A new tax court? Also, state legislators discuss outsourcing, disclosure.

AB 2472 (Wolk) and SB 1424 (Burton) would establish an administrative California tax court to decide sales and use, insurance and income tax appeals.

[ILLUSTRATION OMITTED]

According to the authors, the tax court would increase public confidence in the tax systems' fairness, ensure fair and equal treatment for taxpayers and provide a legal forum for tax dispute resolution similar to the U.S. Tax Court.

California tax court decisions would be published and could provide guidance to similarly situated taxpayers.

The bills would not eliminate the Board of Equalization, which would continue to adopt regulations, establish policy issues, administer other taxes and hear some property tax disputes.

All major tax appeals would go to this proposed tax court consisting of five judges appointed by the governor and confirmed by the Senate. Proponents believe that these appointed judges would not be subject to the political pressures that elected Board of Equalization members may experience.

The proposed tax court, while an administrative body, would function much like a court. CPAs and other non-attorneys must be authorized to practice before it, which requires passing an exam, or complying with qualifying procedures that would be developed.

Appeals from the tax court would go to the Court of Appeal rather than Superior Court. The Franchise Tax Board also would be able to appeal to the Court of Appeal, which it cannot do now.

Opponents say the current system is open and less formal, and CPAs, enrolled agents, taxpayers and attorneys resolve tax disputes in a relatively uncomplicated administrative procedure and hearing process that would become a captive, specialty practice for a select few members of the state bar.

The California Judicial Council is concerned that the Legislature may not have the constitutional authority to create a new court that bypasses the Superior Court appeal process.

CalCPA has expressed concerns that the hurdles set for practice by the proposed court may deny CPAs the opportunity to represent clients. CPAs routinely represent clients in IRS appeals, but very few represent clients in U.S. Tax Court.

If the bills pass in their current form, clients would be deprived of a cost-effective method of resolving tax disputes.

AB 2472 proponents have advised CalCPA that they will provide for CPAs to continue to represent their clients. Without such a provision, CalCPA will oppose the legislation.

Labor groups and the California Society of Enrolled Agents support the bills. The California Taxpayer's Association, BOE members, the Farm Bureau, the California Manufacturers & Technology Association and Price-WaterhouseCoopers oppose the bills, which must pass four policy and two appropriations committees, and obtain governor approval prior to enactment.

CPAs Mandated Reporters

AB 2474 (Wolk), sponsored by the Yolo County District Attorney and several senior groups, would require CPAs, banks and other financial experts, including real estate and title agents, to immediately report any suspected cases of elder financial abuse. Failure to do so would be a misdemeanor subject to six months in jail and fines, or if serious physical harm occurs, the CPA could be subject to one year in jail and additional fines.

The bill contains many general requirements and no definitions. CalCPA and many other groups oppose the bill because it could encourage over-reporting and civil litigation by disgruntled clients. CalCPA recommended that educational efforts be encouraged to lessen the opportunity for financial abuse rather than mandatory reporting with heavy sanctions.

Outsourcing

California legislators have introduced bills intended to reform outsourcing either by banning the state from contracting with entities that outsource to companies or individuals outside the United States, or prohibiting transmission of confidential medical or financial information to workers outside of the United States.

The concerns focus on two issues--jobs leaving America and the inability of the government to enforce privacy and confidentiality laws when workers are in another country.

AB 664 (Correa) would require businesses that share confidential information with affiliates in another country to disclose this and the country's name to consumers and clients.

AB 2919 (Ridley-Thomas) would prohibit the state from contracting for telephone support services that involve the use of out-of-country employees.

SB 1451 (Figueroa) is an expression of interest in restricting outsourcing to other countries.

SB 1492 (Dunn) states the Legislature's intent to enact legislation to ensure that no work involving information that is private, confidential, privileged or essential to homeland security is performed at a worksite outside of the United States.

Additionally, the California Board of Accountancy is reviewing the issue of outsourcing. It is recommending that Regulation 54.1, dealing with client confidentiality, be amended to require that CPAs who outsource any client service, including those located in the United States, provide clients with a written notice that information is being shared with others.

The CBA's position is that any outsourcing by a licensee requires disclosure under existing 54.1. The amendments would require the disclosure to be in writing and extra disclosures if a CPA is using services outside the United States.

At a legislative hearing on outsourcing to other countries earlier this year, Michael Ueltzen, Government Relations Committee legislative co-chair, presented testimony stressing the CPA's responsibility under current law for ensuring the security and quality of work performed by any subcontractor.

Bruce C. Allen is CalCPA's director of government relations.