Session ends: many bills signed and thwarted that impact CPAs.

Another legislative session has ended in Sacramento. Updates on e-filing relief and the California Board of Accountancy can be found on pages 6 and 10, respectively. Other highlights include:

Taxpayer Privilege

AB 1416 (Bermudez) extends the sunset of California's taxpayer privilege to Jan. 1, 2009. CalCPA sponsored the original legislation that conformed California law to the IRC section enacted as part of the 1998 Taxpayer Bill of Rights, and also sponsored the extension.

Tax Amnesty--Enacted

SB 1100 (Budget Committee) establishes a tax amnesty period to allow individuals and corporations to voluntarily pay overdue income and sales taxes after applying to participate in the amnesty program. The amnesty period is February and March 2005, and payments must be made by June 2005. Failure to participate in the amnesty program would subject noncompliers to higher penalties and fines later.

Tax Court

SB 1424 (Burton) and AB 2472 (Wolk) proposed establishing a California Tax Court to hear income and sales tax appeals currently heard by the Board of Equalization. CalCPA has supported previous tax court legislation as long as CPAs were allowed to practice before the court. These bills would limit CPAs' ability to represent taxpayers in appeals. Legislation was not passed this year. It could be brought back next year, and CalCPA will oppose unless CPAs are allowed to represent clients without additional qualifying requirements.

FTB/BOE Trial De Novo 

SB 548 (Burton) would allow the FTB to bring a trial de novo proceeding in superior court after the Board of Equalization had ruled in the taxpayer's favor. The proposal would expose the taxpayer to double jeopardy and unfairly tilt the playing field toward the FTB. The proposal would have limited the usefulness of a BOE appeal. The FTB could be motivated to begin the entire process again in court, which would dramatically increase the length of time required to resolve tax issues and increase costs to the state and taxpayer. CalCPA and others were able to convince the author to abandon this approach and the legislation failed.

SUTA Dumping 

A last-minute amendment to AB 664 (Lowenthal) inserted California conformity to recently enacted federal law. The legislation specifically prohibits employers from setting up shell companies for the purpose of transferring all or some of an employer's workforce and payroll to decrease its unemployment experience rating. It also prohibits a new business entity from purchasing an existing small business with a low tax rate to avoid being assigned a higher tax rate. AB 664 also imposes civil penalties on employers who violate the law and criminal penalties on those who assist or advise employers to violate the law.

Special District Audits

SB 1272 (Ortiz) would have: required the state controller to perform quality reviews of audit firms every three years; allowed the controller to suspend audit firms from performing audits of special districts for up to three years; and required audit partner rotation every six years. CalCPA opposed the bill, and while it didn't pass, it may be reintroduced next session.

Nonprofit Audits/Scope of Service Restrictions

Originally, SB 1262 (Sher) prohibited audit firms from providing any services to impacted nonprofits other than tax preparation, and it mandated audit partner/firm rotation. These provisions were amended out due to opposition from the nonprofit community and the CPA profession. SB 1262 also proposed mandatory audits for all nonprofits with annual revenues of more than $500,000. Due to opposition, the limit was raised to $2 million and revenue was defined to eliminate some nonprofit audits. Auditors of nonprofits will be required to adhere to "Yellow Book" independence standards. The bill is awaiting action by the governor.

School District Audit Issues

CalCPA has been lobbying to clarify the existing school district audit partner rotation requirement this year. Legislation was amended in June to make it clear that firms could use the same reviewing and managing partner for audits of school districts for six years and that as long as the partners were rotated prior to the seventh year, the firm could continue to perform the audit. On Aug. 4, the Department of Finance expressed concern about the clarifying language and had it removed from the legislation. After several meetings with the Department of Finance and Administration representatives, it was decided that CalCPA will leave the issue unresolved for this session and pursue clarification in 2005.

Elder Financial Abuse

AB 2474 (Wolk) 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 have been a misdemeanor subject to six months in jail and fines or, if serious physical harm occurs, the CPA would have been subject to one year in jail and additional fines. CalCPA opposition resulted in amendments to exempt CPAs from the mandated reporting requirement. The bill's final version added banks and other financial institutions to the list of mandated reporters. AB 2474 did not pass, but the author plans to reintroduce it next session.

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