Hot stuff: CPA profession keeps emerging in proposed legislation.

The state attorney general is sponsoring legislation SB 1262 (Sher) that imposes additional controls on nonprofits, management and fundraising.

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The original bill would have required nonprofits with revenues of more than $500,000 in any year to contract with a CPA firm to perform an audit. That limit has been increased to $2 million.

CalCPA and others were successful in persuading the author that proposed restrictions prohibiting the audit firm from providing any services to the non-profit other than tax preparation were unnecessary. The bill now would require audit firms to follow the independence standards established by the General Accounting Office.

Although several technical issues remain, CalCPA is neutral on the bill.

Special District Audits

SB 1272 (Ortiz) would, among other things, increase the state controller's oversight of the audits of special districts by requiring the controller to perform quality reviews of the audit firms every three years.

Additionally, the bill would allow the controller to unilaterally suspend audit firms from performing audits of special districts for up to three years. The bill also proposes audit partner rotation every six years.

CalCPA is working to have the bill amended to provide for due process for audit firms, establish standards for controller reviews, require that the audit guide be adopted through a regulatory process allowing for public input and timely adoption, and exempt small firms from the audit partner rotation mandate.

The bill is opposed by virtually every special district in the state because it imposes new limits on reimbursements for travel expenses and payments for participation in public meetings.

Mandated Reporting of Elder Financial Abuse

AB 2474 (Wolk) sponsored by the Yolo County District Attorney and a variety of senior groups, would have required CPAs, banks and other financial experts, including real estate and title agents, to immediately report any suspected cases of elder financial abuse.

Failure to report would be a misde-meanor 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.

CalCPA and many other affected financial professionals were opposed to AB 2474 because of concerns that it could encourage over-reporting and civil litigation by disgruntled clients.

CalCPA recommended during a legislative hearing that educational efforts be encouraged to lessen the opportunity for financial abuse.

The bill was amended to remove CPAs from the mandated reporter list and now only banks and other financial institutions would be required to report suspected cases of elder financial abuse.

Tax Court

SB 1424 (Burton) and AB 2472 (Wolk) are essentially identical measures that would establish a California tax court to hear income and sales tax appeals currently heard by the State Board of Equalization.

The tax court would be composed of five judges--who would serve staggered 12-year terms--appointed by the governor.

Historically, CalCPA has supported legislation to establish a tax court as long as CPAs were allowed to practice before the court.

As currently drafted, these bills would limit CPAs' ability to continue that practice unless they are registered with the U.S. Tax Court or are enrolled to practice in the state tax court.

Very few CPAs have been admitted to practice in the U.S. Tax Court, but most CPAs represent clients in the IRS administrative appeals process.

The proposed tax court would eliminate the current BOE administrative appeals process and take it into a California tax court, which could disadvantage taxpayers who can represent themselves in the relatively informal appeals process and CPAs who routinely represent their clients in that process.

Opponents of the measure and some legislators have identified the bills as an attempt to send business away from small-business people and toward a handful of "patrician" lawyers.

The bills appear to be stalled in the Assembly and Senate, but could be revived at any time. The bills are being supported by the SEIU, an affiliate of the AFL-CIO.

In June, Gov. Schwarzenegger is planning to unveil a reorganization plan for California's government and it is rumored that he is looking at reorganizing and consolidating the entire tax collection system.

The tax court legislative proposals do not consolidate anything, but do add another agency to state government. Therefore, it is unlikely that the governor would sign them as they currently exist, even if they made it to his desk.

The governor is attempting to keep his pledge to "blow up the boxes" of state government. After his proposal is unveiled, the Legislature will have about two months to pass the legislation or reject it.

E-Filing

Current law requires that most tax preparers electronically file state tax forms beginning this year. Failure to comply could subject the tax preparer to a fine of $50 per return not electronically filed.

AB 2480 (Campbell) would suspend the $50 penalty for a period of one year. It is an urgency statute that would take effect immediately upon signature by the governor. CalCPA is supporting AB 2480.

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