Taxpayer Privilege Bill Heads to Third Base.

Once left for dead in committee, Assembly Bill 1016 (Briggs), CalCPA-sponsored legislation to enact a state taxpayer privilege statute, recently was given new life as it breezed through the Senate Revenue and Taxation Committee on a 6-to-1 vote.

In 1999, veteran lobbyists were stunned when the Revenue and Taxation Committee defeated AB 1016 during its initial appearance on a 4-to-3 party line vote. Until then, the bill, which will conform California to federal legislation, had sailed through its hearings unopposed.

The initial AB 1016 opposition, lead by Sen. Deborah Bowen (D-Torrance), revolved around concerns that CPA-taxpayer privilege would:

* Allow taxpayers to commit tax fraud more easily;

* Impact the audit process if clients could conceal material facts from their auditors;

* Adversely affect the state's ability to discipline CPAs; and

* Create a competitive advantage for CPAs and enrolled agents over tax preparers.

SPRINGING INTO ACTION

Following its initial defeat, CalCPA's Action Network sprang into action. CPA volunteers, armed with talking points and appointments, met with senators. In teams of three or four constituents, these CPAs explained AB 1016's nuances and the importance of conformity for California taxpayers. During their visits, the CPAs reviewed other important professional issues such as national reciprocity and the upcoming California Board of Accountancy sunset hearings.

While constituents met with their senators, CalCPA staff broadcast two alerts that asked CPAs to contact Senate Revenue and Taxation Committee members. CalCPA representatives followed up with the legislators, met with Department of Finance staff and approached other associations to garner support for the measure. Additionally, to assuage concerned senators' fears, the bill was amended to provide for a Jan. 1, 2005 sunset. It also was amended to specifically state that taxpayer privilege could not be used in disciplinary matters before state licensing bodies.

A year's worth of effort culminated when the bill passed the Revenue and Taxation Committee without debate.

According to Mike Ueltzen, Government Relations Committee chair, "Although this bill is important to the CPA profession, it can be vital to taxpayers. I was impressed with our CPAs' ability to turn their senators around on this issue."

Looking forward to the sunset process and implementation of the national standardized license proposal, Ueltzen believes that the need for constituent involvement will continue to grow. He says, "It is increasingly clear that only those professions which have effective grassroots programs and a strong professional lobbying arm like CalCPA's will be able to effectively influence public policy in the coming decades."

WHY CONFORM?

AB 1016 is a simple bill that conforms California law to the changes made in federal law when Congress passed the 1998 IRS Restructuring and Reform Act. This act established IRC Sec. 7525 which reads, " ... with respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner (CPA, attorney, enrolled agent, enrolled actuary) to the extent that the communication would be considered a privileged communication between a taxpayer and an attorney."

This taxpayer privilege is limited to tax advice, although it excludes advice regarding tax shelters. Taxpayer privilege only may be asserted in non-criminal situations.

Until California tax law conforms, matters that are deemed confidential at the federal level are discoverable for state tax purposes. When the tax advice is disclosed at the state level to the taxing authorities, such as the Franchise Tax Board, Board of Equalization or Employment Development Department, privilege is waived. The advice, once disclosed to these authorities, would become discoverable by the IRS and the client's right to confidentiality is lost. The current lack of conformity deprives California taxpayers of Congress' intended benefits.

AB 1016 now heads to the Senate Judiciary Committee. Most Judiciary Committee members already have been contacted by their constituent CPA teams, however we encourage you to contact your senators and urge their support of AB 1016.

For the latest information on AB 1016 and other important professional issues, log on to CalCPA's members-only, interactive government relations Web site, www.calcpa.irisl.com. On your first visit, you'll be required to fill out an application. After membership is verified, you are welcome to review the site's materials, including the hundreds of bills that CalCPA is monitoring.

Bruce Allen is CalCPA's government relations director.