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Interstate mobility: if you think you're not holding out as a CPA in another state, think again.

You may have seen recent articles on the impact of the California Board of Accountancy's proposal on regulating interstate mobility, the formation of an AICPA Special Committee on Interstate Mobility and CalCPA's introduction AB 1868, which corrected many of the problems associated with interstate mobility. As a California practitioner you may ask yourself how all of these activities impact your practice.

WHAT'S THE BIG DEAL?

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On the one hand, much of what has occurred in California affects CPAs licensed in other states. However, the concern for California CPAs is that similar laws, rules and regulations may impact their practice--and they may not even know it. Take the following examples:

* A CPA firm located in one state recently performed an audit for a client located in another state and did not obtain a practice permit. Unfortunately, the CPA was sued for malpractice, and it included the claim that the firm was involved in the illegal practice of public accounting.

* A forensic accountant recently rendered a report for an out-of-state engagement and applied for an out-of-state permit (in this case, Hawaii) prior to providing testimony. However, the opposing lawyer claimed that the CPA was involved in the illegal practice of public accountancy in the other state when he rendered his written report even prior to providing his testimony.

In both cases, had the CPA been disciplined for the illegal practice of public accountancy and lost the right to practice within that state (which did not happen), the CPA has an obligation to report to their home state that they have lost the right to practice in another state and a disciplinary action had been taken. The CBA has the right to revoke a CPA's license even though the action occurred in another state.

HOW DID WE GET INTO THIS MESS?

This regulatory nightmare has been an evolutionary process. The Uniform Accountancy Act described what was known as "substantial equivalence" (the 150-hour education requirement, among other requirements). In those states that met the requirements of substantial equivalence, CPAs were allowed--under what was known as Rule 23-to engage in the multi-state practice of public accountancy without a permit, but with the provision that the CPA would be subject to the other state's laws.

Interstate commerce was intended to be facilitated as a result of states becoming compliant with substantial equivalence.

Problems arose when other states began to redefine substantial equivalence such that it was no longer consistent with the UAA, but rather substantially equivalent to the requirements of those CPAs practicing within their state. The CPA was then obligated to determine how each state defined substantial equivalence.

An additional problem arose when many states, including California, concluded that some form of a practice permit or registration process was necessary to determine when CPAs were involved in the practice of public accountancy within their state.

First, California concluded that a physical presence was no longer necessary to determine whether a CPA was practicing in state; rather, an "economic presence" triggered the registration process.

California also examined what constituted holding out as a CPA and, consistent with long-established sections of the Business and Profession Code, this involves placing the CPA initials on a business card or telling individuals you are licensed to practice in California.

Next, if a practice permit was to be required for those that were holding out or had an economic presence, then the CPA who wished to register should be licensed in a state that is "substantially equivalent." Not all states (including California) meet this test of substantial equivalence.

Therefore, some CPAs were precluded from obtaining a practice permit because they were from a non-substantially equivalent state, unless they had practiced public accountancy in four of the last 10 years.

Then, in the event a CPA signed a tax return on behalf of a firm, the firm should become licensed in California, which required registration with both the CBA and Secretary of State. The problem with firm registration was at least one of the firm's CPAs was required to obtain a California license (not a permit).

AB 1868 took care of many, but not all, of the above problems. You can read more about CalCPA's efforts at www.calcpa.org/californiacpa/2006/1206. A summary of AB 1868 can be downloaded at www.dca.ca.gov/cba/notices/pp-6.pdf.

THE ABOVE PROBLEMS DON'T IMPACT ME, SO WHAT'S THE BEEF?

A short trip around selected states will give you an appreciation of the magnitude of the problem:

* Washington: there is no registration requirement provided that the CPA not work more than 400 hours in any given year, not have an office in Washington and not perform any attest work.

* South Carolina: providing tax services (tax returns), consulting service or attest work requires both the registration of the firm and registration ofCPAs who practice within the state, and the payment of related fees.

* Ohio: there is no registration process and CPAs are allowed to practice within the state as long as they are licensed in their home state.

* Colorado: a recent proposal required that a practice permit could only be provided for a period of six months out of any given 12-month period and CPAs could not hold themselves out as a licensee.

Each state is unique and, in many instances, even filing a tax return according to the state statutes requires registration. Just think of all the multi-state tax returns your firm may file.

A TALE OF THREE ACCOUNTANTS

My firm is involved in the multi-state practice of public accountancy. Here's an example of our recent experience in Oregon that illustrates the complexities of this issue.

John Moyle, a partner in the firm, has practiced public accounting for more than 30 years and was required to obtain an Oregon license because he is from California, which is a non-substantially equivalent state.

Conrad Davis, also a partner in the firm, has a master's degree and also was required to obtain an Oregon license, even though he has 150 hours of education and meets the requirements of substantial equivalence. Why? Because he is from California, a non-substantially equivalent state.

I was able to obtain an Oregon practice permit (not a license). I have more than 150 hours of education, but because I obtained a Nevada license several years ago, which is a substantially equivalent state, I was not required to obtain an Oregon license.

WHAT'S THE BIG DEAL ABOUT A LICENSE VS. A PRACTICE PERMIT?

In most cases, if you obtain a license in another state, you are then subject to that state's continuing education, quality review and ethics requirements, which do not necessarily coincide with your home state CPA requirements. The recordkeeping can become rather cumbersome. In most states, if you obtain a practice permit, you are not subject to the samedegree of regulation as you would be under the licensure requirement.

WHAT WAS THE BIG DEAL ABOUT AB 1868?

As the magnitude of the problem became evident to CalCPA leadership, the government relations division was instrumental in working with Assembly Member Rudy Bermudez and introduced AB 1868.

In its final form, the bill clarified firm licensure, provided for an extended study period on the concept of the practice permit requirements, reduced the cost of the practice permit and provided for the re-introduction of the concept of "temporary and incidental practice."

The law allows out-of-state CPAs to obtain a practice privilege without licensing a partner in California or registering their CPA firm with the CBA. It also allows for incidental and temporary practice for CPAs and foreign accountants without registering with the CBA.

Under the previous law, foreign accountants trying to serve foreign companies located in California were ineligible for a practice privilege and unable to legallycome here to provide temporary and incidental services.

The CBA has begun the study required for a new regulation that defines the temporary and incidental practice of public accountancy.

With the successful passage of AB 1868, many of the immediate problems have been addressed, but much remains to be accomplished.

WHAT IS THE REALLY BIG PROBLEM FOR A CALIFORNIA CPA?

The real problem that CPAs will experience as they begin the licensing or permit process is that California is not a substantially equivalent state.

While California has a provision (Pathway 2) to certify an individual with 150 hours and one year of experience, the state still provides for opportunity for someone with four years of education and two years of experience (Pathway 1) to become a CPA.

For those CPAs in California who have opted to obtain the 150 hours of education, they may be able to obtain a practice permit or license, depending on the state requirements. CPAs who have not practiced public accountancy in the last four of 10 total years may not be able to obtain either a practice permit or a license and may not be able to obtain either a practice permit or a license and may not be able to practice within that state.

At least 31 other states require either a license or practice permit if the CPA is involved in providing a test, tax or consulting services.

WHAT SHOULD I DO?

Each firm and CPA in California should be aware of the potential pitfalls that may arise as they are involved in the multistate practice of public accountancy. In my 18-person firm, we have designated an individual who is responsible for obtaining the practice permits and licenses in the multiple states in which we practice and monitors our practice compliance.

In the short term, CalCPA should ensure that the CBA provides for realistic and meaningful regulation. California is already monitoring events at the national level, as this is not just a California problem--this is a national problem that requires a national solution.

Michael G. Ueltzen, CPA, CFE is a partner in the forensic accounting practice of Ueltzen & Company, LLP in Sacramento. You can reach him at mueltzen@ueltzen.com.

RELATED ARTICLE: AVAILABLE RESOURCES

There are several places CPAs and CPA firms can look to for insight as to whether or not there is a practice registration requirement.

* www.artberkowitz.com: An informal survey Art Berkowitz has published that provides information as to whether there is a practice permit or license requirement for CPAs involved in the rendering of tax, attest or consulting services.

* www.aicpa.org/download/_mobility_licensingrequirements.pdf: This AICPA site identifies each of the state board of accountancy and state CPA societies.

* www.aicpa.statelicencing/homepage.htm: Another AICPA site. This one offering discussion of issues affecting multi-state practice.

While some may suggest that the AICPA should go further and identify the various licensing requirements, each individual situation is so unique and the landscape of state regulations is changing on such a short timeframe, that my experience is that you are best served by making direct contact with each of the licensing organizations prior to the time the service is provided to determine what regulations apply.

BY MICHAEL G. UELTZEN, CPA, CFE
COPYRIGHT 2007 California Society of Certified Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2007 Gale, Cengage Learning. All rights reserved.

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Title Annotation:PRACTICE PRIVILEGE
Author:Ueltzen, Michael G.
Publication:California CPA
Geographic Code:1USA
Date:Jan 1, 2007
Words:1828
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