New faces on CBA: Petersen, Chi appointed to CBA; practice privilege modifications.

Gov. Arnold Schwarzenegger appointed CalCPA members Robert Petersen, CPA, and Angela Chi, CPA, to the California Board of Accountancy March 15. The appointees replace CalCPA member Charles Drott, who resigned from the board, and CalCPA member Olga Martinez, whose term expired.

Martinez and Drott were appointed by former Gov. Gray Davis. Drott resigned and vacated his seat in 2005. Martinez's term expired in November, but continued serving a grace period.

Martinez serves as editor of the East Bay Chapter Bulletin and is with the firm of Glenn Dawson, LLP in Walnut Creek. Despite a busy tax practice and the personal sacrifices that had to be made, her attendance at CBA meetings was exemplary and participation in CBA meetings was a priority. The profession owes a debt of gratitude to Martinez for her service on the board during a very volatile time.

Saratoga resident Petersen has been a partner with Petrinovich, Pugh & Co since 2001, when he combined Petersen & Associates with the firm. He is a former CalCPA president and up until the time of his appointment was CalCPA Government Relations Committee chair.

Petersen has been active in both CalCPA and the AICPA, and is a popular tax and ethics instructor with the California CPA Education Foundation.

Chi, from Fresno, also is active in CalCPA and serves on the Fresno Chapter board of directors. She is a partner in Watts, Campbell, Chi and Baker and is an AICPA member.

Petersen and Chi attended their first CBA meeting March 16-17.

California's Practice Privilege Law to be Modified

A law became effective in January that required out-of-state CPAs providing any service to a California client, other than personal and estate tax returns, to obtain a practice privilege from the CBA. Immediately after the law's implementation, significant unintended consequences surfaced--and CalCPA sprung into action.

California's new law had replaced the old incidental and temporary exemption law that had allowed out-of-state CPAs and foreign accountants to provide services to clients in California as long as those services were incidental to their practice in another state or country.

The old exemption allowed practitioners to physically enter California to provide those services.

In January, that law was replaced with a requirement that out-of-state CPAs obtain a practice privilege, and foreign accountants would not be able to practice in California without a license.

The consequence of this change was significant given that California is host to a large number of publicly traded foreign corporations that are traded on foreign stock exchanges and that foreign accountants need to enter California to provide audit services to those companies, thus under California's new law, these foreign accountants could be barred from performing such services in California.

In January, the CBA agreed to pursue language to resolve that issue, but postponed consideration of other significant issues until a special meeting in February.

At the February meeting, the CBA, in recognition of the unintended consequences of its practice privilege implementation, took several actions designed to provide relief to out-of-state CPAs who have experienced difficulty complying with California's new law.

While the practice privilege program is still in place, amendments will be made to urgency legislation (AB 1868) that is working its way through the Legislature to make temporary--through Jan. 1, 2011--changes to California law that will allow out-of-state CPAs to:

* Provide tax services to California clients without a practice privilege if the CPA does not:

1) Solicit California clients;

2) Physically enter California; and

3) Imply that they are registered with or licensed by the CBA.

* Obtain a practice privilege without requiring that the firm register with the CBA, California Secretary of State or California Franchise Tax Board.

The bill also will provide for a limited temporary practice without registration as long as:

* The practice is incidental to practice in another state;

* California clients are not solicited; and

* There is no assertion that the individual or firm is licensed or registered to practice in California.

Unregistered individuals and firms that are providing services will be subject to the CBA's authority.

The Center for Public Interest Law is opposing the provision that would allow out-of-state CPAs to provide tax services without registering with the CBA (even though the out-of-state CPA may not physically enter California or solicit California clients).

AB 1868 is consistent with the laws of the majority of states that allow out-of-state CPAs to perform tax services without obtaining a license or registration. There has been no documented consumer harm directly related to this common form of cross-border practice in the 60 years that incidental and temporary practice was allowed.

The necessary amendments to California law adopted by the CBA have been inserted into AB 1868, which, at press-time had passed its first policy committee hearing in the Assembly on a 9-to-0 vote. The bill is an urgency measure that would take effect immediately upon being signed by the governor.

CalCPA will be aggressively pursuing this legislation, which is supported by the CBA, several other state CPA societies and the large accounting firms.

Preserving taxpayer choice is important to all CPAs. It is imperative that artificial barriers to service be eliminated. CalCPA will be working to standardize state laws to ensure that California CPAs do not face similar barriers in other states.

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