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,  








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            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,  








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               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;









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             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  








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            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  








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            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  








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            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  








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            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  








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            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  








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            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  :









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           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