applicant or registrant, as specified. 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 or term of Tax Preparers Law or any rule or bylaw adopted by CTEC; d) Conviction of any felony or misdemeanor that is 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 referred to in the Tax Preparers Law for the issuance of a registration; f) Impersonating a registrant, or permitting or allowing an unregistered person to use a registration; or, g) Committing any fraudulent, dishonest, or corrupt act that is substantially related to the qualifications, functions, or duties of a registrant. h) Specifies that the above offenses shall not be guilty of a misdemeanor, as specified. i) Declares that each violation shall be considered a separate offense. 11)Authorizes CTEC to discipline a registrant by any, or a combination, of the following methods: a) Placing a registration on probation; b) Suspending the registration and the rights conferred by the Tax Preparers law on a registrant for a period not to exceed one year; c) Revoking a registration; SB 484 Page 4 d) Suspending or staying the disciplinary order, or portions of it, with or without conditions; or, e) Taking other action as CTEC as authorized by the Tax Preparers Law or its bylaws, rules, or procedures, deem proper. 12)Permits CTEC to issue an initial registration on probation, with specific terms and conditions, to any applicant. 13)Requires CTEC to notify the Franchise Tax Board (FTB) and the Internal Revenue Service (IRS) if a registration is suspended or revoked. 14)States that no registrant or applicant may be disciplined or denied registration except according to procedures satisfying specified requirements; and further states that a denial or discipline not in in accord with these requirements shall be void and without effect. 15)Requires any application denial or registrant discipline to be done in good faith and in a fair and reasonable manner. Any procedures that conform to the requirements of this bill are fair and reasonable, but a court may also find other procedures to be fair and reasonable when the full circumstances of the application denial or registrant discipline are considered. a) States that a procedure is "fair and reasonable" if all of the following apply: i) CTEC provides 15 days prior notice of the application denial or registration discipline and the reasons therefor; and, ii) CTEC provides 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 denial or discipline not take place; 16)Specifies that any notice required may be given by any method reasonably calculated to provide actual notice. Any notice given by mail must be given by first-class or express mail SB 484 Page 5 sent to the last address of the applicant or registrant shown on the council's records. 17)Specifies that any action challenging an application denial or registrant discipline, including any claim alleging defective notice, shall be commenced within one year after the effective date of the application denial or registrant discipline in the superior court in and for the county of the council's principal place of business. If the action is successful, the court may order any relief, including reinstatement, that it finds equitable under the circumstances. 18)Authorizes CTEC to charge applicants and registrants a reasonable regulatory fee as a condition of any hearing requested by the applicant or registrant for the purpose of contesting denial of a registration or discipline of a registrant. This fee shall not exceed the reasonable cost to the council of providing the hearing. Upon a favorable judgment for the council in any proceeding, the council shall be entitled to recover its reasonable attorney's fees. 19)Specifies that the "fair and reasonable" requirements govern only the procedures for application denial or registrant discipline and not the substantive grounds therefor. A denial or discipline based upon substantive grounds that violates contractual or other rights of the applicant or registrant or is otherwise unlawful is not made valid by procedural compliance. 20)Clarifies that a "certificate of completion" is part of the education registration requirements, as specified. 21)States that this law shall be subject to review by the appropriate policy committees of the Legislature. 22)Defines "registrant" to mean a tax preparer that has met all of the requirements of Tax Preparer Law and has been issued a registration by CTEC. 23)Declares that it is the Legislature's intent to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making SB 484 Page 6 fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of Tax Preparers Law. 24)Makes technical and clarifying changes. EXISTING LAW : 1)Provides for the registration of tax preparers by CTEC, and repeals those provisions effective January 1, 2015. (Business and Professions Code (BPC) Section 22250 et seq.) 2)Establishes the requirements for a tax preparer including, registering with the CTEC, obtaining a "certificate of completion" after completing a tax education curriculum, as specified, and maintaining a surety bond, as specified. (BPC 22250 et seq.) 3)Defines "tax preparer" to mean either: a) A person who, for a fee or 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; or, b) 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. (BPC 22251) 4)Establishes CTEC as a single organization made up of not more than one representative from each professional society, association, or other entity operating as a nonprofit corporation that chooses to participate in the council and that represents tax preparers, enrolled agents, attorneys, or certified public accountants 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 chooses to participate in the council and SB 484 Page 7 that has at least 200 employees and has been operating in California for the last three years. (BPC 22251 (d)) 5)Requires a tax preparer to provide any customer in writing with the tax preparer's name, address, telephone number, and evidence of compliance with the bonding requirement, including the bond number, prior to rendering any tax preparation services. (BPC 22252) 6)Prohibits a tax preparer from disclosing any client's confidential information without written permission, except in specific circumstances. (BPC 22252.1) 7)Makes it a violation for a tax preparer to fail to register with CTEC, make fraudulent, untrue or misleading statements to a customer, obtain a customer's signature on an incomplete document, fail to sign a customer's tax return when payment for services rendered has been made, fail to return a customer's records upon request, or provide false or misleading information to the consumer, surety company, or CTEC. (BPC 22253) 8)Requires the FTB to notify the CTEC when it identifies an individual who has committed a violation, and allows CTEC to enter into an agreement with FTB to provide reimbursement for expenses incurred. Authorizes CTEC to notify the Attorney General, a district attorney, or a city attorney take specified disciplinary action. (BPC 22253.2) 9)Provides that the Superior Court in and for the county where a tax preparer violates Tax Preparer Law may, upon a petition by any person, issue an injunction or other appropriate order restraining the conduct. (BPC 22256 (a)) 10)Provides that a person who violates Tax Preparer Law is guilty of a misdemeanor 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. (BPC 22256 (b)) 11)Provides that if a tax preparer fails to perform a duty specifically imposed upon him or her, any person may maintain an action for enforcement of those duties or to recover a civil penalty in the amount of one thousand dollars ($1,000), or for both. In an action to enforce these duties or recover civil penalties, the prevailing plaintiff will be entitled to SB 484 Page 8 reasonable attorney's fees and costs, in addition to the civil penalties. (BPC 22257) 12)Exempts the following from the requirement to register as a tax preparer: certified public accountants (CPAs), enrolled agents (EAs), attorneys, trust companies, federal or state regulated financial institutions, or employees of exempt persons or entities. (BPC 22258) FISCAL EFFECT : Unknown COMMENTS : 1)Purpose of this bill. Current law establishes CTEC as the registering body for professional tax preparers, but does not give CTEC the authority to discipline registrants for unprofessional conduct. This leaves consumers vulnerable to unscrupulous practitioners, while providing insufficient incentive for those practitioners to abide by the law. This bill would outline a code of conduct for registered tax preparers, and grant CTEC the authority to deny registration to an applicant, or discipline a registrant, who is found to be in violation of Tax Preparers Law. This bill is sponsored by CTEC. 2)Author's statement. According to the author's office, "CTEC provides information regarding which tax preparers are registered and legally permitted to prepare taxes. Consumers are able to confirm via 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. However, the CTEC does not have the authority to discipline a registered tax preparer if they are convicted of fraud or a similar criminal offense related to their profession. SB 484 will give CTEC the authority to actively monitor their list, by removing individuals who have been found guilty of professional misconduct or any other violations making them unfit to prepare taxes." 3)Background on CTEC. The tax preparer law was established in 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 SB 484 Page 9 private organization to certify tax preparers in California. The law provides the non-profit CTEC with the authority to oversee and register tax preparers. CTEC maintains a roster of over 40,000 registered tax preparers for interested consumers to confirm that individual tax preparers are approved practitioners, and only registered tax preparers may prepare returns. . In addition to registrations, CTEC approves providers of tax education, maintains a list of approved curriculum providers, verifies the required continued tax education, and insures that tax preparers provide valid bond information. Currently, CTEC is comprised of appointees from 'qualified organizations', each of which are allowed to select one representative. A qualified organization is generally defined as a professional society, association, or other California nonprofit corporation with an ongoing membership in excess of 200 people representing tax preparers, enrolled agents, attorneys, or certified public accountants; or, a for profit tax preparation corporation with an ongoing membership in excess of 200 employees. 4)Tax preparer registration. Existing law requires all tax preparers to register with CTEC before preparing tax returns for another person for a fee. Registration requires the tax preparer to complete an annual application and pay an application fee, take out a bond, and complete specified educational requirements. The professionals exempted from this registration requirement are CPAs, EAs, attorneys who are members of the California State Bar, trust companies, federal or state regulated financial institutions, or employees of exempt persons or entities. Registered tax preparers are permitted to file individual tax forms on behalf of their clients, and are required to use their CTEC tax preparer identification number when doing so. CTEC maintains an online roster of all currently registered tax preparers, so that consumers can easily check whether an individual tax preparer has met all of the educational and bonding requirements and is practicing legally. 5)CTEC authority. Under existing law, CTEC does not have the authority to discipline a registered tax preparer that is convicted of fraud or another criminal offense related to the SB 484 Page 10 profession. The only action CTEC may take is to change a tax preparer's registration status if he or she does not properly register or re-register each year. CTEC does not have the authority to discipline or revoke the registration of a preparer found guilty of unprofessional conduct or convicted of a criminal offense. This means that even if CTEC is aware of registered tax preparers who are engaged in unprofessional conduct, or other crimes related to the profession, CTEC cannot protect consumers by revoking an individual's registration because the law does not authorize this disciplinary action. SB 484 would clearly outline a code of conduct for registered tax preparers, and give additional authority to the CTEC to deny registration or discipline a registrant who is found guilty of a violation. 6)Arguments in support . According to CTEC, the sponsor of this bill, "on occasion CTEC 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 authority allowing them to unregister these individuals. CTEC is greatly concerned that the continued registration of these individuals is harmful to consumers. 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." 7)Previous legislation. SB 1077 (Greene) Chapter 1137, Statutes of 1996, eliminated the Tax Preparer Program in the Department of Consumer Affairs (DCA), created CTEC to register tax preparers, and established the Tax Preparers Law. SB 944 (Committee on Business, Professions and Economic Development) Chapter 432, Statutes of 2011, requires a tax preparer to annually complete 15 hours of continuing education in federal taxation and 5 hours in California taxation in order to receive the "certificate of completion." REGISTERED SUPPORT / OPPOSITION : SB 484 Page 11 Support California Tax Education Council (sponsor) H & R Block Jackson Hewitt Tax Service Opposition None on file. Analysis Prepared by : Angela Pontes / B.,P. & C.P. / (916) 319-3301