Legislature in OT: plenty of issues--from Regs to outsourcing--keep officials busy.

There was some good news for California businesses in January. A little-reported section of the California Constitution mandates that proposed laws which have not passed the house of origin by Jan. 31 of the second year of the two-year session die.

Coming up against that rule were several bills that would, if enacted, have caused extreme consternation. Most notable among them was SB 516 (Speier), which would have denied Subchapter S status to any California corporation grossing $20 million or more in revenue.

Sen. Speier amended the bill at the last minute to eliminate the denial of Subchapter S status and to simply impose a tax on Subchapter S Corporations higher than the 1 percent currently imposed, but the bill failed to meet the deadline.

Another bill, SB 766 (Florez), which would have allowed securities class action lawsuits to be filed in California courts rather than in federal courts, was also defeated by the deadline--and by sharp-eyed business lobbyists who worked the issue up until the deadline.

However, many proposals have survived the automatic death sentence and will have to be dealt with later this year. Additionally, the Legislature had until Feb. 20 to introduce new legislation.

Outsourcing

Outsourcing tax preparation to other countries is becoming a very hot issue in California and the nation. A legislative hearing is scheduled for March 9 to discuss outsourcing professional services, including tax preparation, and its impact on the economy.

At issue are security, privacy and informed consent.

Settlements, Agreements Prohibiting Complaint Filings

Of interest to the profession is AB 320 (Correa), which would prohibit any licensee under the Department of Consumer Affairs from including in a civil settlement agreement a "gag" clause provision that prohibits the other party from contacting or filing a complaint with the DCA. The sponsor appears to be the Center for Public Interest Law, which is concerned with what it perceives to be the low number of civil settlements being reported to all licensing agencies.

The center feels that doctors, insurance companies and others with mandatory reporting requirements are ignoring the requirement and have their aggrieved clients sign settlement agreements that prohibit them from pursuing complaints with the regulatory agency.

The requirement that CPAs and their insurers report civil settlements of more than $30,000 to the CBA became effective last year. AB 320 is in the Senate awaiting assignment to a policy committee.

California Board of Accountancy

The CBA is studying implementation of Section 23 of the UAA, which would allow CPAs from "substantially equivalent" states to practice across state lines as long as a notice is filed with nonresident states.

Those deliberations are being conducted by the CBA's UAA Task Force and will be the subject of a Joint Legislative Sunset Review Hearing March 30.

Out-of-state CPAs are allowed to practice in California without informing the CBA that they are providing client services here as long as the practice is incidental to their practice in another state. Requiring notice would provide additional protection to California as the CBA could then regulate the practice.

The CBA also is considering whether to apply some provisions of the Sarbanes-Oxley Act to private companies and California nonprofits.

A task force is reviewing whether to require audit partner rotation; limitation on scope of services allowable to audit clients; and requirements that the auditor report to audit committees.

The Legislature has considered some of these requirements and rejected their application to private companies.

Regulatory Update

One of Gov. Schwarzenegger's first acts upon taking office was to freeze all regulations that had not yet become effective prior to his inauguration.

CalCPA, the CBA and the Accountants Coalition immediately contacted the governor and members of his administration to urge that the accountancy reform and computer-based testing regulations be implemented.

The governor's office did approve resubmission of the regulations, which are now final.

Taxpayer Privilege

Provisions of AB 1016 passed in 2000 are due to sunset Jan. 1, 2005. This bill established conformity with the federal taxpayer privilege that applies to tax advice between a client and federally authorized tax practitioner.

The privilege only may be asserted in non-criminal matters; does not apply to the preparation of taxes; and may not be extended to advice or communication involving tax shelters.

If California fails to extend the sunset, federal taxpayer confidentiality provisions could be undermined because the Franchise Tax Board could share confidential information with the IRS.

CalCPA is working on extending or eliminating the sunset.

April Financial Literacy Month

Congress has designated every April as Financial Literacy Month.

This year, CalCPA is supporting a resolution--ACR 61--to designate April as Financial Literacy for California Month.

During this month and throughout the year, communities, CPAs and others will be encouraged to provide and promote financial literacy activities at all levels in the state to ensure that all Californians know what greater financial literacy can do for them in dealing with their everyday activities.

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