Practice privilege: CalCPA-supported AB 1868 amended.

CalCPA is sponsoring AB 1868 (Bermudez), which would make substantial corrections to California's practice privilege statute that went into effect Jan. 1, 2006.

[ILLUSTRATION OMITTED]

The bill is supported by the California Board of Accountancy and until it was amended, the Center for Public Interest Law, Consumers Union and the California Attorney General aggressively opposed the bill. They were concerned that the legislation would allow the sale or promotion of abusive tax shelters to Californians with impunity.

Nothing could be further from the truth. Abusive tax shelters are illegal under federal and California law.

As proposed, AB 1868 would have allowed out-of-state CPAs to perform tax services for California business clients without obtaining a practice privilege or license from the CBA--as long as the CPA did not physically enter California or solicit California clients.

The exemption would have been in place through Jan. 1, 2011, so that a long-term solution to practice privilege issues could be worked out without impacting state taxpayers.

Interpretation of California's current practice privilege statute would require an out-of-state CPA performing tax services for a business headquartered in another state, but having some physical presence in California, to register with the CBA to provide those services.

This is an overly broad interpretation, that if adopted by other states, could require CPAs to register in all states where their clients have operations.

CalCPA agreed to the removal of the exemption for tax services and instead language was inserted in the bill to encourage the CBA to adopt a lower fee to obtain a practice privilege for those out-of-state CPAs providing tax services to California businesses.

With that amendment, all opposition to the bill was dropped and it is anticipated that it will be enacted in August.

CPAs who provide tax preparation services to individuals or estates will not be required to notify the CBA of their activities as long as the estate relates to an individual who was a client at the time of death.

AB 1868 will allow CPAs to provide other services in California through practice privilege without requiring that the firm be fully licensed in California.

As envisioned, California's practice privilege statute would allow for ease of movement across state lines and increase consumer protection by allowing the CBA to know which out-of-state CPAs were providing services to California clients.

As implemented, it was making it difficult for out-of-state CPAs from smaller firms to legally provide services, and an oversight in the law did not allow foreign accountants to obtain a practice privilege or to provide services incidental to an engagement in another country. AB 1868 removes the obstacle for foreign accountants, who will be allowed to practice here as long as it is incidental to an engagement in their home country and is performed under the standards of that country.

CalCPA's hope is that reasonable regulation here will support reasonable regulation by other states.

The AICPA recently appointed a Mobility Task Force to review issues related to impediments to practice across state lines. Michael Ueltzen, a former CalCPA chair and former chair of CalCPA's Government Relations Committee, has been appointed to that task force. CalCPA will continue pursuing a long-term solution that will protect consumers and remove unreasonable impediments to interstate commerce.

Tax Amnesty 

The Legislature hopes to increase state revenue by implementing a tax amnesty period for the Franchise Tax Board and Employment Development Department, and AB 2344 (Chu) has been amended to call for the amnesty. The stated purpose is to close the "tax gap" by encouraging voluntary compliance.

The proposed FTB amnesty period is Feb. 1-May 15, 2007. The EDD period is July 30-Sept. 30, 2007. In addition to providing for the amnesty, the bill creates penalties that will be applied to all tax-payers and changes the burden of proof.

The standard changes from what tax practitioners knew to what they "should have known"--an impossibly high standard and different from federal law.

CalCPA opposed the bill because of the broad application of penalties and the change in the burden of proof. After several meetings with the bill's author and sponsor, conceptual agreement has been reached that the burden of proof remain what practitioners "knew" and it will be made clear that the penalties only apply to tax evasion situations.

Trustee Licenses

SB 1550 (Figueroa) would have required individuals acting as conservators, guardians or trustees for two or more unrelated individuals or trusts obtain a license from a Professional Fiduciaries Board.

The bill's intent is to replace the existing Attorney General registry list with the full licensing requirement. The bill is sponsored by an association that represents 270 individuals who call themselves as professional fiduciaries.

The bill was introduced by the senator in response to a series of articles in the Los Angeles Times regarding the financial abuse that some individuals have experienced due to the criminal behavior of their conservators or guardians. Attorneys and financial institutions were amended out of the bill, but CPAs remained, despite CalCPA's active opposition to the measure.

Figueroa has agreed to amend out CPAs acting within the scope of their license from the requirement to become licensed as professional fiduciaries. This was done at the urging of the individual legislators and others who pointed out that none of the 2,400 cases reviewed by the Los Angeles Times related to a CPA. Figueroa said she had found the same results.

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