Practice privilege: out-of-state CPAs must register with CBA as of Jan. 1, 2006.

In January 2006, a new law goes into effect in California that requires out-of-state CPAs who want to provide services to California residents to file for a practice privilege permit with the California Board of Accountancy and pay a registration fee of $100 for the one-year permit.

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The permit will be available online at www.dca.ca.gov/cba. The registration form is required of any out-of-state CPA prior to rendering services in California. Additionally, the CBA also is requiring that CPAs who prepare business tax returns for California residents file with them prior to undertaking the assignment.

Recent legislation will exempt CPAs, who prepare a small number of personal or estate tax returns, from the registration requirement.

Easier, Not Harder

In taking this action, California becomes one of 23 states that already have adopted a registration requirement for out-of-state CPAs providing services to their residents. As originally envisioned, the practice privilege notification requirement was designed to provide for ease of transition among states by allowing out-of-state CPAs to provide seamless services across state lines without obtaining a full license in all of the states where they have clients.

California's practice privilege requirement will replace a section of California's Accountancy Act that allowed out-of-state CPAs to provide non-attest services to California clients as long as they were incidental to the practice of accountancy in another state. The CBA found that this old statute was inadequate and difficult to enforce since practitioners' definitions of "incidental" varied tremendously.

The new practice privilege will provide the CBA with increased opportunity to protect California consumers by letting them know who is practicing in California and provide them with an expedited method of bringing discipline against out-of-state CPAs who may run afoul of the law. Those applying for a practice privilege permit have to agree to abide by California's rules for professional services and to the CBA's authority.

Exemption for Some

Recent legislation, SB 229 (Figueroa), gives the CBA authority to exempt CPAs who file a small number of personal or estate state tax returns from the requirement to obtain a practice privilege. The exact number of personal and estate tax returns is to be determined by the CBA during the regulatory process.

The CBA has repeatedly refused to exempt tax practice from the notification requirement as tax practitioners can cause tremendous consumer harm. In fact, CBA has had difficulty with CPAs licensed in bordering states that have substantial tax practices in California.

Outside of California

CPAs who provide services, including tax preparation and planning, to residents and business located in other states are encouraged to contact those states to determine if they will be required to file a practice privilege notification with that state.

At this time there is no central repository for information on other state's requirements. CalCPA has encouraged the CBA to develop information or see that the National Association of State Boards of Accountancy develops information that can assist CPAs in complying with the requirement.

The National Association of State Boards of Accountancy is working on developing a website that would clarify each state's requirements. In the interim, the best site is www2.state.id.us/boa/htm/states.htm.

California CPAs are encouraged to find out what the requirements of other states are to ensure that they are in compliance with any registration or licensing requirements in those states prior to rendering services to residents of other states.

New Member for CBA

Gov. Schwarzenegger has appointed W. R. "Bill" MacAloney to the California Board of Accountancy. MacAloney is founder, president and CEO of Jax Markets, a small chain of grocery stores based in Anaheim.

MacAloney has been active in the California Grocers Association the Villa Park City Council and served as mayor of Villa Park for several years.

MacAloney replaced Ian Thomas, a Gray Davis appointee, who resigned from the CBA when his term expired in November 2004.

MacAloney will serve through November 2008 and will be eligible for reappointment.

Reportable Events: Non-CPA Owners

In addition to providing practice privilege relief, SB 229 would require that non-CPA owners of CPA firms be subject to the reportable events standards applicable to CPAs.

This would include being required to notify the CBA within 30 days if they have had a judgment or arbitration award of more than $30,000 entered against them in a civil action.

CPAs also are required to report to the CBA if they are the subject of an investigation, inquiry or proceeding by or before a state, federal or local court or agency, including the Public Company Accounting Oversight Board, involving conduct related to services provided by them.

SB 229 passed the Legislature and in mid-September was awaiting the governor's signature.

For updates on SB 229 and other legislation, access Capitol Track at www.calcpa.org/members/gr.

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