BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2183 HEARING: 6/27/12
AUTHOR: Smyth FISCAL: Yes
VERSION: 6/15/12 TAX LEVY: No
CONSULTANT: Grinnell
ASSESSMENT APPEALS AND TAX AGENTS
Requires registration and enacts a code of practice for tax
agents
Background and Existing Law
Section One of Article XIII of the California Constitution
provides that all property is taxable unless explicitly
exempted by the Constitution or federal law. The
Constitution limits the maximum amount of any ad valorem
tax on real property at 1% of full cash value, usually the
purchase price, plus any locally-authorized bonded
indebtedness. Assessors reappraise property whenever it is
purchased, newly constructed, or when ownership changes.
In recent years, the market value of property has declined
or stagnated in almost every market in California. As a
result, property tax appeals are on the rise, as Section
2(b) of Article XIIIA of the California Constitution allows
a temporary reduction in property tax when a property's
fair market value declines below its assessed value
(Proposition 8, 1978). LAO states that tax appeals have
risen from 44,000 in 2006-07 to 173,000 in 2010-11.
When a taxpayer wants to appeal an assessor's valuation of
a property, Section 16 of Article XIII the California
Constitution provides that each county board of
supervisors, or an assessment appeals board of its own
creation, shall constitute the county board of
equalization, which equalizes the values of all property on
the assessment roll by adjusting individual assessments.
Currently, 19 county boards of supervisors perform this
duty. State law allows counties to have up to five
assessment appeals boards to hear and adjudicate appeals,
constituted of members selected by the presiding judge of
the superior court and nominated by the County Board of
AB 2183 - 6/15/12 -- Page 2
Supervisors, or selected directly by the Board. Taxpayers
and assessors may appeal decisions of these boards to
Superior Court.
The Board of Equalization (BOE) instructs, advises, and
direct assessors as to their responsibilities under the
law, and may inspect any book or record of any local
officer whose duties include assessing the value of
property for property tax purposes and collecting taxes.
The BOE must survey the assessment practices to ensure that
an assessor's practices apply uniformly to all classes of
property, and that no class receives systematic
overvaluation or undervaluation relative to other
properties. After each survey, BOE provides its findings
to the assessor, and issues a report detailing its
findings, which it distributes to the Governor,
Legislature, and Attorney General, and to each County Board
of Supervisors, county civil grand jury, and assessment
appeals board to which they relate.
The term "tax agents" refers to individuals who represent
taxpayers in property tax appeals. The conduct of tax
agents, individuals who represent taxpayers before
assessors and assessment appeals boards, is largely
unregulated unless the individual is an attorney licensed
by the State Bar, or an accountant regulated by the
California Board of Accountancy. One section of the
Business and Professions Code regulates representations
made by firms that file assessment appeals on behalf of
taxpayers. At the federal level, Internal Revenue Service
(IRS) Circular 230 regulates the conduct of anyone
providing tax advice or preparing tax returns for
compensation, including attorneys, certified public
accountants, and enrolled agents. The Secretary of the
Treasury may suspend, disbar from practice, censure or
impose a monetary penalty a representative who violates its
provisions.
According to news reports, the Los Angeles County District
Attorney investigation led to the arrest last month of a
property appraiser who formerly worked for Los Angeles
County Assessor John Noguez on charges of illegally
reducing assessments on properties totaling $172 million.
The news reports also indicate that the investigation is
ongoing, and focuses on whether the assessor reduced
valuations for properties owned by taxpayers represented by
AB 2183 - 6/15/12 -- Page 3
tax agent Ramin Salari, who contributed to Noguez's
campaign. Both Noguez and Salari deny wrongdoing.
Proposed Law
Assembly Bill 2183 requires counties to set up a tax agent
registration program, and requires tax agents to register
with counties. Secondly, it creates a code of conduct,
sets forth a list of acts prohibited of tax agents,
borrowing largely from IRS Circular 230. Lastly, the bill
allows counties to levy sanctions for failing to register
or engaging in a prohibited act.
I. Registration. AB 2183 requires tax agents to register
in any county where the agent represents taxpayers in any
matter before an assessor, county board of equalization, or
assessment appeals board, including existing authorized
agent relationships. Firms may register, but that firm may
only use registered agents to represent taxpayers.
The bill specifically precludes the following from the
registration requirement:
Attorneys,
Enrolled agents,
Anyone representing themselves or a family owner,
An employee representing their employer, and
Anyone who is a partner, officer, or owner of 10%
or more of the value of the entity he or she
represents.
The bill prohibits the following persons from registering
as a tax agent:
Anyone who has been convicted of any criminal
offense under state or federal tax laws,
Anyone convicted of any criminal offense involving
dishonesty, breach of trust, or moral turpitude, or
Anyone disbarred or suspended from practice as an
attorney, certified public accountant, public
accountant, or actuary.
Agent registration shall include:
The full name, business address, business telephone
number, and business email of the agent,
The name of the agent's employer,
A list of the partners, officers, employees, and
AB 2183 - 6/15/12 -- Page 4
contractors of the agent's firm if the firm or entity
registers as an agent,
A recent photograph of the agent,
A signed statement that the agent is qualified for
registration, and has read, understood, and agree to
comply with the bill's provisions, and
Any other information required by the registering
jurisdiction.
Agents must file amendments to the registration should any
material change in the agent's information take place.
Agents must renew registration every two years, and have 30
days after expiration to renew. Registering jurisdictions
can prescribe procedures, forms, as well as the means of
registering, and can set, charge, and collect fees to
recover costs of registration. Agent registrations are
considered a public record.
II. Code of Conduct. AB 2183 enacts a code of conduct for
all agents, which applies even in the case of a dispute
over fees. The measure places an affirmative duty on tax
agents to:
Exercise due diligence to determine the
correctness of the taxpayer or agent's
representations, and be thoroughly familiar with the
facts of the matter,
Promptly submit records or information upon
request of the registering jurisdiction, and not
interfere or attempt to interfere with any proper
effort of the registering jurisdiction to obtain any
record, unless the agent believes in good faith that
the information privileged or confidential,
Promptly advise a taxpayer if the agent knows the
taxpayer has not complied with applicable statutes,
regulations, and rules or has made an error in or
omission from any document in a property tax appeal
of the fact of the noncompliance and the attendant
consequences.
Promptly return any and all records of the
taxpayer that are necessary for the taxpayer to
comply with his or her legal obligations, and
Include in any written or broadcast advertisement
a disclosure that the agent is registered and the
agent's registration number.
The measure bars tax agents from engaging in the following
AB 2183 - 6/15/12 -- Page 5
list of acts:
Directly or indirectly attempting to influence, or
offering to agree to attempt to influence, the
official action of any public official or employee of
the registered jurisdiction by:
o Use of threats, false accusations,
duress, or coercion,
o Offering of any special inducement or
promise of an advantage, or
o Bestowing any gift, campaign
contribution, favor, or thing of value.
Do anything with the purpose of placing any public
official, public employee, or candidate for public
office under personal obligation to the agent or
another.
Use false or misleading representations with the
intent to deceive a client or prospective client to
procure employment, or intimate that the agent is able
to improperly obtain special consideration or action.
Act or attempt to act as an agent of a taxpayer or
falsely claim to be the agent of the taxpayer without
valid authorization.
Deceive or attempt to deceive any public official
or candidate for public office with regard to any
material fact pertinent to a pending action.
Participate in or knowingly give false or
misleading information to the registering jurisdiction
or any public official in connection with any pending
matter, as defined.
Use or participate in any form of communication and
solicitation containing a false, fraudulent, or
coercive statement or claim, or a misleading or
deceptive statement or claim,
Willfully assist, counsel, or encourage a client or
prospective client to violate the law, or knowingly
counsel or suggest to an existing or prospective
client an illegal plan to evade taxes,
Willfully, recklessly, or through gross
incompetence submit or execute a document that the
agent knows or reasonably should know contains a
position that is frivolous, lacks reasonable basis in
fact, or represents a willful attempt to understate
tax liability or a reckless or intentional disregard
of applicable law, rules, or regulations.
Willfully fail to prepare, execute, or submit
required documents unless due to reasonable cause and
AB 2183 - 6/15/12 -- Page 6
not to willful neglect.
Charge an unconscionable fee.
Violate existing laws guiding assessment appeal
application filing services.
Knowingly aid and abet another person to practice
as an agent before the registering jurisdiction while
suspended, deregistered, or ineligible.
Willfully represent a taxpayer without
authorization.
Engage in contemptuous conduct, such as using
abusive language, making false accusations or
statement while knowing them to be false, and
circulating or publishing malicious or libelous
matter.
III. Penalties. After notice and an opportunity for a
proceeding sufficient to ensure due process, the
registering jurisdiction may reprimand, suspend, or
deregister a tax agent for failing to register, adhere to
the code of conduct, or perform any one of the list of
prohibited acts. Additionally, the registering
jurisdiction may impose a monetary penalty on the agent,
but only if they don't register or commit a prohibited act.
The registering jurisdiction may also impose a monetary
penalty on the employer, firm or entity when it reasonably
should have known of the conduct. The amount of the
penalty cannot exceed the gross income derived from the
conduct giving rise to the penalty, but can be imposed in
addition to reprimand, suspension, or deregistration.
IV. Miscellaneous. AB 2183 additionally:
Allows the Board of Equalization (BOE) to include
as part of its assessment practices survey a review of
the procedures and practices used to regulate tax
agents,
Provides that it shall not be construed to allow
the practice of law without a license,
Enables registering jurisdictions to jointly
administer the registration of tax agents under the
bill with approval of its board of supervisors,
Allows registering jurisdictions to adopt further
ordinances, standards, criteria, procedures,
determinations, rules, notices, guidelines, forms, and
instructions necessary to carry out the bill, and
States that its provisions take effect on January
1, 2014.
AB 2183 - 6/15/12 -- Page 7
Provides definitions for many of its terms
Makes legislative findings and declarations.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "Since
the passage of Prop 13, property taxes have remained fairly
consistent. However, over the last several years the state
has seen drastic drops in property values, resulting in a
corresponding drop in property taxes. With taxpayers
looking to save money in every possible area, requests for
reductions in property taxes have increased substantially.
With more and more taxpayers seeking the help of tax agents
it is important that California take action to advance the
professional practice of tax agents so that they are held
to the highest ethical standards in California. Already
the state has passed legislation aimed at curbing unfair
advertising practices of tax agents in an effort to protect
taxpayers. Furthermore, two other states have already
acted to protect taxpayers by establishing a registration
requirement - California should follow suit."
2. Square peg, round hole ? In response to alleged illegal
activity in the office of the Los Angeles County Assessor,
AB 2183 first requires counties to set up a tax agent
registration program, and requires tax agents to register
with counties. Secondly, it creates a code of conduct,
sets forth a list of acts prohibited of tax agents, and
allows counties to levy sanctions for failing to register
or engaging in a prohibited act. Enforcing a registration
requirement is easy enough - persons acting as tax agents
are either registered or not. However, county boards of
supervisors may lack the expertise necessary to enforce
professional standards on tax agents. The bill imports
many legal terms and standards from Circular 230, such as
"knowingly," "willfully," "believes in good faith," "on
reasonable grounds," "promptly," "due to reasonable cause
and not willful neglect," and "knows or should have known,"
which have a specific meaning in common case law for
individuals who prepare tax returns, and may not be
AB 2183 - 6/15/12 -- Page 8
familiar to county boards of supervisors seeking to
sanction behavior that violates the bill's requirements.
While the measure doesn't obligate counties to judge and
sanction tax agent behavior, how will county boards apply
these standards? Will they use the standards in the same
way that the IRS does? If so, how will they acquire the
considerable expertise necessary, especially if tax agents
challenge sanctions in court? Will all counties use the
same terms in the same way, or will there be differences
that could lead to gaps in enforcement - could "knowingly"
mean one thing in Tehama County, and another in Los Angeles
County? The Committee may wish to consider whether the
measure's enforcement challenges will undercut its
deterrent effect on bad behavior.
3. Goose and gander . AB 2183 creates a registration
requirement, enacts a code of conduct, sets forth a list of
acts prohibited of tax agents, and allows counties to levy
sanctions for failing to register or engaging in a
prohibited act. As such, it seeks to erect rules for an
industry that is largely unregulated today. However, given
the enforcement difficulties listed above, is a statewide
professional regulatory structure a superior option? The
Department of Consumer Affairs (DCA) houses many
professional regulatory boards and commissions for
everything from barbers and cosmetologists to veterinarians
to accountants to acupuncturists. The boards and
commissions within DCA, mostly comprised of a mix of public
members and industry participants, administer professional
licensing tests, enforce industry standards and continuing
education requirements, sanction practitioners for
noncompliance, collect license fees to fund operations, and
generally promote consumer protection for their industry.
The Legislature directly oversees the performance of these
boards through its sunset review process. Are tax agents
so fundamentally different that a professional, statewide
regulatory construct shouldn't apply, especially given that
enterprise zone consultants and practitioners representing
taxpayers before the BOE are also largely unregulated and
wouldn't be affected by AB 2183? While counties are more
versed in the property tax, and more vested in its
efficient administration and collection, the Committee may
wish to consider whether AB 2183's local enforcement model
is superior to ones the state uses.
4. If, then . AB 2183 borrows many regulatory concepts
AB 2183 - 6/15/12 -- Page 9
from Circular 230, but does not bring incorporate its ban
on contingency fee arrangements, whereby tax agents and
practitioners pursue a tax appeal for a taxpayer in
exchange for a percentage of any refund received.
Contingency fee supporters contend that these arrangements
allow taxpayers who do not want to spend money up-front to
hire an agent to pursue an appeal, while detractors argue
that contingency fees provide economic signals to tax
agents to pursue claims that lack merits, or take positions
too aggressively, hoping the Assessor's office lacks the
staff to adequately defend its valuation and will simply
approve the appellant's estimation of value. Last year,
the Committee approved SB 342 (Wolk), which barred
contingency fees in all tax cases, but the measure didn't
advance from the Senate Judiciary Committee. Recently,
Ryan, LLC, a global tax services firm, filed suit in U.S.
District Court against the Secretary of the Treasury and
the IRS Commissioner charging that the contingency fee ban
violates its First Amendment right to petition the
government for redress of grievances, its due process
rights to receive a tax refund, and violate its CEO's right
to practice as an accountant before the IRS.
5. Incoming ! The Committee will also hear AB 404 (Gatto)
at its July 3, 2012 hearing. That measure requires tax
agents to register as lobbyists in a county that has
enacted a lobbying ordinance. Should the Committee approve
both measures, they may eventually have to be harmonized to
avoid enacting duplicate regulatory structures.
6. Loose ends . Committee staff recommend the following
amendments:
The measure uses the terms "agent," "tax agent,"
and practitioner interchangeably. The terms should be
consolidated throughout the bill.
On Page 4, the definition of agent should include
the registration requirement found in the next
section.
On page 4, between line 19 and 20, insert: "For
purposes of this article, "public official or public
employee of the registering jurisdiction" includes:
(1) the assessor
(2) members of the county board of equalization
(3) members of the assessment appeals board
(4) employees of the assessor
(5) assessment hearing officers that make
AB 2183 - 6/15/12 -- Page 10
recommendations to the county board of equalization
or assessment appeals board.
On page 7, lines 8 and 9, strike out "of an
assessment reduction filing for service" and replace
with "services."
On page 7, strike out lines 12 through 14 to
clarify that registration disclosure applies to more
than just mass-mailing agents.
On page 7, line 30, move "to" from after
"improperly" to before.
On page 7, line 37, add "public employee," to the
list.
On page 8, at the end of line 6, insert "property
statements, exemption claims, exclusion claims, change
in ownership statements, preliminary change in
ownership reports."
On page 8, lines 22 and 23, strike out "in fact."
On page 8, lines 23, before "liability," insert"
property tax."
On page 10, line 2, before "equalization," insert
"assessment and,"
Amend Section 17537.9 to require assessment appeal
application filing services to register as tax agents
under the bill.
Assembly Actions
Not relevant to this version of the bill.
Support and Opposition (6/21/12)
Support : Unknown.
Opposition : California Alliance of Taxpayer Advocates